THE THRIFTY DENTIST

On the edge of “affluenza,” Steph and Steven pull back and decide to live more modestly

LIVING BELOW YOUR MEANS can mean different things to different people. For Dr. Stephanie Aldrich of Copley, Ohio, it meant backing out of a deal to purchase a dream home when the price wasn’t right—even though she has a nearly million-dollar practice.

Steph, as she likes to be called, opened Akron Dental Concepts in March 2000. Her business started growing by about 10 to 15 percent annually after she began accepting insurance, and it’s been about even for the last two years in the aftermath of the recession. Most other private dental practices in her area don’t accept any PPO plans.

At thirty-nine, she lives on less than half her net income—not a difficult feat for a dentist, but a noteworthy one when so many of her colleagues seem bent on living a lavish lifestyle.

“The general public thinks that dentists are rich and drive fancy cars and live in expensive houses. And some of them do . . . [but] I have decided to break the stereotype,” Steph told me.

Why might she want to do that? Consider the extreme price tag for dental school and the burdensome loans necessary to establish a successful practice.

In Steph’s case, that amounted to $176,000 for her studies, $250,000 to buy and renovate her first practice in 2000 from a dentist who was selling, and $252,000 to buy and renovate an adjoining practice in the same building in 2005. That’s a total price tag of $678,000 before you factor in the interest.

“I know how [it] feels to be in debt up to your eyeballs and to know that it all lies on your shoulders,” she says. “A couple of years ago when I was pregnant with my son, I told myself that I didn’t want to ever borrow money from a bank again if I could help it. I want to pay everything in cash, and if I don’t have enough cash for the purchase, then I have to wait for it.”

To be exact, Steph lives on 44 percent of her income and is the primary breadwinner in her family of three, while her second husband, Steven, studies to be a dental hygienist.

She gives herself a weekly stipend for spending and avoids credit cards at all costs. Whatever doesn’t get spent at the end of the week makes it back into a spare money jar.

“I feel that just because you have a high-paying career, business, or job that you can still clip coupons and not have the latest iPhone that’s out there—I still use a regular cell phone with no data plan, just text and talking,” she says. “I don’t need it. If you want to get ahold of me, I’m either at home or I’m at the office.

“It’s funny, I’ve sacrificed [by doing everything from] staying after work to paint my office so I didn’t have to pay a painter to do it to doing my own website—I learned how to do it and all about search engine optimization.”

Frugality was practically coded into Steph’s DNA from birth. Her father often held two jobs to feed his family of four and her mother pinched the pennies that came into the house.

“Early on, I watched my mom stretch the dollars that my dad gave her. She always had a stash of cash somewhere. Either for birthday presents for us, or for school clothes, or for Christmas. It wasn’t until I was an adult that I realized how much money my dad really made. Some people would think that it wasn’t a lot, but I never felt like I didn’t have anything.

“We always had toys. We always had clothes. We always went on vacations. I guess there were things that we didn’t have, but to this day I still couldn’t tell you any of them. Somehow my mom stretched those dollars and made us feel rich.”

When it came to her days of higher education, Steph paid the bill through a combination of federal student loans, scholarships, and grants, plus some parental contributions during the undergraduate years. She also followed her dad’s lead and held two jobs on campus.

“I saved my money working my summer jobs so that I could party with all the other kids. In dental school, I definitely didn’t have any extra money, so I worked at a pizza shop for three years, twenty hours or more, and used that money to help pay my utilities and living expenses.”

Yet for all the messages about living below your means that she had internalized during her middle-class upbringing, she was a hairsbreadth away from living a financially high-voltage lifestyle when she had a brush with trying to play the role of the affluent dentist. Such a misstep would have meant extending her student loans and the loans for her practice way beyond 2013, when they’d otherwise be paid off.

It all started when Steph and Steven were tempted to play keeping up with the Joneses with another couple in their neighborhood. Let’s call their “friends” the Johnsons.

The Johnsons convinced Steph and Steven to join a local country club with a nearly $4,500 initiation fee so they could all hang out and play golf. But Steph and Steven never once hit the links or socialized with the Johnsons when they did join.

“After two years of feeling inadequate with the country club patrons, we quit. We spent thousands of dollars a month trying to fit in at a place that just wasn’t us,” Steph says.

And back when the Johnsons were getting ready to build their dream house, Steph and Steven also got caught up in the excitement.

So they bought some land in 2009—a deal that was contingent on getting a loan for the dream home—and told the Johnsons’ award-winning builder that they wanted a 3,200-square-foot ranch for $400,000. But when the architectural plans came back, they were way overbudget.

“We got the quote back from the builder and it wasn’t even close to $400,000. It was $699,000 and it didn’t even include a finished basement!” Steph recalls. “When I saw that quote, my heart sank. I didn’t want to spend that kind of money on a house. Could I have done it? Absolutely. I could have taken out a jumbo loan for thirty years and put every last dime I had saved into the down payment. But I knew in my heart I couldn’t do it. I didn’t want to put my husband or me in that predicament.”

The Johnsons went on to build their dream home for even more money than Steph was quoted. Steph, meanwhile, declined the builder’s quote and got out of the land deal without losing a penny.

“The architecture plans were around $2,600,” Steph says. “I still have those plans and once in a while look at my expensive pieces of paper . . . Ouch! But that money was worth it to me [instead of] making a [big] mistake that would put us in the hole!”

Instead, she and Steven found a twenty-year-old existing home in a rural part of the Akron metro area for less than half the price tag of their “dream home,” put 10 percent down, and got a fifteen-year mortgage at 3.25 percent.

“My property taxes are less for two acres than they were for the .25 acre lot I had in the ’burbs. My house payment is $500 more a month than my other house, but I only have fourteen years left on it instead of twenty-two years and I’m only paying a grand total of $29,000 on the debt over the entire loan compared to over $100,000 I would have paid for my other house at 6.25 percent for thirty years,” Steph says.

“It may be considered a ‘rich dentist house,’ but with house prices the way they are around the country, I got a great deal on it. It needs some work and we will be doing that over the next few years—doing a lot of it ourselves.”

And how are the Johnsons doing in their dream home?

“Well, they’re in the middle of a divorce right now, and their house is up for sale at their rock-bottom price. They just want to get out from underneath it. It’s sad,” Steph says. “But I didn’t want the pressure that a house payment like that would put me under . . . and with the economy taking a dive in 2008, it was one of the best gut decisions I ever made.”

So what’s next for Steph after she pays off her education and practice loans in 2013? A splurge on something big? Not for this dentist!

“Now that I’m at the end of my [student and business loan] debt road, you would think that I would want to buy something extravagant and frivolous. But instead, the last couple of months, I’ve been learning different ways to invest,” she says.

“I will be forty next year and will finally start to save for retirement. I want my investment and bank accounts to grow and hopefully someday help put my son, and his children, through school, as well as act as ‘family banks,’ where they can borrow money to buy houses or emergency purchases so they don’t have to go to traditional banks and pay all the unnecessary interest payments that most people get trapped with—me being one of them.”

Steph does allow herself some smaller splurges along the road to financial independence, like the Mercedes she leases. It’s Steph’s “rich dentist” car, and I just hope she got it on a factory-subsidized lease deal because that’s one of the only ways a lease for a luxury car can make sense in somebody’s life! (Steven, meanwhile, drives a Toyota RAV4 for the fuel economy.)

“I’m hoping the country club and the dream house fiascos will be my last lessons in keeping true to myself and my personality without trying to keep up with the Joneses, or should I say, ‘the Johnsons,’” Steph says. “I can shop at Target and get a good deal on a good pair of socks and feel good about it, you know?”

What ideas from Steph’s story can you apply to your own life?

Go cash only.

• There’s something wired in many of us that if we are given permission to borrow and spend, we will. The immediate gratification of having access to the ability to buy what we want instantly is so seductive that a lot of us get ourselves in over our heads. If you know that you will spend if given the plastic, you must live on a cash basis and turn away from credit. Period. Doing so will create a lot more security and sanity in your life.

Know the difference between wants and needs.

• A cell phone might be a necessity these days, but must you have the latest and greatest smartphone? Steph has a feature phone that just allows her to talk and text, not surf the Web or do e-mail. She knows what she needs and she sticks to it.
• In a similar way, do you really need the most expensive pay-TV package? Try dialing back on your programming or cutting the cord. You can get network TV with an over-the-air antenna and supplement some Internet programming on the cheap from sites like Netflix.com or Hulu.com.
• Ask yourself this question: What’s a need and what’s really just a want in your life? I want you to sit down and make a detailed list of both. Put the list aside for a day or so and then come back to it. Having that time away from it will allow you to really reflect on what you need and what you just want. You’ll be able to see both clearly and then budget accordingly.

Don’t shy away from sweat equity.

• Steph wasn’t afraid to learn how to build her own website or put in the time to paint the walls at her dental practice. If there is something you know you can do with just a little extra effort, why not give it a try to save money? Stepping a little bit outside your comfort zone can keep more money in your life. As Steph told me, “I’m not too proud to scrub my own floors or try to fix something that’s broken. Why pay someone else if you can do it yourself?”

Have the right role models.

• Like many of us, Steph gives credit to her parents for modeling thrifty behavior during her upbringing. But not everybody has the best role models at home. What about a close friend or distant relative? Is there someone in your life who is handling money well? Study what they’re doing. Talk to them about the way they manage their finances. If you want to live below your means, you probably don’t want to hang around with somebody who spends like there’s no tomorrow. Find a better role model. The right people can help you along your way to financial freedom.