Doctors often start earing well a few years into the profession, at which point loans they took for their education and to set up a clinic eat up a chunk of their income.
Financial planning is important for every family. For doctors, it’s because their career follows a different arc. A lot of times the income is irregular – they start earning well after a few years of practice. Thereafter, repaying substantial education loans, and later, a loan taken to build a nursing home or hospital, can eat up a majority of the income.
When their income finally peaks, they’re hard pressed for time and personal financial planning gets the short shrift.
Therefore, they need the help of professionals to do their financial planning and help them achieve their financial goals in a systematic manner so that doctors are not just earning but also growing and protecting their wealth across generations.
Financial planning is based on the following six pillars, and doctors often tend to miss one or more of these:
Goals
If savings are not channelised to specific goals, they get consumed without creating real wealth. So start by being clear about what you are working towards.
List down your goals and categorise them into short, mid, and long-term goals.
Renovating your hospital could be a short-term goal, your kid’s education can be a medium-term goal, and planning for retirement can be a long-term goal.
You should evaluate your and your family’s present financial situation and invest towards meeting your goals. Without this, your investments will be scattered and will lack structure and purpose.
Budgeting and taxation
Doctors often mix personal and professional cash flows, especially in the early years. One must keep personal and business accounts separate.
Planning your taxes and declaring your entire income will be beneficial for you. Declaring higher income is crucial for stronger financial standing and helps secure loans and improves your financial credibility. A higher income means higher borrowing power.
Financial planning helps with leverage and also helps avoid any tax penalties and cash crunches.
Investments
Even though income can be low in the initial years, doctors should start to invest as early as possible. Begin by investing at least 20 percent of your income. As your earnings grow, increase the outlay. Doctors are busy professionals who will not want to track the daily market and take decisions. Therefore, start with SIPs in mutual funds and be disciplined. Direct stock trading is not recommended as doctors lack the time and expertise.
Your financial plan will tell you how much to invest based on your risk appetite and the time you have to achieve your goals.
Insurance planning
Even medics need insurance. We polled 1,727 doctors and were surprised to know that only 11 percent had sufficient health and term cover.
There are two methods used to find out what should be your adequate life cover –the income replacement method, and the expense replacement method. The first calculates your remaining income till retirement, and the other factors the expenses till the end of one’s life.
In addition, doctors must look at a substantial health cover via family floaters (approximately 20 lakh), so that medical emergencies do not become a challenge. Moreover, indemnity insurance is increasingly becoming important for doctors.
Loan management
Doctors often take loans for education, to set up their clinic, buy medical equipment, buy a home, etc, and without a strategy, it can get overwhelming.
Make sure your EMI does not exceed 30 percent of your income and does not become a burden. Understanding good loans, bad loans, and how much you should leverage is key. If loans are not managed properly, even high-income doctors can become financially unstable.
Estate planning
Making sure the wealth you have created over the years gets passed on to your next generation in a hassle-free manner needs planning. Succession planning eliminates conflicts and disputes that might occur later in your absence. Creating a will and / or a trust is something you should work on and not keep for later.
Financial planning helps convert our hard work into wealth and security for the family. Not planning will lead to ad hoc decision making and risks in the future. Just as good health requires discipline and planning, so does wealth. Hence, plan early to live peacefully.
