Finance For Doctors
- Jun 17, 2020
- 7 min read
Updated: Jun 27, 2020
I am not a financial advisor. This is just some practical advice that has been passed on to me and developed with some further reading.
So you’ve made it through medical school, you’ve graduated and you have received that first payslip! Congratulations! Or maybe you have been working for a couple of years and have started to realise you need to make a bit of a plan for the future, what do you do next?
As you may have realised, doctors do not earn the astronomical salaries that we are sometimes portrayed as earning, don’t get me wrong, it’s not bad at all and it’s stable and rewarding work, but we need to be on top of things to get the most out of our income!
Financial education is not a big part of the medical school curriculum, or secondary school for that matter! And if you’re not lucky enough to have a people around you to talk about these things with how can you be expected to learn yourself?
Where do I start?
Rule one is almost always to make a budget. Just try and roughly work it out first. Am I spending more than I am earning? If the answer if yes then this is a problem you need to address quickly. There are plenty of great budget calculators online. If you’re a UK resident the student loans company actually have a great box-fill document that really helps you get an idea of where all your money is going and therefore what you can cut back on!
Next - stay on top of debts. Any high interest debts you need to get rid of first. And by this, I mean credit cards. Credit cards are a good thing to have but not something to take for granted or to rely on. The best thing for a credit card is to have a regular, controlled spend on something like petrol that you pay off every month as soon as the statement comes out to help your credit score. Sure you’re a doctor but why not be a doctor with a good credit score too! It shows you are reliable.
Student loans
Most of us reading this will have a fairly outrageous amount of money owed to some form of loan company. Check your interest rates – If the rate is very low as with some student loans then paying off quickly or overpaying may not be beneficial to you, just pay back your monthly fee until the loan is written off.
This is because you can potentially get more growth from putting money elsewhere if the interest on your loan is lower than the potential growth of the money you’re saving.
Emergency Fund
The next thing to consider is an amount of money that you can use if everything goes wrong. Go back to that expenses sheet from the student loan company and workout how much you need to survive for a month (excluding going to the pub or buying frappucinos etc) and multiply that by 4.
Work towards this amount every month and then keep it in an accessible savings account, ideally one with a high interest rate that won’t penalise you for withdrawals, but just somewhere accessible and separate from other accounts.
Minimise expenses and grow income
Do you need to live in an expensive apartment? Do you need a brand new BMW? Probably not. But sometimes it’s out of your control. Change what you can. Can you increase your income? Can you pick up the odd shift from a mate on a Sunday? Can you teach medical students online? Do you have any hobbies you can monetise? Less out and more in!
Get that tax back!
You will often initially get a reasonable amount of tax back as the default is to make you overpay for some reason unbeknownst to me. Fill in your form quickly and honestly. Mistakes can be costly. In Australia I use Etax accountants as it’s a reasonable fee and they have lots of helpful tips for doctors for things to claim and it’s dead easy to use, they also reply very quickly to questions emailed year round. A link to Etax is below, which, full disclosure I do get a $5 discount if you sign up.
If you prefer to do a bit of hard graft then you can fill in the form yourself and google all the deductions you can make.
https://www.etax.com.au/discount/qahihw
Growing your money
If you keep money in your bank account it will lose money. What?! When I first heard this I was outraged. It made no sense. This is because of inflation. Every year currency becomes slightly devalued because of this concept and the worst part is that inflation is higher than the interest you receive on your current account.
How do we counter this?
This is where some personal choice comes in and further reading and if theres one thing we know medics love, its further reading!
Stocks and shares
This can be quite a tricky field to read into and endlessly confusing as well. If you are wanting to look into this option I would suggest a few initial steps.
Google “brokerage account” and the country you are in. Some examples include, but are not limited to Hargreaves Lansdown in the UK and CMC markets in Australia. Every country or territory will have different ones. There are also ones aimed at a newer generation of investors such as etoro and robinhood. Check their history and that they are regulated by a financial authority. These will be the platforms that you perform your “trades” on.
What do I buy?! Well this is where the real work comes in. At the start I would advise looking up something called an “ETF” or exchange traded fund. The general gist of this is that you spread your eggs over multiple baskets. Ever heard of the FTSE100, S&P500 or ASX? These are basically lists of companies that are the top dogs at the moment. ETFs will track one of these lists of companies, so if the economy does well, so does the ETF and so do you! For examples start by looking up “Vanguards” list of ETFs and choosing one you like.
Cryptocurrency
The unregulated Wild West West. If you are looking at this I would suggest not putting lots of your savings in this direction as it is very volatile and despite what many people on the internet say with conviction, very hard to predict.
It is unlikely that there will ever be a boom again quite like the one we saw in 2017. Try and make sure you keep it in a safe place. Generally exchanges are a safe place to keep them but if you amass a small fortune you are best off using a “cryptowallet”. Examples of things to read about include “blockchain” app and “coinspot”. People are comparing bitcoin more as a store of value at present than as a currency so at the moment think of it as having little pieces of gold or silver for a rainy day. Publications like cointelegraph and coindesk give daily news on the evolving world of crypto.
Property
Having somewhere to live as well as a potential source of increasing value must be a good thing, right?! Maybe. With doctors salaries not starting particularly high it can be really hard to get a deposit together without parental help so don’t stress if this feels out of bounds for you. There are even some schools of thought that think renting is actually a better idea financially in the long term! A quick google search will reveal some interesting articles dedicated to this subject and some insightful youtube videos.
I found this one to be accessible and very helpful. I do not currently have any property but for me it is something I am definitely aspiring towards.
Other savings opportunities
If you are thinking really long-term and living in the UK, you should consider looking at a couple of things, a SIPP or self invested pension plan and a LISA or a lifetime ISA (individual savings account). These are things that you invest money into over a very long period of time that then provide you with a good return on investment for when you retire. Just be ready to not touch that money until you’re retired! On this note, it would be a good opportunity to become familiar with “compound interest”.
This is the concept where regular investment combined with growing investments gets you back far more money than you put it! Use the calculator below to give you an example (I suggest using a conservative estimate of 4% growth per year).
Overtime
Consider an additional approach also, consider your base salary on your contract as the money you are allocated each fortnight for expenses, fun, bills etc and aim to live on this, never rely on overtime. Try and use the additional overtime as a platform to really pay off those debts or plough more into savings and investments.
So to summarise:
- Make a budget
- Pay bad debts
- Don’t overpay student loans unless it won’t affect you
- Minimise expenses (expensive accommodation, fancy car etc)
- Increase you income (take extra shifts, use your skillset for additional pursits)
- Get that tax back!
- Build 4 months emergency fund first
- Invest in a growth product (ETFs, Real Estate, SIPP, LISA,)
- Automate your savings to remove the devil of temptation
The more you pay yourself first by saving and investing the easier it will be later. Don’t ruin your life though – you can still treat yourself but think about what constitutes a treat.
The final thing to say is that I know all of this can be overwhelming. The next step would be to consider some professional advice. Try and find a combination of financial advisor and accountant who can go through this with you and make a plan. Before you sign up with them make sure they will be able to make you more money than they cost!
https://www.hl.co.uk/financial-advice/referred-friend?id=7707872&oid=AFR19 This is a link to Hargreaves Lansdown financial advice service, for which you and I receive a bonus should you go to them for advice.
A big caveat here is to always remember past performance is not indicative of future results and is not a reliable indicator of future performance.
I am not a financial advisor, these are just a few things I have picked up here and there and are helping me to grow my “wealth” – Warren Buffet watch this space…
I hope this has been of some help or given you at least some new things to look into a bit more.
Learn Well
@medicine.daily
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