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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photo by   worradmu/freedigitalphotos.net

Change the Equation

savingspiggybankDid you have a piggy bank as a child? I think most of us had one. If many of us did, how come many find it difficult to save as adults?

There are studies showing that  only 1 out of 10 Filipinos are consciously saving.

And that Filipinos have low financial IQ. As a result, many  think bleak about retirement.

Doctors do not really have a set retirement age. We are different  because we do not enjoy  retirement benefits  like our friends in the corporate world.  When we stop seeing patients, so with our income.  We when are sick or on vacation, we don’t get paid a single centavo.  These should convince us to save for the rainy days.

Everybody knows that saving for the future is important. But actually doing it is another story all together. As a start up doctor, I thought I never could.

An investment and financial planner friend told me that 80% of his job is changing that mindset.

When the client adopts a  new way of looking at saving, everything else comes easy. The difficulty is in thinking it is impossible with little that we have at the start.

Savings = Income-Expenses.  This equation almost always yielded zero . I was discussing this equation with some residents.  I was relating how often this equation yielded zero when I was starting until I changed the equation.

Income-Savings=Expenses.

This changed everything. Suddenly, there was something. Little by little it grew. Small steps that eventually yielded much.

One parent gave me a tip on how she taught her children to save.  She bought them a transparent  piggy bank. In that way, they see how Mr. Piggy gets filled up as they put more and more coins. Maybe we need to do that.

Got other tips to save? Please write them on the comments below.

Change your mindset. Change your equation.

 

 

 

 

 

Image: Ambro/ Freedigitalphotos.net