Dr. Nishi, a young and single doctor who is in Senior Residency and earning well, called me a few days ago. A new earner, she was concerned about her financial management and wanted to have a structure that would allow her money to grow and also be available to her as needed.
However, she also has another concern, which is that whatever she has read about financial planning, the exercise revolves around financial goals…and that’s where she is stuck at the moment since she does not have any goals. She doesn’t even know how to set her goals. (Also Read: Financial Plan or Planning what is more important?)
Therefore, in addition to directing her to investments that are ideal for her, she also wanted me to coach her on setting goals.
The point was valid. She was not alone in this challenge, since many of her age and first-timers also want a process-oriented approach but don’t know how to set it up and where to start.
This is the reason why they get missold with wrong investment products under the wrong notion of high returns.
This is the reason they generally start their investment journey with an Endowment or Unit Linked Insurance Plan.
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This is the reason they prefer to spend rather than save.
This is the reason they go for loans.
It’s important to tame this behaviour in the early years. That’s where goals are important
But what if you do not have goals? Where and how should you invest?
How can young doctors set their Financial Goals?
When you don’t have goals, it’s better to focus on habits and strive to build good financial habits. For instance, if you feel yourself fit and fine, and don’t have a goal to lose weight, then at least have good eating and exercise habits, so as not to gain weight, and stay in shape. In the same way, if you do not have any financial goals, work on improving/maintaining your financial health. (Also Read: How Doctors can do their financial health check?)
- Budgeting is a good financial habit.
Keep a close eye on your spending structure so you can plug leaks (unnecessary spending) when you discover them. When you do not set goals to save, you will have a lot to spend, which becomes your lifestyle and becomes hard to compromise on later on. In the future, this will require more savings from you.
Every purchase you make should have a reason, not only at the time of purchase but every time you see it. If you are happy with it, that is a good purchase, otherwise, you should be wary of such expenditures in the future.
Avoid buying immediately when you see it. Give yourself time, at least one week. You’ll buy it if you truly need it, otherwise, you’ll save the money.
- Saving is another good financial habit.
Try to save as much as you can, even if you don’t have any goals. If you work on budgeting rules, you will find that at this young age, you are having a decent investible surplus and that your savings potential is quite high.
Your goal should be to save money. Try to save/Invest at least 40%-50% of your take-home income. As soon as you become accustomed to all this, you will be much better prepared for the future.
It doesn’t matter where you invest your money. In the long term, equity-oriented investments are better; however, if you have no understanding of those instruments, go with a PPF or bank recurring deposit. Remember that the goal is to build good habits, not to generate high returns. (Also Read: Is PPF a good long-term debt investment for doctors)
You are bound to make mistakes at this stage if you focus on returns. If you wish, you can work with a financial planner, who can guide you on the best investments for you.
- A good financial habit is to live and enjoy life. Do not compromise your life. Stay alive.
Saving should not prevent you from enjoying life. Spend your money on the things you value most. You can spend your free time with your friends, traveling, trying new foods, reading more books, sleeping, exercising….or whatever you like to do.
Therefore, you should learn to organize yourself well and manage your time well so that you have enough time to pursue your hobbies. At this age, follow a budgetary approach and budget 10% of your income for your hobbies.
- Maintain Financial hygiene.
For youngsters, it is important to Work on financial hygiene and keep up with the financial records in a single place. Avoid overinvesting and underinvesting. Don’t invest just for returns or to save taxes. Never invest in insurance- Keep investments and insurances separate. Do have the required insurance coverage. Maintain an Emergency fund. Avoid Self Medication or Self Investment, I may say. Read well so you can ask the right questions to your financial advisor and keep educating yourself. File taxes on time. Always have nominations in your financial investments. (Also Read: Personal Accident Insurance- how important is it for doctors)
- Stay away from Loans
Loans keep you away from Reality. when you do not have habit of saving, you should not build a habit towards paying. Never borrow without saving. For any big purchase, always fund 50% from your own savings.
All this will help you in maintaining your financial health.
Goals are important for giving direction to savings. If you cannot think of goals, make your regular savings a goal as mentioned above. Save for short-term and long-term travel, save for your financial freedom, and save more now to buy time later. Some goals you may think of could be your wedding expenses, honeymoon, car buy, home purchase, saving for old age/retirement, launching a business, charity work, higher education, etc. Save for Independence. (Also Read: Why Retirement Planning is important for doctors?)
The whole idea is your financial wellness.