Doctors are known for their exemplary dedication and focus when it comes to their profession. They spend years studying, acquiring knowledge and mastering their profession. However, it is this very quality of being knowledgeable and intelligent, that comes in the way when it comes to managing finances. With their focus locked in on becoming better doctors, they find themselves lacking the time and/or knowledge to handle their finances. For most doctors, money matters always get bumped down the list of priorities. However, this kind of complacency can prove to be financially harmful.
In all our time helping doctors plan their finances, the most common laments we have heard are:
“My career starts much later as compared to other professionals. And since I start earning in my late 30’s, I don’t have much money to save and invest early on in my life.” or “I don’t have time to look into my finances because my practice takes up most of my time and attention.”
We also get questions from doctors like “What is the need for a dedicated Financial Planning service for doctors? We handle life and death situations, so what’s the big deal about money”. Well, the need to have a dedicated practice is very high, since DOCTORS HAVE A UNIQUE LIFECYCLE. Taking this uniqueness into account, modifications need to be made to a doctor’s financial plan.
Let’s take a look at the various phases of a doctor’s life:
1.Start-up Phase (Age 26 – 35 years)
The early 20s and 30s of most medical students are spent studying and acquiring further specialization. Upon completing their education, doctors either start their own practice or join a clinic or hospital. At this stage there are a few important things a doctor must do:
# Create a budget for further specialization in the field or setting up a private practice
# Allocate money towards further education or setting up the practice. At this point, it is important to account for family responsibilities.
# Limit debt.
# Focus on ‘Living Life Modestly’ – where the focus should be on saving and creating a solid base for the next phase of life.
# Plan for events such as a dip in income during the process of starting a family.
2. Peak Earning Phase (Age 36 – 55 years)
Ideally, this should be the phase where a doctor’s income increases, and he/she can create wealth. However, in reality, only 25% of doctors manage to create a solid asset base in this phase. Often, family responsibilities and lifestyle expenses result in lesser opportunities to save. At this stage, the real winners are the doctors who have saved early on in their life, cleared off their education loans and have a busy practice. Keeping these points in mind, during this phase, a doctor must keep remember to:
# Keep a tight control on spending. This is because of people’s tendency to increase their expenses as soon as a spike in income is experienced.
# Rent a house or clinic instead of buying one to avoid huge home loans and/or overstretching one’s finances.
# Evaluate alternate streams of income.
3. Cooling-Off Phase (56 – 70 years or till health permits)
Ideally, this should be the best phase of a doctor’s life. While some doctors slow down their work and allocate more time to their interests and hobbies, others continue full throttle ahead in their professional lives. This is the age by which most doctors have amassed a reasonable amount of wealth and are at the peak of their careers. Inversely, is also the phase where doctors are more vulnerable to get cheated, as they have considerable savings and limited knowledge about where to invest. Multiple banks, financial institutions and financial advisors offer advice and may also convince these doctors to invest in avenues which may not be ideal for them or help them achieve their personal goals. In this phase a doctor must look at the following:
# Invest one’s savings towards retirement and health corpus.
# Invest surplus money, which is not required for the next 10-15 years, in equity.
# Try and repay any debt you might have incurred during this phase and be mindful of taking on any new debt.
# Create a Will and do the necessary estate planning.
Clearly, each phase of a doctor’s life brings with it its own set of challenges. And without a set plan, money matters can go south, fast! Therefore, it is extremely important for doctors to have a financial plan in place to be able to tide over the challenging circumstances they might face. In the absence of one, doctors are prone to making mistakes when it comes to finances.
(By Amar Pandit, CFA, and the Founder & Chief Happyness Officer at HappynessFactory.in)
