Why doctors are always BROKE! Due to the proposed salary cuts by Jeremy Hunt and Co., money is a word that is on everyone’s lips (albeit whispered). Money is a subject that most will avoid talking about, for fear of being accused of being greedy, superficial, or self-interested. As we all know, nothing could be further from the truth – doctors certainly do not select or stay in the profession for the money, the free time, or the ‘high-life’. Several doctors have recently been made scapegoats in the media for having a ‘side business’ as innocent as photography, for working as – shock horror – locums, and even for having the cheek after decades of study, debt, and hard grafting, to earn as much as £100,00 -200,000 per year! Money is a dirty word and no one wants to admit to needing or wanting more of it. It may come as a surprise to you to know that most doctors are in serious financial difficulty – yes even the Harley Street ‘fat cats’ have problems – and if not, their finances hang on a very delicate thread indeed. Many financial advisors and accountants have admitted that doctors are notoriously bad at managing money and while they may have a financial awareness, most lack a meaningful financial education and frequently misunderstand the difference between an asset and a liability. There are several reasons that doctors fall short when it comes to managing or investing their money, but the 3 most important reasons are listed below:” 1. Being on the ‘back foot’ from the word “Go” The nature of the Medical career path is such that it can really put you on the back foot from the word “Go”. Medicine is a long and expensive university course and it’s estimated that the majority of doctors graduate with well over £50,000 of debt. Enter the foundation doctor. After a minimum of 5-7 years hard work and, salary-starved junior doctors are hyped at finally having some £££ dropping into their bank account each month, and they are ready to spend, spend, spend. The endless availability of credit cards and the possibility for consumers to carry out ‘1-click’ purchases online (thanks Amazon!) matched with a having stressful job, long hours and “because I’m worth it” attitude towards spending, is a recipe for financial disaster. Many doctors get into bad habits almost immediately, spending everything they earn and borrowing credit they can’t afford. These bad habits compounded over time, can lead to very damaging situations. Enter the consultant. After slaving away as a #juniordoctor for another 5-10 years, enjoying some modest pay rises which come with a 40% tax rate reward, some sort of financial stability, perhaps even savings (!) appear on the horizon. Oh but don’t forget, most doctors put off settling down or having kids until pretty late due to their dedication to the profession and the result is that in their mid 30’s or 40’s, financial problems hit AGAIN. Along come the kids, the house, the car, and the expectations of what one should be earning and how one should be living. Private schools, nice things, holidays abroad, and keeping up with the Jones’ potentiate the ‘hand to mouth’ culture. Ask any of your seniors how long they could survive if they lost their job and the answers are frightening! In short, compared to other professions, doctors rack up high student debts, start working later, have fewer years of paying into pensions, and generally retire earlier due to burnout. The odds my friends, are stacked against us from the start. 2. Poor financial education Like most people, doctors have a pretty poor financial education. We work long and hard learning how to practice medicine and unconsciously learn how to work for money. Sadly, very few people ever learn how to make money work for them. Financial education, money habits and attitudes towards money are deeply ingrained in us as we grow up. In a discussion I followed on twitter several months ago, one doctor commented on “how sad” it was that some doctors were motivated by money. We live in a world where money is the name of the game, like it or not, none of us can survive without it and the only way to survive this and break free of depending on the system is to learn the rules of the game. A holier-than-though attitude may make you feel better but I can guarantee that no one dies dreaming that they wished they had made less money! Doctors fund their way through medical school using student loans, scholarships, part-time job funds, and in some cases, the bank of mum and dad. Unfortunately these funds are thrust into the hands of somewhat inexperienced young people who rarely have had training or use available guidance on how to manage their finances. For 5-7 years medical students become very accustomed to spending but not earning. This leads to a very complicated set of behaviours later on in life already alluded to above and the fact that medicine is an extremely, extremely time-consuming, physically and mentally demanding career, despite doctors having ALL of the skills required to become excellent investors and managers of their money, they hardly ever do. Why? Lack of time, lack of motivation, and the belief that you wok for money and your pension will take care of you. It’s time to wake up to this illusion and take some responsibility for our financial futures. Doing this will not only banish money worries for good, but will allow you to b in a better position for doing more good in the world and on a greater scale (if you so wish!). 3. Personal characteristics (either naïve or arrogant) Several articles I have read about doctors as investors allude to the fact that doctors are extremely naïve when it comes to investments, and the apparent ‘good intentions’ of financial advisors and investment companies. Due to the fact that doctors work in an environment where ethics and moral code of practice, putting others first, and working for a cause greater than cashflow are paramount, they become ‘out of touch’ with what goes on in the real world, and are vulnerable to the motivations of others who will see them as easy targets to advise and sell financial products to. The opposite is also true. Doctors have a special status in society that affords us respect, credibility, authority and admiration. We are (mostly) an intelligent bunch, and there is an expectation both from ourselves as well as from others that we should be knowledgeable about all sorts of things – investment being one of them. This can sometimes lead to arrogance or over-confidence when it comes to investing and huge errors of judgement can be made secondary to inexperience and inadequate knowledge. However it’s not all doom and gloom. Some doctors do overcome these common problems and pitfalls and are more than equipped with the skills required to manage and invest their money successfully. The first step is having an awareness of the importance of understanding the money game, the second is investing yourself and getting financially educated through reading, speaking to others or attending a couple of short courses. Lastly, always be very war of any companies who approach you dangling carrots, there are some great opportunities there but only go for them when you are sure that you have the knowledge, experience, or expert advice available to protect you against making big mistakes. 4) Inappropriate investment plan– With a high income and a high savings rate, any reasonable investment plan should get the physician investor to his goal. Unfortunately, far too many doctors have inappropriate investment plans. These range from day-trading tech stocks, to huge swings in asset allocation into the asset class with the most impressive recent performance (buying high/selling low), to being overly conservative and leaving money in assets without adequate long-term returns. Getting 5% after-inflation long-term returns is not that hard to do, but without a reasonable investment plan, even that may be asking too much. Compounding doesn’t do any good if it doesn’t happen at a rate significantly higher than inflation. 5) Excessive investment costs– Getting help from a financial adviser can help the physician investor avoid the problems outlined in 5 above, but if done improperly, can introduce a new problem. In investing, you get what you don’t pay for. So if your investment costs are 1%, 2%, or even 3% a year, that comes straight off the top of your return. Costs of 3% a year reduce your after-inflation return of 5% to 2%. After 35 years of saving $50K a year, that’s a difference of $2 Million! That’s more than all the money you saved over those years! Taxes on your investments can have exactly the same effect, so it is important to minimize those as much as possible too. Source 1 Source 2
