7 tips to help doctors and dentists avoid financial ruin

Why are some medics more financially successful than others?

Aside from the obvious, different specialties 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 prevent 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, I know it’s boring. 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. Or if that’s still too tech for you just take the old-school route and write it all down. 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 to my next tip.

Tip 2: Know your good vs bad debt

Not all debt is bad, but it is worth noting the difference. Let me explain. Taking on debt to buy a house or course to further your career is not necessarily a bad thing as this may lead you to a better standard of living or potentially higher income.

On the other hand, making minimum payments on a credit card that has a 26% APR and no plans to clear the outstanding balance is not healthy! Your existing debt can easily spiral out of control.

You are likely to have some form of bad debt throughout your life, so you must have a plan to be free of it.

Tip 3: Be wary of over-stretching yourself

This one may seem to counter Tip 2 but taking on too much debt – even if it’s ‘a good’ 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 crops up more often these days are car loans. Taking out a finance deal as opposed to purchasing the car outright will have a big effect on your disposable monthly income. It can also influence your affordability for mortgage purposes, at the outset and on remortgaging.

All this expenditure can creep up, 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 somewhere without opening it?

Regularly checking things like your bank account and payslips makes it easier to spot errors at the time rather 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 are measured in the millions. It takes many hours and a large financial commitment to qualify, so protect your most important factor: your ability to work.

If you don’t have income protection then look into it. If you do, it’s worth checking if 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 other things to protect;: your life if you have a family that is 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 are 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 month’s 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.

Also, 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), then multiply that by 12. This will give you how many payslips you have left to build up a fund to provide for 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 am still 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 taken with some caution, as we are 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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