Financial planning for doctors is very similar to the doctors for everyone’s health. As a medical expert, you are looking after the physical well-being of everyone around you. However, you need to channel your earnings so that the money you earn works to make your life better. Whether you are earning well or taking your profession as a service to the people, financial planning can help you achieve your dreams better.
It takes years of toil and hard work to secure a seat to study medicine in a college. As undergraduate degrees such as MBBS may not suffice, most doctors go on to acquire an MS, MD or related degrees to specialize in an area of their choice. Their careers generally start a bit late and they earn through consultations at hospitals and private practice and that too after they have built a reputation. The earning potential is not evergreen and can start cooling off after hitting a peak during the prime time of 40-50 years of age.
What is Financial Planning for Doctors?
Just like anyone else, doctors too have dreams, aspirations and plans. Short-term goals could be going on a vacation or renovating your house. Long-term goals may include children’s education, moving to a bigger house and planning for retirement.
Yes, as a doctor you too should plan for retirement. Although there is no formal retirement age in your profession, you’d like to stop working for money some time in your life. While young you can take up opportunities and push the boundaries of your work capacity. This also means better earnings.
However, it is important to channelise these earnings towards your goals. Financial planning will do that for you. Financial planning for doctors is specifically aimed at addressing the financial challenges, goals and aspirations you will have in your profession:
a) Always having a kitty for education
b) Emergency funds for urgent needs
c) Saving for starting your clinic or practice
d) Saving for own retirement
e) Family goals and children’s future education and marriage
In the initial phase, you may have education loans to pay off besides making capital investments in setting up a practice. In this phase, safeguarding the family and ensuring adequate financial protection, to mitigate risks, is essential.
Planning for long-term goals and retirement can help you sustain life without financial hardships. Consistent and systematic investments, in the long run, will ensure wealth creation and a sizeable retirement corpus.
Safety for Family & Self-Contingency Planning
Who can be more aware of the emergencies that can befall human lives than you? However, any such emergencies should not put you off the rails financially. Contingency planning helps you have the financial cushion you need to survive such scares of life.
Here are the things you can do to indemnify yourself and your family from contingencies:
1 . Buy Indemnity Insurance:If you are a doctor, you probably know the risks in your profession. You need special insurance to indemnify yourself against any claims, compensation or damages. Although healthcare is a noble profession, the risk of getting sued is real.
People file cases of negligence and/or malpractice if a family member is affected or passes away despite your best efforts. A professional indemnity insurance policy can safeguard you against such probable financial losses.
2. Have a Term Insurance Plan:No doubt you will earn well as a doctor. However, a reality check shows that earnings are unpredictable unlike in a stable government or corporate job. Moreover, maximum earnings happen during your primetime. The initial stages of your career will see more outflow for education, setting up your private clinic (including necessary equipment etc).
Loans for education and infrastructure can eat into your income. Your family responsibilities will also be increasing in parallel. Term insurance will ensure that your family gets an adequate sum assured in case of your unfortunate demise.
3. Family Health Insurance:Doctors have erratic and unpredictable working hours. You may have skipped meals umpteen number of times or at best had quick bites at random hours. These food habits and working styles can affect your health. Healthcare costs are spiralling by the day.
You are more vulnerable if you have just set out to build a career. You have limited disposable income to foot exorbitant hospital bills, should the need arise. Even at later stages, healthcare cover is essential because treatment for serious illnesses is expensive. Health insurance can help you manage these expenses. Additional riders for critical illness and accidents allow an additional lumpsum amount to be paid that can be utilized for incidental expenses.
Saving for Retirement
Start investing the day you start earning. Despite all financial commitments, make it a habit to set aside at least 10% of your income for your retirement kitty. Invest in diverse financial instruments to maximize returns. A few are listed below for your ready reference:
1. Unit Linked Insurance Plans (ULIPs):In ULIPs, you can put your money in diverse equity and debt funds. Early exposure to equity can generate wealth. When you are closer to retirement, move your money to debt instruments to preserve capital. The returns from ULIPs are exempt from tax under section 10(10D). The following features make ULIPs a perfect retirement saving plan:
a. Invest in a mix of equity and debt portfolios
b. You can invest up to Rs 2.5 lakh a year in ULIPs and stay tax-exempt on the returns from them
c. ULIPs like Invest 4G from Canara HSBC Life Insurance allow you to invest for up to 99 years of age
d. Since partial withdrawals from ULIPs are tax exempt, you can invest up to the age of 60 and then draw a tax-free pension from the same plan
e. Bonus additions help your portfolio grow further
f. ULIPs allow milestone-based withdrawals which will be useful if you wish to upgrade your practice or go for an upskilling program.
2. Public Provident Fund (PPF):PPF is a sovereign guaranteed investment and comes with tax benefits. PPF offers a 7.1% p.a. rate of interest (as per the July 1, 2022 circular). The amount deposited in PPF accounts is deductible, under Section 80C, from taxable income whereas all withdrawals are exempt from taxes. Partial withdrawals are allowed from the 7th year.
3. National Pension Scheme (NPS):Investments in NPS are exempt from taxes both at maturity and annuity (up to 40%) stages. Upon reaching 60, you can withdraw 60% of the corpus and receive a pension from the balance of 40%. Contributions to NPS are deductible, under sections 80C section 80CCD(1b), from taxable income.
Saving for Family’s Financial Goals
Your family’s financial goals may include different things ranging from career planning to leisure time. Here are some common goals that most people think of:
1. Car:A car still carries tremendous social prestige in India. A car is a symbol of progress, success and accomplishment.
2. Home:An own house has emotional strings attached despite several financial gurus proving no significant financial advantage of owning over renting. But a permanent shelter is always a good idea to avoid the hassles of shifting at the whims and fancies of owners of rented houses.
3. Wedding:Once you are employed and have worked for a few years, it is natural to think of marriage. Indian weddings are an expensive affair because you want to invite your entire clan.
4. VacationLeisure time is a must to unwind, recharge and come back to work with renewed vigour. In addition, you also experience new locations and learn about diverse cultures.
5. Wealth:You may simply want to amass loads of wealth and become a rich person
How to Invest for Family Goals?
Investment should be done keeping in view the short- and long-term objectives. Long-term objectives can be matched with slightly illiquid investments whereas short-term goals can be met with simple financial instruments such as bank deposits etc. A few pointers are listed below:
1. Short Term (0-5 Years)
Keeping funds liquid is necessary because you may need the money anytime. A savings account and bank fixed deposits (without a lock-in period) are ideal.
2. Medium Term (5-10 Years)
Mutual funds focus on specific industries or companies and you may invest depending on your risk appetite and targeted return. For guaranteed returns in the medium term, you may consider mutual funds that invest in government securities, corporate debentures and bonds.
3. Long Term (10+ Years)
You want money to pay your child’s college fees or build your dream house. As builders charge in tranches and colleges ask fees each semester, you may want money in streams rather than as a lump sum. ULIPs are best suited for this purpose because you can invest in both equity and debt. In the initial stage, you must allocate more money to equities to generate wealth and subsequently start moving to debt funds. ULIPs also allow partial withdrawals at certain stages to meet milestone-based expenses.
Financial planning and goal setting are important even for doctors. You must take this up on priority. Although doctors have great earning potential, investing wisely is equally important. The most important thing is to make a plan that is relevant to both you and your family.Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.