Being a locum has many advantages. Greater flexibility, autonomy and variety, but there are some disadvantages too. Peaks and troughs in income, difficulties with getting a mortgage, and uncertainty about your financial situation if you fall ill or die to name just a few. Modern life can compound matters too.
A recent report¹ has found that 1 in 4 families are now single parent households. Sadly, being a doctor doesn’t make you immune to such statistics and increasingly I’m being asked for advice about this very situation.
But fear not! Here are my 5 tips that can help make your finances as a locum run more smoothly in the future.
Tip 1: Make sure you and your family are taken care of no matter what
Who is going to look after you and your loved ones financially if you fall ill and can’t work, or you die?
Whilst the benefits offered by the NHS Pension Scheme are a good starting point for many locums, it doesn’t cover you for sick pay. You won’t qualify for death in service either if you die at any time outside of your contracted hours. GP locums: Will you get your death in service benefit? >
A suite of protection policies is an essential part of a locum’s basic financial plan. Making sure that your mortgage and any other debts are cleared in the event of your death, and that a sum is left for your family to use in the future, is your basic priority. It’s also surprisingly affordable.
Different types of policies
Not all policies and providers are the same. For example, with a guaranteed premium policy (as opposed to a reviewable policy), you won’t suffer increased costs in the future that could tempt you to cancel your cover. It’s a type of policy worth considering at least.
Cover options if you’re ill
Things are more complicated if you fall ill, either in the short or long term. You have two options here. Ideally take both.
Critical illness is a lump sum payable on diagnosis of a defined list of critical illnesses. What qualifies as a ‘critical illness’ varies from company to company, so take your time to understand what your policy will offer you.
The best ones also cover your ability to perform the duties of your normal occupation, so the provider’s specialist knowledge about your type of medicine is vital here. Not many really understand the difference between a surgeon and a GP, and some policies will only pay out if you are unable to perform ANY job…including scanning groceries at the supermarket checkout!
Income protection is a replacement regular income when you’re ill and unable to work. As you will receive zero sick pay as a locum, you need to consider a policy that pays out sooner than your employed counterparts.
Policies can start immediately after falling ill or after a set time period such as 4, 13, 26 or 52 weeks. The longer you wait for payment, the cheaper the premium. Again, the provider’s career specific understanding is so important here. Take expert advice from a specialist IFA like ourselves to fully understand the ones that will suit you best.
Tip 2: Set aside a ‘rainy day’ fund
It seems like an obvious one but it’s surprising how many people I meet that don’t do this.
Decide on a sum, maybe a few month’s outgoings, and put it away in a bank account. Think of it as an additional, cheaper income protection policy you can fall back on if / when needed. One you have complete control over.
Tip 3: Getting a mortgage as a locum doesn’t have to be so painful
I get asked more questions about getting a mortgage as a locum than any other topic. It’s always a bit less straightforward than for other doctors as you generally need at least 2 years’ accounts before most companies will lend to you.
Having said that, there are a few lenders that will consider you after you hold 1 full year’s accounts.
If you’re planning to buy a house, inform your accountant before finalising your accounts. Generally, your accountant’s objective is to legitimately minimise the tax you pay but, in doing so, your taxable income is reduced.
When you want to get a mortgage, your objective is to show that you can comfortably afford the mortgage repayments. Your accounts and bank statements will need to evidence this.
Child maintenance often forms an integral part of a family’s financial situation, yet it can also pose a few tricky problems when applying for mortgages.
Some lenders will totally disregard it if you’re receiving it, but will fully take it into account if you’re paying it when calculating your affordability. That always strikes me as rather unfair!
Other lenders will take the receipt of maintenance into account but not fully. 65% is sometimes used. But they may also then limit the term of the mortgage to the timescale you will be in receipt of the maintenance, e.g. until your youngest is 21. With most of us trying to stretch our mortgage terms until retirement, this can cause issues.
Finding the right mortgage for you can be a minefield that eats up hours of your time and feels like a wild goose chase at times. If you want to shorten the process, get in touch…we have seen this many times before and can help ease the frustration!
Tip 4: Check if you’re eligible for Childcare Choices
Juggling childcare and work is mind boggling and very expensive at times. Unless you have an adoring grandparent or two on tap, make sure you are claiming all the Government help you can.
If you have a 2, 3 or 4-year-old, you may qualify for free childcare hours. Help with childcare costs for self-employed medics >
Tip 5: Keep up-to-date on your NHS Pension Scheme
As a locum, you faithfully send away your forms and payments to the NHS Pension Scheme in the hope that it’s all going to the right place and being credited to you. Sound familiar?
Once a year every pension scheme has to provide its members with a statement of benefits. The NHS Pension Scheme is no different.
Your online Total Rewards Statement is the easiest way to check you’re being credited appropriately, so it’s a vital part of your financial housekeeping. Unfortunately, some doctors struggle to get access to their statement and when you do get it, it can be as clear as mud!
Because your Total Rewards Statement holds so much useful information, we ask all our clients to forward a copy on to us so that we can ‘translate’ what yours means for you and your future.
So, there you have it. A few simple things every locum can do to make their financial lives less complicated and add some calm to a sometimes manic life!