The start of a doctor’s career is unlikely to be a time where long term financial planning is at the top of the to-do list, however putting simple planning measures in place early can make a tremendous difference to longer term financial well being.
Doctors will begin their careers in different positions financially although some degree of debt is likely to feature for most. Once working, initial advice is to use some of this income to pay off debt and build up a solid base financially through short term savings. Cash ISA investments are ideal for this, they are tax free and from next tax year allow saving of up to £5,100 in each tax year.
A solid financial base is especially important in the current climate with lending restrictions meaning a substantial deposit is necessary to gain good terms for a mortgage.
The second consideration is protection, protecting oneself financially from the impact of ill health and protecting any financial dependants from the financial impact of premature death. All forms of health related cover is expensive whether this is income protection or critical illness. The costs of these covers increase the older one is when the cover is taken out. For this reason making proper provision early in a career will save a significant amount of money in the long term.
Income Protection provides a replacement income in the event of ill health and can be tied in to coordinate for when the NHS sick pay ceases. Doctors taking out income protection should be wary; many policies are arranged on a “reviewable basis” which means the insurer can increase premiums throughout a doctor’s career. These policies are generally cheaper at outset but are false economy in the longer term. A “guaranteed” policy ensures a known cost through life.
If disposable income is available, long term saving and pensions are at their most effective if they have time to grow. A rule of thumb for pension planning is that for every five years planning is deferred the amount that has to be invested is doubled. Even a small commitment in the early years can make a tremendous difference.
For savings the ideal vehicle is an equity ISA, this provides a tax efficient exposure to the stock market. For pensions, personal pensions provide flexibility to stop contributions if necessary as circumstances and commitments change and the additional pension from the NHS route provides a certain return, however aren’t as flexible.
Following these simple planning rules early in a doctor’s career will save money in the long term.
Justine Roberts is a director of Medical & Financial Ltd and can be contacted on 01400 250525 or at justine@medicalandfinancial.com
