Financial health check for doctors, money management

Manikaran Singal

Are doctors different? Do they require some specific kind of financial planning? These are the first few questions that were asked to me while I was addressing a group of doctors on different money issues.

My reply was Yes and No. Since doctors are also human beings, so they also behave like their patients in most of the cases which is one of the reasons they should look out for a structured approach in money management. Yes there are some specific challenges in doctor’s life so they need specific attention.

Doctors in general start earning in late 20s. Unlike other professions such as engineering, or CAs, doctors start earning late. Acquiring doctor’s degree is result of years of hard work in academics, many years of training and spending huge sum of money.

MBBS, postgraduation, specialisation etc. all this takes quite a time of their youth, and initial money-compounding years.

This is not all, in this ever changing scenario they need to stay relevant and updated by attending conferences, participating and reading the researches and all this further demands their time and money.

After basic studies, the next decision comes in front of them is to join a job or start own practice. In the initial years, most doctors prefer to work in some hospital, as starting own practice has its own demands in terms of money and time, unless they have the running practice of their parents and some of the infrastructure is already in place.

Peak earning age

The peak earning age band for doctors is 35-55, and more or less the life goes smooth for them, at least as per their assumption. Here the story starts. Their smooth and regular cash flows expose them to many financial risks, which makes them commit many financial mistakes.

Cash flows

The cash flow of doctors, with least risk of job loss or practice slowdown, makes them the first choice for the lenders. They are lured with many credit cards with high credit limits, car loans and home loans with less documentation, which further makes them the preferred choice for the property sellers. This result them going in high on real estate and other loans. When having most of the earnings in cash, real estate becomes the only asset where one can invest into. They do not realise the risks of going overboard on a single asset class and also the risks of health and life, which can further aggravate the issue.

Due to time constraints in their life, they are exposed to many missellers. Many doctors have a lot of insurance policies with them but still they are under insured. Many have lot of mutual funds with no targeted goals. Many also invest in PMS with no understanding of how it actually works. They oblige everyone from bankers, friends, to relatives, and end up with a skewed portfolio with no clear cut structure and direction.

I find it quite amusing that doctors recommend patients to consult only professionals for medical help, and get advice from registered doctors only, but when it comes to their own financial health they themselves take advice from sellers and unregistered distributors and agents.  Besides this some also have behavioural issues of self-investment just like their patients do self-medication.

Doctors spend so much time with their patients diagnosing the real problem, advice some blood tests to gauge the root cause of the health issue, but do not spend enough time to improve their financial health.

They do not invest for their goals, but ask for only investments to make money fast, just like their patients want only medicine and get cured fast.

The two major diagnostic tests in a financial health check are the cash flow analysis and net worth analysis. 

Cash flow analysis

Cash flow analysis is just like a lipid profile which lets a planner diagnose the liquidity issues, loans and savings situation in a profile and figure out how the investible surplus to be used to improve the overall financial health. 

Net worth analysis

Net worth analysis lets diagnose the financial assets and liabilities structure, the investment asset allocation and how well a person is able to survive the crises situation. 

Risk profiling

Risk profiling is another diagnostic test which results the sensitivity of doctors to different financial risks and manage the expectations on returns.

But, the challenge with doctors or professionals in general is that they are not aware about their cash flows. They might be aware of their earnings as they pay tax on that, but hardly anything on where they are spending. They do not find this exercise worth giving time to.

Practising doctors might have some of the business loans running and have no demarcation between personal and practice expenses. When they need money for personal requirement they use it from business account and vice versa, which is totally wrong way to manage the financial affairs.

To live a healthy financial life, it is important to hold on to the cash flows which give understanding on one’s lifestyle and which are the expenses or investments that are unnecessary and can be curtailed. It is important to have investments as per the life goals.

Asset allocation

Your asset allocation should be as per your risk profile and also to have adequate liquidity to manage the financial and emergency requirements.

You should deal only with registered and regulated financial advisers. Check SEBI website to get list of advisers in your area.

Goal-based investment

Goal-based investments give a clear idea on the investment horizon which further helps in selection of suitable products. A proper financial planning structure helps manage money better. Life and health is uncertain so the target should be to generate a comfortable passive income and not just to collect illiquid assets.

The writer is CFP and SEBI-registered investment adviser at www.goodmoneying.com. The views expressed in this article are his own