Doctors should get their funds in order

Young doctors are a community of great interest for an observer of personal financial habits. Many of them are super specialists, having acquired multiple degrees. Surprisingly, there is an undertone of discontent when one speaks to them. 

They talk about the rot in the medical education system in India, the poor quality of hospitals and the trying life of an intern. When the conversation switches to their personal lives, there are dominant strands of worry. They regret the lost youth to the rigours of studying. They worry about finding a mate. They are apprehensive about beginning an earning career in their 30s. For managing finances, they are quite unprepared.

Doctors represent a professional breed that technically need not retire. While most of us obsess about what happens when we stop earning, doctors can practice as long as they are healthy and fit. In compensation for the late start, their earning years stretch longer. My neighbourhood doctor, who is our first port of call for any illness, just celebrated 50 years of practice. In personal finance, wealth is not defined by just what one has. It also includes potential future income.

Young doctors should look at movie stars and sportspersons for comparison. These are also professionals, who work very hard to master their art. But not all of them find profitable employment and the small percentage that succeeds, suffers a short earning span (One Mr Bachchan is an exception). Doctors enjoy the benefit of low risk, longtenured future income. They should build on this valuable premise. A doctor who invests as a habit, keeps penury away.

My doctor friends protested when I brought up income security. They told me not all doctors make it big. They pointed out the low salary and restrictions of a government job; the corruption in the job market; and the difficulty of setting up private practice. A more detailed discussion revealed something else. Doctors were receiving poor quality financial advice and were doing it all wrong. Their high income, busy schedule and poor knowledge of finance made them the target of unscrupulous advisers. The culprits are chartered accountants, insurance agents and private bankers, in that order.

Doctors are advised early on to understate their income and pay low taxes. Since a good part of their income is earned in cash, their accountants advise them to hide it. In contrast, doctors who account for their income have a healthy bank account and record of assets. They are then able to take loans for setting up private practice, convince private investors to lend to them, or establish books of accounts that are large enough to support expansion and specialisation. Borrowing is a highly useful tool to create and expand assets, when there is a steady future income.

Doctors need training, not in investments, but in business strategy and funding, so they are able to see how leverage can be used. Doctors stuck in their growth path are mostly those who hoard cash and do not know what to do with it. They are unsure whether they are rich or poor, and they depend too much on their chartered accountants.

They are also generally suspicious about those in the financial markets, having heard of devious routes to evade taxes. They usually buy depreciating assets like cars and luxury items too often (to claim depreciation!) and buy gold and property where cash can be hidden. They are then sucked into the vortex of black assets. They are not able to sell the land or property to set up a clinic, unless their equipment suppliers and vendors also accept cash. Even when they do, they end up with assets whose book value in white is too low to enable loans or funding.

Many doctors also end up becoming ineligible for loans, since their tax returns and book value of white assets is too less. I have heard horror stories about doctors who cannot get home loans, education loans and credit cards. If I had to leave young doctors with one advice, I would ask them to not fall into the trap of declaring a low income to evade taxes. Get out of that rut and build assets you are free to use. Complicated personal finances with multiple books and unknown tactics means a lack of control, vulnerability to crooks, and loss of opportunity.

Lack of time to make financial decisions also leads to inefficient investment decisions. Insurance policies are bought without thought. (I met one doctor who paid Rs 20 lakh as monthly premium for useless policies with single digit returns). The simplest evidence of lack of financial literacy is the inability to discount future values. Doctors must learn this math. Rupee payouts that will come far into the future are not as big as they seem now. Paying large amounts for small future benefits is bad finance.