7 tips to help doctors and dentists avoid financial ruin

Why are some medics more financially successful than others?

Aside from the obvious – different specialities and experience levels command different salaries and so on – those who have achieved financial success are likely to have followed the simple principle of ‘failing to plan is a plan to fail’.

Personally, I’m partial to the army adage of the 6 P’s (it’s 7 in reality but I’ve kept it to 6 for this purpose!)…‘Prior planning and preparation prevents poor performance’.

But what happens if things don’t go according to the grand plan?

7 tips to help medics and dentists avoid financial ruin

To avoid financial Armageddon, planning consideration needs to be given to both ‘plan A’ and ‘plan B’ scenarios as these 7 simple but powerful tips illustrate.

Tip 1: Never stop budgeting

Yes it’s boring. I know. Budgeting may not be the most exciting of tasks but it is essential for day-to-day planning. There are only a few who need not worry about budgeting, normally due to a high income or a lottery win!

For those who have a fear of spreadsheets, there are many apps to help you with your budgeting requirements. Not knowing how much disposable income you have for the latest ‘must have’ item or the next holiday can quickly lead to debt issues, which nicely links me on to my next tip.

Tip 2: Know your good vs bad debt

Not all debt is bad debt, but it is worth noting the difference. Let me explain. Taking on debt for a house acquisition or education is not necessarily a bad thing. This may lead you on to a better standard of living or potentially higher income.

On the other hand, making minimum payments on a credit card that has a 16% APR and no plans to clear the outstanding balance is not healthy! Your existing debt can easily spiral into even more debt.

You are likely to have some form of bad debt over the course of your life so it’s important you have a plan to be free of it.

Tip 3: Be wary of overstretching yourself

This may seem to counter Tip 2 but taking too much debt on – even if it’s not bad debt – can still give rise to unwanted issues.

Just because you can get a big mortgage doesn’t mean you should.

Purchasing a property with your partner based on your joint income is quite normal. But, if you’re planning to have a family at some point, you need to check that you can still afford the mortgage if you had to survive on just one income for a period.

There is a good reason I fondly call my children Cost Centres 1 and 2! They are expensive, particularly in the early years. How to relieve the financial cost of raising a child >

Another expense that is cropping up more often these days is car loans. Taking out a finance deal as opposed to purchasing the car outright is going to have a big effect on your disposable monthly income. It can also have a large influence on your affordability for mortgage purposes, at the outset and on re-mortgaging.

All this expenditure can creep up on you and before you know it, you’re having to do additional locum work, waiting-list initiative and/or private work to cover your new increased monthly outgoings.

Tip 4: Remember knowledge is power

Can you identify all the outgoings detailed in your bank account? How often do you just ‘file’ your payslip away somewhere without opening it?

Regularly checking things like your bank account and payslips makes it easier to spot errors at the time they’re made than trying to work them out months or even years later.

We often speak to medics who are unable to identify some of the outgoings detailed in their accounts, and you’d be amazed at how many mistakes we regularly see with payslips. Incorrect tax codes because a doctor or dentist hasn’t moved up to the next pay increment is a common one.

Tip 5: Protect what you have

It will of course vary according to your speciality but, the ‘average’ medic or dentist’s lifetime earnings is measured in the millions. It takes many hours and a large financial commitment to qualify, so protect what is the most important factor: your ability to work.

If you don’t have income protection then look into it. If you do have it, then it’s worth checking it’s up to date, covers your current earnings and speciality, and is of a decent quality. Not all policies are created equal!

There are also other things to protect: your life if you have a family that are dependent on you or a debt such as a mortgage or practice loan. Any wealth you have amassed over the years can erode very quickly if you don’t have adequate protection and have to rely on your savings if you’re unable to work.

Tip 6: Have an emergency fund

In the words of Woody Allen “If you want to make God laugh then tell him your plans”. Life does not always go quite as we planned; hence the need for an emergency fund.

Ideally this should be at least 3 months income. For those who are unable to make such savings, you should still have appropriate plans in place; be that an overdraft or credit card.

And start saving early. If you want to scare yourself, calculate how many years it is until you are age 60 (or whatever age you want the option to retire at) then multiply that by 12. This will give you how many payslips you have left to build up a fund that is to provide for you in your retirement.

The earlier you start saving, the more you’ll benefit from compound interest which Einstein called the most powerful force in the universe. It’s well worth checking out.

Tip 7: Know where to take advice from

I still get amazed at how many medics and dentists make financial decisions based on discussions with their colleagues. It would seem appropriate to approach them for medical advice, but few are suitably qualified to give financial advice.

So who should be giving you financial advice?

People who care for you such as your parents

Even that should be done with care as we are all often products of our own experiences. Your parents may have lived through periods where the property market has done very well for them. They may even remember times when interest rates were in the region of 15% – something most of us could not contemplate today.

People who have clear expertise in the area you are needing advice on

In this example, it would be specialist financial advisers who understand the type of work you do, maybe even ones that blog a lot!

Are you guilty of ignoring the ‘failing to plan is a plan to fail’ principle? Let us know by adding a comment below.

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