How to do financial planning for doctors in India? What financial management tips and wealth advice can help doctors to reach their financial goals?
There is a good family friend of mine, who is an extremely well known doctor in the medical circles. He had his own practice, worked at a government hospital, and was also involved in many charitable events and such. His parents were well settled, thanks to his stable income, and he was saving up to get his sister married. Life was going really well for him.
But then disaster struck. He got into an accident himself. It was not his fault. He was driving his Maruti at an even speed on a state highway, but a drunk lorry driver hit him. There were questions on whether he would survive. That was when everybody in my friends circle were jolted back to life. Here was a guy, who, just 2 years back seemed settled in life, and not a worry. But now his earnings had stopped. His medical expenses were going up every day just to keep him alive. His parents were contemplating coming out of retirement. Their world were turned upside down. The question on everybody’s lips was – How can we plan better? How do we ensure this does not happen to our parents and our families. And most of the people who asked me this question were doctors themselves.
Financial Planning for Doctors – Why do Doctors need Financial Planning?
Doctors have a life cycle which is different from the rest. They start their careers very late. While most professionals start their careers at 22-25, doctors start at 28-30, which is a whole 5 years late. But they also have a unique advantage. Doctors can work till they are extremely old, unlike other professionals. The more experienced the doctor, the more their work is valued, This is completely contrary to some other professionals who are outdated and replaced as they get old. They would need proper financial planning to ensure they are well prepared for this very different career cycle.
While most doctors have goals which are similar to others, professionals or not, such child education and marriage buying a house etc., almost all doctors set up their clinics at some point in time in their lives. This means they will always start-up and have the entrepreneurial burst that they need to prepare for this. This is one of the other additional areas they would need to invest in the long run.
Financial Advice for Doctors or Financial Management
So here is a quick five point financial advice for doctors to ensure you do not go broke because of a sudden incident. This is more of financial management for doctors, than financial advice.
- Sort out your income. Find out where your money is coming from. Secure it. Make sure you have all the qualifications and capabilities to continue earning that amount. Do not get left behind by the ever changing market. Expand your horizons. Keep learning so you are not abandoned by tastes and fashion.
- Sort out your expenses. This is the most important point. There are two things to talk about here. What are your major monthly expenses? Note it down. Keep track of it. Make sure you are not spending more than what you had budgeted. You cannot afford to. Next, find out if you have insurance. Go through your documents, and get a very good insurance policy. You need both a life, as well as a medical insurance. Your insurance expense is going to be a written-off cost, meaning, you do not expect a return from it. The return only comes if the unforeseen happens, and we are going to pray it does not happen.
- Life Insurance – Get only a plain vanilla plan. This means you will pay a fixed premium every month. Your family will be eligible to get the sum assured only at your death. Technically, your nominees will get the money. This is to ensure you are not abandoning them, like my friend did when he met with an accident. Make sure you calculate the right amount of sum assured/cover required. This will help your dependents to stay stable without your monthly income. Do not go for any waivers, or fancy endowment options. All we need here is an insurance if you die. A Plain vanilla will suffice. Make sure you read the insurance documents carefully before signing on the dotted lines.
- Medical Insurance – This is a little trickier. You need to ensure you have a health insurance cover in case of a medical emergency. This means you would need to apportion your benefits over medicine coverage, room rent, etc. Make sure you take an insurance that is over what you expect to incur as an expense. Remember, medical insurance policies are much more expensive than life insurance policies. Stick to the standard medical insurance providers, and you will do no wrong. Gradually increase your health insurance cover as you approach towards the retirement through a super top . Keep your health insurance comprehensive. There is no disease you cannot get.
Investment Advice for Doctors
- Invest, Invest, Invest. Once you are done with points 1 and 2, you would know how much excess cash you are left with in the end of the year. Invest it. Go for goal based investing. Have no idea how the market works? Get a fee only financial planner. You can do very less wrong when an expert is holding your hands.
Why Doctors need Financial Advisors?
- Make sure you do not panic like your patients do. You know how to calm down the nerves of your patients even in the worse scenario. But it may be difficult for you to remain cool when the markets are not behaving as per your expectations. That’s exactly the reason, why doctors need financial advisors. Financial planners can help you to remain calm as they would be suggesting the right instruments for your goal based investing. Do not be over aggressive or over defensive. Go for your goals. Is your goal only 3 years away? Stick to fixed income instruments and debt. Is your goal 10 years away? You can afford to take some risk. And remember, spend only what is left over after investing. Not vice versa.
- Take less stress – You can afford to spend the extra five thousand rupees. You can afford to waste that extra half an hour. You cannot afford to get stressed out and collapse. Remember, we are all running a rate race. The race is not to see who comes first, but who survives till the end. Take little or no stress, and you are going to be mentally strong. Take your vacations. Save up for the same. Make sure you mention that to your planner, and he will help you set aside some money in regular intervals for a vacation.
- Spend time with family – This is extremely critical for today’s generations. We are in different time zones most times, and forget the fact that we have a family back home. We need to spend more time with family, and that is the real wealth in this world.
Tax Planning for Doctors in India
Sorting out your taxes as a doctor would be particularly difficult because of the amount of complications bestowed on the normal human being thanks to our tax laws. As a doctor working in a government hospital as well as having your own practice, your income would be divided into two – a portion where you are an employee to the government hospital, and a portion where you own your own business. The salary you receive while you are an employee would come under the head, Income from Salaries while the revenue through your own clinic would be Income from Profession.
So what is the difference?
A lot! While your Income from Salaries allow you to pay tax at a slab (10-20-30), Income from Professions ask you to pay tax according to your slab. It is not all doom and gloom though, as Income from Professions allow you to deduct expenses, thus reducing the large tax payable.
How do Doctors Save for Retirement
I have seen a lot of doctors saving in FDs for retirement. This is not an ideal way, for doctors, to save for retirement. It will not even beat the inflation in long term. So, how do doctors save for retirement?
Retirement Advice for Doctors
Retirement advice for doctors is a quite simple. Follow the below mentioned points and you would be ready for retirement
- Calculate the post retirement monthly expenses to be provided in today`s value.
- Like if your monthly expenses are 50,000 per month now. It would be bit less at the time of retirement. Because at the time of retirement, you do not have to pay school fee, tuition fee etc.
- At inflation of about 6%.
- See the future value.
- Calculate the corpus required at the time of retirement.
- Invest in SIPs
Also,You can read this article about retirement planning and download the excel calculator-
Wealth Planning for Doctors
The best way, doctors can do their wealth planning is by investing in mutual funds and stocks. Since stocks investing is all together a different ball game, it is always advice able to invest in mutual funds according to your risk appetite.
While the first three points may seem important, and the last two just superficial, it is good to remember that we can do very little with money if we do not have people or mental health.
Are Doctors Bad with Money?
It is an almost widely believed idea that all doctors are bad with their money. But No, Doctors are not bad with money. I have seen lot of doctors sitting in their cabin and watching market updates regularly. Would you believe me if I say that doctors see market updates in operation theaters also?
As doctors start practicing their profession comparatively later than every other professional out there, they start monetizing their education very late. This leads to an unusual clamor to make the most money in the least amount of time possible. Do not take that road. Save for retirement, and contingencies, and invest the rest. By following the above points, you would be able to prove the world wrong. Also, financial planner will introduce you to various financial calculators for doctors that will put your concerns to ease.
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