Why Doctors Should Know Finance-Expenses

Stories written in numbers….that’s what financial statements tell us.  Simply, it just tells us what happened , what was done and what probably we could have done. This is the second of my series on why doctors should know finance.We talked about income last time.

Today, I am writing on expenses.  Who among you keeps track of them?  I admit, even as I try to, sometimes its difficult for me.  I have tried a notebook, my cellphone, an excel file etc. For now, I am into using my credit card and check book.  The plus point is the written documentation of my spending.  A quick look tells me where the bulk of my spending lies.  Am I eating out most of the time? Has my cost of transportation increased? How about my electrical bill?  Your billing statement or checkbook reveals to you your spending pattern.  If it were a pie, look at how much portion goes to one category and so on. Decide what you can do about the portioning of your expenses if there is a need to.  Try to look at what it is telling you. You wont know unless you look.

Needs vs. Wants.   Just how these two are defined can be a whole lot of discussion.  For me, I just ask “how this spending is already hurting you, or potentially hurt you and the people you love in the future?”  An example would be if i spend a lot of money  on expensive clothes because without them I already feel I am incomplete  or that I have to touch  the money I am saving for my son  just to be able to buy one.  Another question I ask myself is “Can I do without it?”. Some years back, I decided to get rid of our television.  I thought it would be horrible. I have been without it for more than five years now.It gave me more personal  time with my family  and less late nights as well.

Living within one’s means.  If you were reading an income statement, it would be Income-Expenses. If you see numbers in red or enclosed in a parentheses say  (15,000), then it means you are living way beyond your means. What would you do?  You may want to go back to your list of income sources and try to increase it. Or you may want to look back into your spending and decrease it.

Let’s write your income statement now.  First, list down your income sources. Then write your Expenses.  Deduct your Expenses from your income.  It would be great to have a  positive number when you do the math.

What’s your income statement story?


Do you have other ways to track your expenses that you can share?


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Why Doctors Should Know Finance

I am a financial literacy advocate.

I believe that whoever you are, its good to know about finance, money, investments etc.

But I believe that doctors  specially need to understand numbers.

Here’s why.

First, it takes us long before we start  earning  our keep.

Since on average we finish medicine at age 24, internship at 25, become board certified at 26,and finish residency at 29 (for  most of us taking a three year residency), specialty certified at 30.  To my colleagues who are in surgery and other surgical specialties, it may mean plus 1-2 years.  The same goes for those taking another 2 to 3 years of subspecialty.

If we know finance, maybe we will start saving as early as during residency. There is a time concept when it comes to money. It’s  tied to the concept  called compound interest. The earlier we save , the more it yields for us. If we keep and don’t touch this money including its earnings, the yield becomes bigger and bigger.  This means someone saving regularly  at age 20  until age 40 against someone who started at age 30 will end up having more! Here’s a scenario.  If at age 20, I start to save Php 1000 and do so every month until I am 40, my money when invested in a medium that earns 8% every year for 20 years will give me Php 597,736. If i start at age 30, same amount, same investment until I am 40, my savings will yield me Php 189,904. See the big difference! Try calculating using the compound interest calculator how much your yield will be depending on your own scenario.

Second, we are self-employed.

What makes us different from the employed? We have no vacation pay, sick leave, bonus,health benefits, loans , retirement benefits etc.

If we know finance, we can set our goals to  fund for those  otherwise enjoyed by employees.  This really depends on our priorities.  We can start by paying ourselves first. This is very much like being an employee getting paid for a day’s job. Whatever you earn for a day, you may want to automatically set aside 10% of that for savings.  You can put that in a bank for a while until you reach an amount where it can be placed in a savings that yields more than what a bank savings account can give. Continue to do this as you  set to meet your financial goals.  Here’s a list to start with (prioritize based on your needs):

1. fund for your health insurance

2. fund for your children’s education

3. emergency fund (equivalent to 3-6 months monthly expense)

4. retirement fund

5. vacation fund


Third, we are in a service profession.

Because we are doctors, we do not like to talk about money.  It seems taboo for service oriented professions.

If we know finance, we can be better doctors as we make money work for us rather than we work for money.  Don’t get me wrong here.  Its not bad to work for money.  Money is neutral. It is neither good or bad.  Its how it plays that gives it its flavor.

If we understand concepts on investments,   interests rates, yields etc. then we will know where to place our hard earned money and let it do its work for us.  If we learn to assess financial risks, understand our tolerance to risks and know different investment instruments, we will be able to put our money to work  (multiple income streams) while we are doing the “doctoring”.

Here’s an example.  Our cooperative of doctors was set up so that doctors earn from their own purchases of vaccines.  Because the doctors are owners of the cooperative, the doctors’ investment grows as they purchase their vaccines from the cooperative.  Buying their vaccines from other subdistributors means the subdistributors are earning from the doctor’s purchases. Sometimes doctors miss the point. They buy from the subdistributors  because of a peso or two price difference. Their investment are earning them 12% per year. They earn nothing from the subdistributors.

Here are some links that can help you learn more on personal finance:

Ready to be Rich

Life and Personal Finance

Registered Financial Planners Phils


What financial goals are you working on now?


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