Are doctors different? Do they require some specific kind of financial planning? These were the first few questions that were asked to me while I was addressing a group of doctors on different money issues.
My reply was Yes and No. No, as in they are not different. Since doctors are also human beings, they also behave like their patients in most cases which is one of the reasons they should lookout for a structured approach to money management.
And, Yes, there are some specific challenges in a doctor’s life so they need specific attention.
Doctors in general start earning in their late 20s. Unlike other professions such as engineering, or CAs, doctors start earning late. Acquiring a doctor’s degree is the result of years of hard work in academics, many years of training, and spending a huge sum of money.
MBBS, post-graduation, specialization, etc. all this takes quite a time of their youth and initial money-compounding years.
This is not all, in this ever-changing scenario, they need to stay relevant and updated by attending conferences, participating, and reading the researches, and all these further demands their time and money.
After basic studies, the next decision comes in front of them is to join a job or start their own practice. In the initial years, most doctors prefer to work in some hospitals, as starting their own practice has its own demands in terms of money and time unless they have the running practice of their parents and some of the infrastructures are already in place.
Peak earning age:
The peak earning age band for doctors is 35-55, and more or less the life goes smoothly for them, at least as per their assumption. Here the story starts. Their smooth and regular cash flows expose them to many financial risks, which makes them commit many financial mistakes.
The cash flow of doctors, with the least risk of job loss or practice and economic slowdown, makes them the first choice for the lenders. They are lured with many credit cards with high credit limits, car loans, and home loans with less documentation, which further makes them the preferred choice for the property sellers. This results in them going in high on real estate and other loans.
When having most of the earnings in cash (Especially In Practice), real estate becomes the only asset where one can invest into. Seeming this will help them in Saving taxes (which actually is evading taxes).
They do not realize the risks of going overboard on a single asset class and also the risks of health and life, which can further aggravate the issue.
Due to time constraints in their life, they are exposed to many MIS sellers.
Many doctors have a lot of insurance policies with them but still, they are underinsured. Many have a lot of mutual funds with no targeted goals. Many also invest in PMS with no understanding of how it actually works.
They oblige everyone from bankers, friends, to relatives, and end up with a skewed portfolio with no clear cut structure and direction.
I find it quite amusing that doctors recommend patients to consult only professionals for medical help, and take advice from registered doctors only, but when it comes to their own financial health they themselves take advice from sellers and unregistered distributors and agents.
Besides this, some also have behavioral issues of self-investment just like their patients do self-medication.
Doctors spend so much time with their patients diagnosing the real problem, advise some blood tests to gauge the root cause of the health issue, but do not spend enough time to improve their financial health.
They do not invest for their goals, but ask for only investments to make money fast, just like their patients want only medicine and get cured fast.
The two major diagnostic tests in a financial health check are the cash flow analysis and net worth analysis.
Cash flow analysis
Cash flow analysis is just like a lipid profile which lets a planner diagnose the liquidity issues, loans, and savings situation in personal finances and figure out how the investible surplus can be used to improve the overall financial health.
Net worth analysis
Net worth analysis lets diagnose the financial assets and liabilities structure, the investment asset allocation, and how well a person is able to survive the crisis situation.
Risk profiling is another diagnostic test that results in the sensitivity of doctors to different financial risks and manages the expectations on returns.
But, the challenge with doctors or professionals, in general, is that they are not aware of their cash flows.
They might be aware of their earnings as they pay tax on that, but hardly anything on where they are spending. They do not find this exercise worth giving time to.
Practicing doctors might have some of the Practice/business loans running and have no demarcation between personal and practice expenses. When they need money for personal requirements they use it from the business account and vice versa, which is a totally wrong way to manage financial affairs.
To live a healthy financial life, it is important to hold on to the cash flows which give an understanding of one’s lifestyle and which are the expenses or investments that are unnecessary and can be curtailed. It is important to have investments as per life goals.
Your asset allocation should be as per your risk profile and also have adequate liquidity to manage the financial and emergency requirements. (Read: Asset Allocation- The Balanced Diet to your investment portfolio)
You should deal only with registered and regulated financial advisers. Check the SEBI website to get a list of advisers in your area.
Goal-based investments give a clear idea on the investment horizon which further helps in selection of suitable products. A proper financial planning structure helps manage money better. Life and health are uncertain so the target should be to generate a comfortable passive income and not just to collect illiquid assets.
(This article Financial health check for doctors was originally published in the Tribune 11.09.2018)