Financial planning is an essential step toward building a secure, stress-free future. It covers every aspect of your personal financial life – from budgeting and investments to insurance, tax planning, debt management, retirement, and estate planning.
Just like you look after your physical health by eating well, exercising regularly, and going for check-ups, you must also nurture your financial health with the same care. Financial planning is the routine that keeps your financial life fit. It helps you stay prepared for emergencies, realise your long-term dreams, and make the most of your money.
Here, we’ll go over some strategies to keep your financial health in top shape by understanding the various aspects of financial planning for doctors and how a finance advisor can help you along this journey.
Why Doctors Need Specialized Financial Planning
Here are some reasons why a financial planner for doctors can make a real difference:
1. Irregular Income
Since doctors earn their income in different ways such as salaries, private practice, consultancy fees, and diagnostics, the income from month to month can vary significantly. A salaried individual working in say, IT, can easily make and follow a budget that includes fixed savings, EMIs, insurance premiums, and SIPs because their income is consistent and predictable.
Doctors, on the other hand, deal with unpredictability. One month may be heavy and bring in a surge of patients, while another might not due to a variety of reasons. That’s why financial advice for doctors usually focuses on creating flexible budgeting strategies.
A financial planner can help you calculate your average monthly income, create a budget accordingly, and set up an emergency fund that covers at least 6 months of essential expenses.
2. Substantial Education Loans
Medical education is long and expensive. Chances are you’ve taken out a hefty education loan to fund your degree. The loan repayment can be a heavy financial burden in the early years of your career.
Financial planning covers debt management strategies to help you pay off education loans with high efficiency, like restructuring EMIs, using debt snowball and avalanche methods, and taking advantage of Section 80E benefits.
3. Delayed Earnings
Doctors often start to earn later compared to other professionals due to longer schooling. This delay has an impact on retirement planning. It is said the earlier you start investing, the better, because the power of compounding interest works best with time, and losing those early years of investing can make a dent in the size of your retirement corpus if not addressed properly.
But starting a bit late doesn’t mean you’ve fallen behind, it just means your financial plan needs to be more efficient from the get-go. A professional can assess your financial goals and risk tolerance and with goal-based investments can help you make the most of your income. That said, doctors also have flexibility in their careers. Unlike many other professions, doctors can choose when they want to retire.
So while this does extend earning years and eases the pressure on early retirement savings, you shouldn’t be complacent. Life is unpredictable, and situations may lead to early retirement. That’s why it’s wise to plan ahead, invest consistently, and build a retirement strategy that gives you the option to keep working in the later years.
4. Longer Work Hours
Medical emergencies don’t follow a schedule, and thus neither do a doctor’s working hours. We often see many doctors end up marrying fellow doctors because they understand the unpredictable hours, the fatigue, and the sheer weight that comes with the job. These long hours mean you get less time to focus on personal finances.
Since your financial life is also a critical part of your well-being, ignoring it can lead to avoidable stress. You can dedicate your time to healing others and leave the hard financial work to experts who can ensure your finances are being taken care of.
5. High Costs of Private Practice
For doctors practising privately, the costs of running a clinic can be significant. They need to cover rent, medical equipment, staff salaries, and also market their clinics. These costs can add up quickly and eat into the income. An expert can help you structure your practice expenses, identify opportunities for tax savings, make efficient debt management strategies, and even plan for expansions in the future.
Investments for Doctors: Diversifying Your Portfolio
Emergency and investment planning are key parts of financial planning for physicians. Before we go into the investments sections, let’s first understand what emergency planning is and why it’s important.
1. Emergency Planning
This part involves creating an emergency fund. This fund will act as a cushion to support you in times of unexpected situations, such as a medical emergency in the family, a sudden dip in income, home repairs, or any unforeseen financial setback. During these times, not having an emergency fund can be very problematic and can derail your plan.
You may be forced to prematurely liquidate your investments or even take quick high-interest debt to cover these unanticipated costs. For example, an investment like real estate is notorious for being illiquid. You can’t sell a property overnight to cover an emergency expense, and even if you manage to, it will likely not fetch a fair price.
Similarly, dipping into your savings or withdrawing from long-term investments can be quite troublesome. You should ideally maintain at least 6 months’ worth of living expenses in a highly liquid account, such as a liquid mutual fund and use it only for emergencies.
Once your emergency planning is in place, your next step should be to focus on investments.
2. Investment Planning
This part of the financial plan for physicians helps you create wealth and achieve your financial goals. Even though doctors earn handsomely, high income does not automatically mean financial security. Without a well-thought-out investment plan, your earnings can easily be consumed by inflation, lifestyle inflation, irregular expenses, and other factors.
You may have different ambitions such as buying a home, planning for your kids’ higher education, and expanding your clinic. Goal-based investment planning ensures that each of these goals is clearly mapped out. Here are some aspects of investment planning you should focus on:
1. Risk Profile
In investing, the principle of risk-reward tradeoff states that the more risks you take, the more is the potential for higher returns. But you should always make sure to follow an investment strategy that aligns with how much risk you can afford to take. Your ability to take risks depends on things like your age, family responsibilities, income, and obligations.
A younger doctor can take on higher-risk, higher-reward investments, as they have more time to ride out short-term market fluctuations while someone nearing retirement would probably go for more conservative options.
2. Financial Goals
Identify, define, and prioritise your short-, medium-, and long-term goals. You can use the SMART goal-setting method to set Specific, Measurable, Achievable, Relevant, and Time-bound goals to give a clearer direction to your financial journey.
3. Investments
There are plenty of options to choose from here. The key point to note is that your investment choices should align with the above two factors.
- Mutual Funds
This option allows you to invest in a diversified portfolio managed by a professional fund manager. You can invest via a lump sum amount, or through regular, fixed instalments called SIP (Systematic Investment Plans).
Mutual funds are not only flexible, convenient, and popular ways to invest but also offer variety to different kinds of investors. For example, a conservative individual can opt for debt funds like liquid and gilt funds. Moderate investors can balance through hybrid funds like BAFs. And aggressive investors can consider equity schemes like small-cap, large-cap, and sectoral funds.
It’s very easy to create wealth through mutual fund SIPs and the market knowledge and time commitment required is also minimal, making it one of the best options for doctors.
- Real Estate
For seasoned doctors looking for a long-term investment real estate can be an option. It does come with its own risks which should be kept in mind before investing. For diversifying your portfolio you can even look into REITs (Real Estate Investment Trusts).
These allow you to invest in property without the need to physically own it. They offer exposure to real estate with higher liquidity and lower entry costs (like SIPs), making them a good option for those wanting to invest in the real estate sector.
- Stocks
Though you can invest directly in equities through shares, you may find it hard as they demand a lot of time. You need to research options, maintain accounts, and consistently keep track of your portfolio.
If you can dedicate time and have a good understanding of market trends, direct equity can offer good returns but it is still recommended to consult a certified financial advisor planner before investing.
- Digital Gold
An alternative to holding physical gold, digital gold allows you to invest in the yellow metal in affordable quantities. Options like Sovereign Gold Bonds (SGBs), gold funds, and gold ETFs allow you to benefit from gold’s value without the storage or security concerns of physical gold.
It can be an excellent way to diversify your portfolio, especially in times of economic uncertainty.
- Portfolio Management Services:
For high-net-worth doctors with Rs. 50 lakhs or more to invest, PMS can be a great option. This investment offers personalised strategies and is professionally managed. Portfolios are tailored to your goals, with a more hands-on approach and in-depth market research than normal options.
You can opt for discretionary PMS, where the portfolio manager makes investment decisions on your behalf, or non-discretionary PMS, where you need to approve each of the manager’s decisions.
4. Asset Allocation and Diversification
Putting all your money into one type of investment can be very risky. Here’s how asset allocation and diversification can help you invest smartly. With asset allocation, you decide how to distribute your investments across different asset classes like equity and debt. This balance should be based on your age, financial goals, risk tolerance, investment horizon, etc.
Diversification means spreading your money within each asset class. So within equity, you might diversify across large-cap, mid-cap, and ELSS funds. Within debt, you could include fixed deposits, debt mutual funds, and G-secs. Doing so would mean underperformance in one area doesn’t drag down your entire portfolio.
5. Regular Reviews
As your income, goals, and market conditions change over time, so should your portfolio. A periodic, like an annual or semi-annual review, will help you make sure that your plan stays aligned with goals and risk tolerance.
By consulting with an expert wealth advisor, you can include all these elements into a clear and rock-solid strategy.
Understanding Indian Financial Regulations and Opportunities
Knowing more about tax regulations can lower your tax burden.
1. Tax-saving Investments Under 80C
Section 80C of the Income Tax Act allows you to reduce your taxable income by Rs. 1.5 lakh per financial year by investing in:
- Unit Linked Insurance Plans (ULIPs)
- Public Provident Fund
- National Pension System
- Equity Linked Savings Scheme (A type of mutual fund)
- 5-Year Tax-saving FDs
- National Savings Certificate
- Life insurance premiums
- Principal repayment on home loans
- Senior Citizens Savings Scheme
- Sukanya Samriddhi Yojana (only for a girl child)
2. Other Ways to Save Tax
The Income Tax Act also offers other ways to reduce tax, like:
- Section 80D: Up to Rs. 1 lakh can be deducted based on premiums paid for health insurance for self, spouse, children, and parents.
- Section 80E: Deduction can be claimed on the interest paid on education loans for higher studies (self, spouse, or children). There is no upper limit on the amount, which makes it one of the best tax-saving avenues for doctors.
- Section 80CCD(1B): By investing in the NPS, you can get an additional deduction of up to Rs. 50,000, which is above the normal Rs. 1.5 lakh limit under 80C.
- Section 24(b): Home loan interest deductions.
- Section 80G: Donations made to charitable institutions (that are deemed eligible by the IT Department) are qualified for deductions up to 50% or 100% of the amount donated.
- Section 80TTA: Interest earned from savings accounts qualifies for a deduction of up to Rs. 10,000. Section 80TTB deduction (which is up to Rs. 50,000 on interest from savings or FD) is applicable only for senior citizens.
- HRA and LTA benefits.
You should remember that you can only claim most of these deductions and exemptions under the old tax regime. While the new regime offers lower rates, it does not give you many ways to reduce your taxable income. A trusted tax advisor can help you understand which of the two would save you more money and also create personalized strategies that lower your taxes year in, year out.
3. Advance Tax Rules
If you calculate that your tax liability in a financial year exceeds Rs. 10,000, you’ll need to pay tax in advance in 4 installments (or just one if you opt for presumptive taxation). Salaried individuals have TDS taken care of by their employers, so they do not need to worry about advance tax from salaries.
However, doctors, especially those in private practice, earn income from multiple sources like consultations, salaries, capital gains, dividends, interest, and others. These are not always subject to TDS. If TDS is insufficient or not deducted, you must assess your tax liability yourself and pay advance tax accordingly.
This means estimating your annual income in advance and making payments by the due dates:
- 15th June: 15% of advance tax
- 15th September: 45%
- 15th December: 75%
- 15th March: 100%
Penalties under Sections 234B and 234C are enforced if you fail to make timely or accurate payments. A financial advisor for doctors can help you stay on top of your taxes by calculating advance tax correctly and ensuring timely payments.
4. Capital Gains Tax
Capital gains tax is the tax you pay on the profit earned when selling a capital asset such as shares, mutual funds, property, or gold. The rate depends on the type of asset and the holding period of the investment. A financial advisor for physicians can help you understand exactly how each asset is taxed, and guide you on when and how to sell for the best tax efficiency.
Financial Planning: Tips for Doctors to Keep in Mind
1. Create a realistic budget
Tracking income and expenses is important as you should know where your money is going. With a budget in place, you’ll not overspend and live within your means. A popular budgeting structure is the 50/30/20 budget, which states that roughly 50% of your income should cover essential expenses like rent, mortgage, groceries, bills, and insurance premiums; 30% can be spent on non-essential expenses like streaming services, luxuries, and memberships; and 20% should be saved.
You can use this framework to create a budget that aligns with your financial situation. You don’t need to follow it exactly as it is, and remember to stay realistic. A strict, unrealistic budget is hard to follow and can be discouraging.
2. Diversify your portfolio
Don’t put all your money in the same kind of asset. Spread it across equity, debt, real estate, and gold to reduce risk.
3. Take advantage of eligible exemptions and deductions
As we saw above, if you know the tax benefits you are eligible for you can reduce your taxable income and save more of your hard-earned money. The value of trusted advisor financial services here cannot be overstated.
4. Insure yourself and your loved ones
As a doctor, you already understand the importance of medical insurance better than most people. But it’s just as important to ensure that you and your family are financially protected. Comprehensive health insurance keeps your savings safe during medical emergencies, and term insurance can financially protect your family in your absence. You can even explore options like ULIPs, which combine investment with insurance and offer appealing tax benefits.
5. Get indemnity coverage
Certain types of professions are exposed to specific risks. With financial planning for doctors, you can protect yourself from legal claims and compensation liabilities.
6. Plan for emergencies
An emergency fund can prevent you from taking out high-interest debt or liquidating investments when unexpected expenses pop up. Build an emergency fund that covers at least 6 months of living expenses.
7. Keep loans in check
Try to repay existing education loans before investing heavily in your private practice. While it’s not a hard rule, you should avoid over-leveraging when setting up or expanding your practice.
8. Estate planning is important
Inheritance or estate planning includes drafting wills, assigning nominees, and setting up private trusts to plan your estate. This is done to ensure your assets are distributed according to your wishes and reduces conflicts and burdens on your family during difficult times.
9. Keep an eye on your financial plan
Review your plan at least once a year to make sure it does not stray from its path. Your plan should evolve as your personal and financial circumstances change.
10. Hire a professional
An expert can help you take care of every part of your financial life, save you time, prevent costly mistakes, and maximise your wealth potential. If you are seeking a financial advisor in Mumbai or any other city, give our planners a chance to serve you. You can connect with us online for a personalized consultation from the comfort of your home.
Conclusion
Just as your patients need expert care, so does your financial life. Doctors can benefit immensely from proper financial planning. By working with our trusted financial advisors, you can invest to create long-term wealth, save more taxes, manage debt efficiently, and make better decisions while saving your precious time.
