The Chiropractor's Dilemma: Pay Off Debt or Save for the Future?

Debt has become a way of life in the financial experience of most chiropractors. All of the acquisition debt created from student loans, purchasing homes, cars, practices and equipment, begins to accumulate an ever-increasing financial and emotional burden on the practice owner and their family. This is not normal, yet this burden becomes chronic and impairs the happiness and well-being of those involved.

Good vs. Bad Debt

You should strive to get out of debt, right? Of course! But let's get clear on what kind of debt we are talking about. The debt needed to purchase a clinic or piece of real estate is actually desirable debt, because you can employ those assets to make income and create some tax advantages. The debt to get rid of is the consumer debt: credit cards, home mortgages, car loans, student loans, etc., because they provide no additional economic value in exchange for the interest paid to acquire them.

Should I pay off my debt before I save for the future? While it appears this is an "either/or" question, it isn't. It is actually a "both/and" question. In truth, you can either have an abundance mentality or a scarcity mentality. If you have a perspective that money is scarce, then you will fall into the trap of having to choose between the expenditures of paying off debt or saving. If, however, you understand the truth and see money through the viewpoint of abundance, then you will be able to save, pay off debt and have more money to spend on your lifestyle.

You've probably heard financial authors and experts promote the idea that you should get out of debt before setting anything aside for the future. It sounds so good, but it isn't the answer. Here's why...

Paying Off Debt Does Not Create a Future

Financial planning is about paying for future expenses. Having money available to create future income requires that you take a portion of your income now and set it aside before you spend it on current living expenses. If those current living expenses include payments on debt, then you are using the income you make today to pay for past consumption.

Establishing future goals and aligning your current financial resources to them is far more important than paying off past debts. Your future is forever and debt is temporary. There will be many times during your life when you will need to use the tool of debt to make purchases – cars, homes, etc. – if you don't have the cash. But you have a finite lifespan that puts a time limit on this Earth. Every moment you delay puts your goals further out of reach.

The correct sequence is to provide for your future by 1) saving; 2) continuing to produce more income in your practice; and then 3) reconciling the past by paying off debt. If you only pay off the debt with your current income, then you are only trying to reconcile the financial past by eliminating a financial future.

Spending & Saving Habits

Making the decision to pay off all of your debt is great. But without a firm commitment not to use debt in the future, then a constant game of debt-payoff-debt-payoff ensues. Too often, doctors only pay off debt to go right back into it again, since the resolution was not made to avoid debt going forward.

Why does this happen? Because you never truly confronted the reason why you couldn't or wouldn't delay your gratification, regardless of your cash resources at the time. This habitual behavior must be resolved to make any real forward progress. I suggest your goal is to operate your life on all cash and use debt only for business uses.

When you pay off all your debt, you will then start saving, right? Wrong. You never will have established the habit of saving money from your earnings first. You will get the debt paid off and will experience an increase in cash flow, allowing you to finally buy that next "necessity" you had your eye on. But time will go by and money will not accumulate. I have never seen it occur any other way – not once. The habit must be adopted and drilled in, even though it may be uncomfortable at first.

The Largest Debt You Have is to Yourself

One of the basic principles of financial prosperity is to pay yourself first. Commonly, a figure of 10 percent of gross income is used, and this payment to yourself must be treated as the most important bill you pay every month. Otherwise, you will end up paying everyone but yourself and will have no money.

By the way, this is the absolute minimum, as it actually takes more than that amount of savings to have any shot at replacing your current income from other sources while you're alive.

According to this principle, you have owed yourself at least 10 percent of your gross earned income since you started in practice. What has been your total income earned over your working lifetime? Multiply that by .10.  If the amount of money you have saved plus interest exceeds that amount, then you are not in debt to yourself. If, however, you have earned, say, $3 million over the past 20 years, then 10 percent is $300,000 plus interest (probably an account balance of around $500,000 or more). If you are short of this figure, then the difference between what you have and what you should have is your debt amount.

This is a debt to yourself, which is actually more important than your mortgage, credit cards, student loans or any other debt.

The Magic of Always Paying Yourself First

Something magical happens when you pay yourself first. You reward and validate your success by making sure that money gets applied toward your bright, expansive future. You get an emotional lift that translates into being a more productive and well-compensated doctor. Yes, I see it happen time and time again – once you decide to fund your financial future, you start making more money. Try it for yourself. Magic!

It takes a commitment to plan for your future when the present debt load seems a bit overwhelming. You have the same concerns every other doctor has: Will I make enough income? Will my debts get the best of me? Can I keep it all together? Yes, you can.

If you follow this process, you will be amazed at the results. You will have money set aside in an account that will continue to grow as you keep adding a portion of your current income to the pot. At some point in the near future, you will look at the balance in disbelief that you could have accumulated such a large amount of money. And you didn't even miss it!

And the debt? Oh, that. Well, that is paid off (or almost paid off) now, simply by following a debt reduction schedule and paying them off one by one.

P. Christopher Music is a financial planning expert and best-selling author who has appeared on NBC, CBS, ABC and FOX affiliates nationwide and been published in Forbes, The Wall Street Journal and various health care industry publications. He is the president of Econologics Financial Advisors and is known as "The Financial Prosperity Coach." Learn more at www.pchristophermusic.com.