The more doctors that I meet and talk about money, the more I am convinced that there is a nice pattern in doctors financial mistakes. This is across age groups and geographies. Let me enumerate:
- Paid too much for education: it is sad but true that the medical education in this country needs a lot of reforms. As it exists today, there is just not enough ROI on being a doctor. It is almost IMPOSSIBLE TO cover the education costs of being a doctor. So if a doctor has spent Rs. 3 crores on his / her education – let us assume this is funded by a loan costing 10% per annum, the doctor has to earn Rs. 30 lakhs a year JUST TO PAY THE interest forget repaying the principal.
- Too much debt: the minute a 18 year old joins a medical school he/she is addressed as a ‘doctor’ – and this gets into their head. So you suddenly have banks offering car loans, vacation loans, marriage loans, home mortgages, free credit cards, and get them into a lot of debt – most of it poorly created and very expensively priced. Once you are trapped, you are trapped.
- Living beyone one’s means: Many doctors live beyond their means. Living within one’s means is very important. You ACTUALLY you need to live far, far below your means that you can pay yourself first and FIND money to invest, pay down debt, and build net worth. Saving AT LEAST 10% is the general rule for most people . Doctors only get about 30 years, so they need to be saving maybe 15-20% if they plan to retire. And this saving percentage is not including saving for your next car, that boat, a house mortgage down payment, or your kid’s college fund. That’s JUST retirement. A 5% savings rate, sorry, will not be sufficient. So on a Rs. 200,000 salary, that’s 40K a year.
- Giving loans to friends and relatives – and the money loses itself and its friend! Have done a post on this separately.
- Poor knowledge of accounting, taxation, and costing: doctors do not understand their own profit and loss account, how much they earn, depreciation, ammortisation, cash flow, variable and fixed costs….so they have no clue how many hours they need to work, how much to charge, etc. and this aggravates the problem further.
- Poor knowledge of Investing: A banker walks into a doctor’s clinic and sells a lemon. Terribly priced bad products with long lock ins and bad and poor returns are a staple product in a doctor’s portfolio. This does awful damage – like a taxable bank fixed deposit or a poor yielding endowment plans. Thus the money is not growing – and the doctor with his poor analytical skills does not even know that till he is shown a mirror.
- Poor record keeping – tied to 5 and 6 above. However when a dentist or any practice which needs a divorce he/she realizes the accounting mess – and the pain of setting things right when you are under tremendous mental strength.
- Wrong medical, life and liability insurance – well if you have bought what has been ‘sold’ to you, the chances are you have bought what the salesman wanted you to buy. This is like the magician’s trick – you pick up the card that he wanted you to pick up. Simple.
Will add more as I meet more doctors!
By:
DharniGroup.com