Though doctors are highly professional and organized, while working and planning trips, but when it comes to financial affairs, they are at the bottom of the list in planning their financial life properly. It takes considerable effort and time to complete a master’s degree like MD with some specializations. A doctor usually starts earning late compared to other professions and reaches its peak almost after 35 years of age. Their long erratic working hours can lead to lesser involvement in social and personal life and hence events like marriages, kids, financial matters etc take back seat which can impact their financial life significantly.
Why doctors are poor financial planners
Doctors need to be in tune with the current trends, changes, to stay updated with the latest technologies and to keep updating their skills, a doctor normally invests more than any other profession. Even though with an advantage that they can practise their profession throughout until possible, one should not be negligent thinking that the career is long enough and hence, retirement plans should always be kept in mind, which most of them tend to ignore. Compared to other professions, doctors start earning at a very late age which can make them invest for high returns resulting in lower than expected returns and sometimes losses. Some of the mistakes commonly made are:
1. Investing in real estate – for housing and setting up their practices, most of the doctors in India invest huge amounts in real estates. Lack of understanding that real estate is just an asset class which can result in over as well under performances, totally investing in it might not be a good idea.
2. Busy schedule and time constraint – doctor profession is one of the most hard pressed for time and in the daily crushing of things, they tend to take a back seat in managing their finances. This leads them to either invest in a very unstructured and impromptu manner or the decision making is handed over to a non-expert.
3. Improper investments for tax planning– doctors usually have a notion that the objective of tax planning is to minimize the taxes and end up investing in places which are not in their best interest. This blinkered vision often results in unwanted loans, real estate investment and insurance in an unorganised manner.
4. Lack of awareness about market returns – In any economical situation, doctor’s services is never out of demand and hence they can afford to take higher risks in their investment assortment. But being unaware of this or being misguided by non-experts, they tend to over invest in low risk low return products.
Why Doctors must partner financial planners
Many doctors are majorly focused on investments and have a product-centric approach rather than managing their personal finances holistically. That’s where an expert financial planner can help. A financial planner helps you to plan the financial needs that include goal planning, net worth analysis, cash flow management, asset allocation strategies to minimize taxation, insurance planning, risk management, succession planning, and managing the liabilities.
1. Unlike simple investment planning, financial planning approach is a much broader concept that helps the doctors to take care of their financials by experts.
2. Without wasting much time during their working period, a doctor needs to get in touch with an expert to plan and organise their finances. As unlike any other profession, doctors have delayed cash inflows and require intensive capital investments in infrastructures and machineries which significantly affect a doctor’s financial life in the long financial run.
3. With their availability and demand across the clock to serve the public, they often run short of time and are not able to focus properly on the financial matters. To keep their financial life healthy and on track, a financial planner is necessary.
4. This is one of the dilemma’s that lead many doctor’s to take wrong decisions, whether to setup own practice or continue the salaried job at a hospital. Setting up an own practise is not so easy and an expert advice on managing the financial aspects will be necessary. A financial planner will help to calculate how much investment is required, space requirements, cost, place, services offered and other overhead costs. And further to identify the status of the cash flow, listing of the revenue and expenses can also be done by them.
5. When both the husband and wife are doctors, they earn well but generally lack in planning their finances. This is due to the fact that they are unable to keep a check on their monthly earnings (due to variability) and tend to mix up with their personal and professional expenses. As they do not understand investment planning and tax planning techniques, they often end up making wrong investment choices. Partnering up a financial planner can help manage all these.
If the doctor does not have the time or the inclination for financial planning, they should invest in having a good financial planner who can manage their finances and give them sound investment advice as per their needs and desired goals.
Managing Partner of AKGVG & Associates, Avinash Aggarwal, New Delhi