Just as can happen with your physical and mental health, your personal financial health can be impacted by forces beyond your control. Physical health is affected by a combination of behavior, genes and access to good medical care. Similarly, financial health is a result of personal decisions, the performance of the economy and access to good, unbiased financial services and advice.
Financial pressure is often one of the most significant stresses that equine veterinarians endure. Whether this burden is the result of educational debt, difficulty paying practice bills or personal income that fails to meet the needs for one’s life, it can negatively affect both physical and mental health.
Monetary troubles can sometimes persist throughout a career as an equine veterinarian. Many new practitioners begin with significant student loans, some experienced practice owners struggle to grow their businesses profitably and scores of retiring veterinarians have difficulty selling their practices at the value they expect. At each of these stages, challenges with money management can strongly impact life outcomes, mood and stress-related illnesses. Education and an intentional focus on financial planning can help mitigate these effects.
New practitioners often struggle with student loan payments. The average educational debt for 2016 veterinary school graduates, including those with zero debt, was $143,757.82. The average for only those graduates with debt was $167,534.89, and more than 20% of those had at least $200,000 of debt.
The debt-to-income ratio (DIR) of 2016 graduates was 2:1, indicating that average debt was twice the average starting salary. Experts recommend a DIR of no more than 1.4:1 to avoid financial stress. This heavy burden at the beginning of a career sets the stage for fragile financial health.
As awareness of the significance of educational debt has grown, the veterinary industry has responded. Many resources have been developed for prospective students, veterinary students and new graduates to educate them about the financial realities of pursuing a veterinary medical education.
A Student Debt Summit was held at Michigan State University in 2016. At the Annual AAEP Convention held in Orlando, Florida, Tony Bartels, DVM, MBA, of VIN, gave an excellent presentation on managing student debt.
The AVMA website provides a number of tools for comprehensive assistance in navigating the loan payment options available through various governmental programs. You can go to avma.org and search for “Scholarship Loan Repayment” to find that information.
Creating a good life while burdened with high educational debt can be challenging. The “normal” activities that should be affordable for a highly educated professional—buying a car, buying a house, having children or buying shares in a practice—can feel out of reach, and that can seem horrifically unfair. Despair and depression can follow.
The creation of a financial plan with the help of a financial advisor can introduce a sense of control, provide hope and minimize these negative emotions. When uncertainty is reduced, anxiety is also lessened.
When vets become practice owners, their incomes generally rise as they share in the firm’s profits. Debt-burdened new graduates often feel that they cannot afford practice ownership.
However, if a practice is valued properly, the profit the buyer receives for his or her share should fully service the principle, interest and tax burden on the purchase.
Meanwhile, the compensation earned for his or her effort as a veterinarian should not change. Consequently, equine practitioners should strongly consider embracing practice ownership as a strategy for financial success.
Managing a Profitable Practice
A veterinary practice must be managed with intention in order to be profitable. Veterinarians in mid-career often become so busy serving clients that they do not have time to spend on business management, and many do not have any idea of their profitability; they monitor only the growth of their revenue.
Because expenses can eat up most of that revenue, practice owners might be unaware of how financially unhealthy their practice actually is unless they attend to its vital signs.
Profit can be a significant source of compensation for the hard work of being an equine veterinarian, so creating a healthy net return is essential.
The middle decades are typically a time of wealth accumulation; having a robust stream of profit allows this to happen.
To have a profitable business, you must manage expenses carefully, charge appropriate fees, minimize discounting and work diligently to avoid excessive accounts receivable. When rising expenses are not offset by rising revenue, profit suffers. The costs of pharmaceuticals, telephone service, insurance and utilities tend to increase every year, so healthy practices make sure to increase their fees accordingly. Practices that have strong leadership and established policies and procedures typically have greater financial health.
Business management education enhances veterinarians’ financial wellness. Fortunately, there are multiple opportunities to gain business acumen; EquiManagement has online and print resources for many business topics. In addition, the AAEP offers “ The Business of Practice” sessions at each annual convention.
The AVMA’s economics division likewise has a number of resources on its website (go to avma.org and search for “Practice Management”). There also are various veterinary business management firms offering educational seminars and networking groups.
By becoming versed in effective business strategies, veterinarians can become more valuable associates and/or more successful practice owners.
As equine veterinarians near retirement, they often hope to augment their savings with funds from the sale of their practice equity. Because practice value is strongly tied to profitability, aging practice owners must diligently apply best practices to maximize the value they receive from this asset.
Typically, the process of preparing a practice for sale at retirement requires three to five years. In the event of an unexpected sale due to illness or injury, the potential for lost value can be significant. However, if a practice has been well-managed for profitability throughout its lifespan, a negative outcome can be avoided.
Financial literacy is what you know, and financial health is the outcome of using what you know. If there is a large gap between your knowledge and your behavior, your financial health will suffer. Financial health requires personal responsibility. Excellent financial health means you can readily manage your day-to- day financial life; you can easily absorb a financial shock or loss; and you’re on track to meet your financial goals.
To assess your financial health, start by calculating your net worth—the difference between what you own and what you owe. Start by making a list of your assets (what you own) and your liabilities (what you owe). Then subtract the liabilities from the assets to arrive at your net worth figure.
At the beginning of your career, you might find that you have a negative net worth, with liabilities greater than your assets. Remember that your net worth only represents where you are financially at a moment in time, and the real value comes from making this calculation on a yearly basis to allow you to evaluate your progress, highlight your successes and make necessary course adjustments.
Equally important is developing a personal budget. Created on an annual basis, a personal budget is an excellent tool to help you plan for, reduce or eliminate expenses; save for future goals; spend wisely; plan for emergencies; and prioritize spending and saving. Creating a personal budget simply requires making projections of your future income and expenses. Your income could come from:
- child support
- interest and dividends
- rents paid to you
Your expenses can include many of the following:
- debt payments—educational loans, auto loan, credit cards
- food—groceries, dining out
- education—daycare, preschool, tuition, books, supplies, kids’ music/swimming/ ballet lessons • entertainment and recreation—sports, hobbies, movies, cable TV, concerts, Netflix
- giving—birthdays, holidays, charitable contributions
- housing—mortgage or rent, maintenance
- insurance—health, home/renters, auto, disability, life, long-term care
- medical/healthcare—doctors, dentist, prescription medications, other known expenses
- personal—clothing, hair care, gym membership
- savings—retirement, education, emergency fund, health savings account, specific goals (i.e., vacation)
- special occasions—weddings, anniversaries, graduations, Bar/Bat Mitzvah
- transportation—gas, tolls, parking, oil changes, tires, car repairs
- utilities—landline and mobile telephone, internet, electric, water, propane, fuel oil, garbage
After projecting your income and expenses, check to see if your budget balances. If you have money left over, you can decide how to spend, save or invest the money. However, if your anticipated expenses exceed your income, you will have to adjust your budget by increasing your income (adding more shifts at work or producing higher revenue) or by reducing your expenses.
Most people will spend more money if they have more money to spend. As veterinarians advance in their careers and earn higher salaries, usually they increase their spending.
Recognize that lifestyle inflation can be damaging, because it limits your ability to build wealth. You must be mindful of the difference between needs and wants when making spending choices.
“Needs” are things you have to have in order to survive: food, shelter, healthcare, transportation, clothing and savings.
Conversely, “wants” are things you would like to have, but that you don’t need for survival: tropical vacations, lavish gifts or a big-screen TV.
To maximize financial health:
- Spend less than you earn. This is the foundation for financial health. You can’t get out of debt or save for the future if your expenses eat up all your income.
- Pay bills on time. Manage your cash flow and meet your Financial obligations. Missing payments costs you money in late fees, hurts your credit and causes stress.
- Build an emergency fund that can help you weather unexpected expenses. Saving six months of living expenses is a common recommendation. Even as little as $500 can be help when you have a serious financial setback, so don’t neglect saving just because you can’t save a lot. Developing a habit of saving regularly so you continually replenish your account.
- Make and meet savings goals. These should include retirement savings, but can also include buying a home, a new car or saving for your child’s college education. How much you need will vary by your age and circumstance, but setting aside money regularly is necessary.
- Have a sustainable debt load. This may mean driving your old car longer or buying less than your dream house, but retiring your debt as soon as you can, especially any educational debt, is crucial. Avoid credit card debt because of the high associated interest rates. Pay your bill in full every month or pay down higher interest cards first if you have limited cash.
- Monitor your credit score. Because the score measures how well you repay debt, good credit is a safety net in case you need to borrow money. Bad credit can increase your insurance premiums, increase interest rates on loans, prevent you from qualifying for an apartment and force you to pay larger deposits for utilities.
- Insure against financial shocks that could devastate your financial future. Medical bills, liability lawsuits, natural disasters or the death of a family member can have disastrous consequences. Essentials include health insurance, homeowners or renters’ insurance, auto insurance with liability limits at least equal to your net worth, life insurance and disability insurance.
Financial wellness supports both physical and mental wellness and helps veterinarians have full and contented lives despite the stressful nature of the equine veterinary profession.
Throughout their careers, practitioners are well-served by utilizing the resources that are available to increase their business and financial literacy and managing their money in ways that build financial security.