A doctor’s first money plan

The first real money of a medical career tends to arrive late and all at once. After years of fees and dependence, a stipend or salary appears, along with a great deal of advice from people who are often selling something. This guide is the opposite of a sales pitch: a sequence of decisions, in the order that usually makes sense, with the reasons for each. Your situation may justify a different order. That is a judgement worth making deliberately.

1. Decide what the money is for

Before any spreadsheet, write down what you would like money to make possible over the next five years. A specialty choice made for the right reasons. A cushion that lets you leave a bad job. Support for your family. A year abroad. A clinic of your own. These answers decide everything else, from how much you keep liquid to how much risk makes sense.

Wealth, as we use the word, means options. A plan that maximises a number but leaves you with no room to choose has missed the point.

2. Know your numbers

For one month, track where the money goes. Then divide it into two groups: essential costs (rent, food, transport, loan repayments, support you have committed to) and everything else. The essential number is the most useful figure in your financial life. It tells you what freedom costs.

3. Build a cushion first

An emergency fund is money kept somewhere safe and easy to reach, set aside for the unexpected: a gap between jobs, an illness, a family need. It comes before investing because it stops a bad month from forcing you to sell investments at the wrong time or borrow expensively.

How large it should be depends on how secure your income is. A salaried post with a long contract needs less than consulting work that varies month to month. Express it in months of essential costs, and keep it boring: a savings account or something equally liquid, not something that can fall in value when you need it.

4. Protect what you cannot afford to lose

Insurance is not an investment. Its job is to stop a single event from undoing years of progress.

• Health insurance. Doctors become patients too, and cover that comes with a job usually ends with the job. Read the waiting periods, co-payments and sub-limits before you need them.
• Term insurance, if anyone depends on your income. It pays only if you die during the term and has no investment element, which is why it is usually far cheaper than policies that combine the two.
• Professional indemnity. Find out exactly what your employer’s cover includes before relying on it.

Insurers in India are regulated by IRDAI.³ A policy that is sold to you as an investment deserves particular care: ask what it would cost to buy the insurance and the investment separately.

5. Deal with expensive debt

If you have an education loan or other borrowing, know three numbers: the interest rate, whether it is fixed or floating, and what happens to interest during any moratorium. Expensive debt is a guaranteed cost, and paying it down is a guaranteed saving. Whether to repay early or invest instead depends on the rate, your security and your temperament, and is a decision worth making with your own numbers.

6. Invest simply, for the long term

Once you have a cushion, protection and no expensive debt, long-term investing does its work through three things you control: how much you put in, how long you leave it, and how much you pay in costs. Predicting markets is not on the list.

Some principles that hold whatever products you choose:

1. Diversify. Spread money widely so that no single failure does lasting damage.
2. Know the cost. Fees are taken every year, and small differences compound over decades. Ask how anyone recommending a product is paid.
3. Match risk to time. Money you need within a few years does not belong in volatile investments.
4. Automate it. A fixed amount each month removes the temptation to time the market.
5. Check who is advising you. SEBI has cautioned the public to take investment advice only from registered advisers, and publishes their registration details.²

SEBI also runs an investor education site that explains products and investor rights in plain language.¹

7. Let your life grow slower than your income

The most powerful decision in a medical career is often not an investment at all. It is letting spending rise more slowly than income, so that each pay rise widens the gap between what you earn and what you need. That gap is where freedom comes from.

This is not an argument for austerity. Spend generously on what genuinely improves your life. Be sceptical of spending whose main purpose is to be seen.

8. Review once a year

Once a year, check the plan against your life: your essential costs, your cushion, your cover, your debts and whether your long-term investing still matches your goals. Then leave it alone for another year. A good plan should need very little of your attention, which is precisely what a working doctor has least of.