Financial Planning for Doctors & how it’s different

The medical profession is held in awe and respect across the globe. It is a noble profession as doctors try to heal sickness, diseases, treat physical and mental trauma.

Acquiring doctor’s degree is result of years of hard work in academics, many years of training and spending huge sums of money. Usually a Bachelor’s degree in medicine takes about 5 years. But in today’s world that might not be enough to have a successful career and many opt for a Master’s degree like an M.D. which usually takes another 3 years. And then specialisations in various fields. Some might want to do specialized courses which again take time and are expensive. Some might pursue studies abroad which means higher investment. Doctors also need to keep updating their skills and educating themselves. So compared to other professions, a doctor invests a lot in his career and starts earning properly a little late in life.

financial planning for doctors

Doctor’s economic cycle

He might start earning properly after the age of 28-30 years which is late compared to other professions. A doctor can either begin his career by assisting another doctor or working in a hospital. This means he begins on a regular salary late and hence his social life and events also gets delayed. A late marriage, a late kid and long erratic working hours do influence his financial life. He does not have much time to concentrate on planning his finances. Earnings peak between 40-50 years.

Doctors have the advantage of continuing their practice for as long as possible. But this depends a lot on their reputation and health. Business does go slow for some doctors or starts cooling down once they finish some years in the business. Younger doctor get more popular, they are more in tune with current trends in medicine and lifestyle. Some of them have more specialized degrees. A doctor therefore cannot be lax imagining that he has a very long career ahead of him. He should have a retirement age in mind and plan according to that. If he can continue even after that age, he should consider it a bonus or can decide terms and conditions of his work which is a great advantage to have.

Doctors love Real Estate 🙂

Many doctors in India invest in real estate for housing and setting up a practice. They are generally overweight in real estate which might not be a good idea. They have to understand real estate is one of the asset classes – so there will be periods of outperformance & underperformance.

Job Vs Practice – Doctor’s Dilemma

Doctors have to decide whether they want to set up their own practice or work in a hospital or do both. Some also want to start their own hospital which means they are getting into a business, which is a different ball game. They need to see the pros and cons of each option and decide which works best for them.  If one feels, he is not financially savvy but good in medical skills, he can set up a small private practice and be a consultant doctor in hospitals. Setting up a practice is not easy. In big cities, there are numerous doctors and each is competing for the same target market. Doctors face cut throat business wherein they start charging lower or gang-up against new doctors.

If you are a doctor setting up a new practice, you should devote time to the starting the practice and it should start before you finish your previous employment (if your current employer allows this) if any so that you have a steady source of income. You can partner with a finance expert to understand the financing aspect of the business. You need to calculate how much capital you will need for setting up a practice and consider things like space required, where to set up the practice, cost of space, services offered etc. List the revenue and expenses to find out what will be the status of cash flow. You should constantly upgrade your skills and offer innovative and honest services to customers so that they will be satisfied with the treatment that they are receiving.

When Husband & wife both are doctors (assuming practice)

Many times, both husband and wife are doctors. They are self-employed professionals who earn well but would not have done any financial planning. This could be because they do not keep a check on how much they earn (monthly earnings would be variable) and personal expenses and professional expenses get mixed up. They do not understand investment planning, tax planning etc. and end up making wrong investment choices or evading tax by hiding income. Many are so busy with erratic hours that they don’t have the time or inclination to spend time on managing finances. Such doctor couples need to take the following steps –

  1. Separate out personal and professional expenses
  2. Create a budget
  3. Create an emergency fund
  4. Get insurance cover for self and family so that personal goals and professional expenses get paid off in case of unfortunate events
  5. Make financial goals like children’s education, retirement plans and work towards achieving them by investing properly and reviewing investments regularly.
  6. They should take the help of a financial planner if they are not comfortable doing this on their own.

Doctor’s Financial Quotient

Doctors are very intelligent. Some of them therefore think they can make great financial decisions too. But many of them make mistakes leading to financial losses. For example many doctors do not buy enough insurance at the right time to cover them and their family. They realise later in life that their finances are not well-managed. Buying insurance when you are older is expensive. Some doctors do buy life insurance but ignore disability insurance. This will hurt the finances of the family.

Some of them are in huge debts due to student loans or loans taken for setting up their practice. They are not sure on how to manage these loans. Doctors’ services never go out of demand whichever way the economy is going. Therefore they can afford to take higher risks in their investment portfolio. But many of them are not aware of this and over invest in low risk-low returns products. Some of these product might have been mis-sold to them by agents who know their ignorance about such matters – like child future plans & pension plans. If the doctor does not have the time nor the inclination for financial planning, he should invest in having a good financial planner who can manage his finances and give him sound investment advice as per his needs and goals.

Financial Planning for Doctors

Doctors should take the following steps to ensure that their finances are in a good condition-

  1. They should not be tempted to splurge once they start earning money. Some of them feel they missed out on opportunities to have fun as they spent many years studying and started to earn well much later in life. They splurge on fancy vacations, new cars, eating out etc. It is important to keep a check on expenditure and concentrate on savings and investments.
  2. They should ensure that they have adequate life cover and disability insurance cover so that financial needs of family and profession are taken care of in case of unfortunate events
  3. Decent indemnity coverage is must. (I will write separate post on this)
  4. In some cases practice is their biggest investment doctors have – you should know how to nurture, grow, save & ring fence that.
  5. Doctors have a very busy schedule. They are also called in for work many times post work hours. Apart from this they have to manage family, health, social engagements etc. It is important that they have a proper fitness schedule. They have to eat right and exercise so that they are in good physical shape. They need to switch off from their work every day for some time and pursue what they like so that they are mentally fit. This is important for a sound financial health.
  6. They have to make a financial plan the plan should have financial goals listed and they should execute the plan to achieve these goals. If they do not have time to research and make one, they should hire the services of a financial planner. [hope doctors understand importance of professionals 🙂 ] They need to have a proper investment plan. They should invest in a variety of assets including equity, mutual funds and debt so that their investment portfolio is diversified and they get optimum returns and long-term capital appreciation.  They should ensure that their debts are not beyond their means.
  7. They should pay off education loans taken and only then go for home loan or loans for buying property to set up the clinic. They should ensure that they understand their investments and performance of the investments rather than blindly following the advice of the financial planner. They should revisit the financial plan regularly and tweak it as per changes in their life situations and macro and micro economic conditions.
  8. They should also invest in themselves by upgrading their skills, learning about latest trends in health care and networking with other doctors and professionals in the healthcare business.
  9. Doctors’ lead busy lives but it is important for them to focus on their finances so that they can grow their wealth, manage their taxes and have a healthy and secure financial life. This is important for a good long medical career as well.

Irony of Doctor’s life

The irony is doctors don’t follow the rules that they establish – first diagnose & understand the problem and then prescribe appropriate medication. But when it comes to finance they prefer over-the-counter products. Many of them buy financial products without really understanding them as they are not in touch with this subject and due to lack of time rely on the insurance agent or the financial product seller who claim to take care of your investments but are just looking to increase their sales.

If you are a doctor – I will love to hear your side of story.

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{ 5 comments… add one }
  • Anil Kumar Kapila July 6, 2015, 6:05 PM

    Hi Hemant
    My younger sister is a doctor settled in the US.Her husband is an engineer who retired recently.My sister is still working in a hospital. We discuss financial matters whenever she visits India.Initially she wanted to invest in mutual funds in India but gave up the idea due to the tax hassles involved. She has been fully involved in her profession and her husband has taken care of domestic matters. She earns a lot and has never felt the need to do any financial planning.

  • Dr Amos kadam July 7, 2015, 12:34 PM

    Hi hemant
    As usual very informative article…. rather I would say it is complete eye opener for us.
    But I think the cause of this financial illiteracy lies in our education system cos we have never been taught personal finance and financial planning in our curriculum since childhood
    so after one starts earning first he
    comits mistakes n then learns from them at the cost of money and time.
    Thanks once again for ur continuous guidance and very all the best for Tfls mission of financial literacy.

  • Dr Prashant July 13, 2015, 11:58 PM

    Helpful article and an eye opener for all doctors. I am lucky to have come in contact with you and started my financial planning from age 30yrs itself. It really keeps you vigilant about your finances. Advice all of doctors to concentrate on their financial health too…..

  • dr vijay kumar July 20, 2015, 11:11 PM

    nice article
    its true for many of doctors
    i m 34 yrs old and started earning now.
    i need a small favour please send me the financial template so that i can send you my info
    you can analyse and sugesst some things

  • Dr Senthil Kumar R September 27, 2016, 2:37 PM

    Hi Mr. Beniwal,
    I am surprised to see that you narrate a doctors life as your own. Lovely understanding of our life. I am 33 yrs old and just finished my super specialisation and started earning. I am atleast a decade behind my non medico friends. Please give us more suggestions.

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