Doctors Financial Mistakes…
The more doctors that I meet and talk about money, the more I am convinced that there is a nice pattern in doctors financial mistakes. This is across age groups and geographies. Let me enumerate:
- Paid too much for education: it is sad but true that the medical education in this country needs a lot of reforms. As it exists today, there is just not enough ROI on being a doctor. It is almost IMPOSSIBLE TO cover the education costs of being a doctor. So if a doctor has spent Rs. 3 crores on his / her education – let us assume this is funded by a loan costing 10% per annum, the doctor has to earn Rs. 30 lakhs a year JUST TO PAY THE interest forget repaying the principal.
- Too much debt: the minute a 18 year old joins a medical school he/she is addressed as a ‘doctor’ – and this gets into their head. So you suddenly have banks offering car loans, vacation loans, marriage loans, home mortgages, free credit cards, and get them into a lot of debt – most of it poorly created and very expensively priced. Once you are trapped, you are trapped.
- Living beyone one’s means: Many doctors live beyond their means. Living within one’s means is very important. You ACTUALLY you need to live far, far below your means that you can pay yourself first and FIND money to invest, pay down debt, and build net worth. Saving AT LEAST 10% is the general rule for most people . Doctors only get about 30 years, so they need to be saving maybe 15-20% if they plan to retire. And this saving percentage is not including saving for your next car, that boat, a house mortgage down payment, or your kid’s college fund. That’s JUST retirement. A 5% savings rate, sorry, will not be sufficient. So on a Rs. 200,000 salary, that’s 40K a year.
- Giving loans to friends and relatives – and the money loses itself and its friend! Have done a post on this separately.
- Poor knowledge of accounting, taxation, and costing: doctors do not understand their own profit and loss account, how much they earn, depreciation, ammortisation, cash flow, variable and fixed costs….so they have no clue how many hours they need to work, how much to charge, etc. and this aggravates the problem further.
- Poor knowledge of Investing: A banker walks into a doctor’s clinic and sells a lemon. Terribly priced bad products with long lock ins and bad and poor returns are a staple product in a doctor’s portfolio. This does awful damage – like a taxable bank fixed deposit or a poor yielding endowment plans. Thus the money is not growing – and the doctor with his poor analytical skills does not even know that till he is shown a mirror.
- Poor record keeping – tied to 5 and 6 above. However when a dentist or any practice which needs a divorce he/she realizes the accounting mess – and the pain of setting things right when you are under tremendous mental strength.
- Wrong medical, life and liability insurance – well if you have bought what has been ‘sold’ to you, the chances are you have bought what the salesman wanted you to buy. This is like the magician’s trick – you pick up the card that he wanted you to pick up. Simple.
Will add more as I meet more doctors!
Ritesh
point 3. last line ‘on a 200,000 salary thats 40k a year’… Is it typo mistake subra sir? Pls ignore if not.
Kalyan
Just to clear certain misconceptions: a couple of decades back when i was a MBBS student in a govt medical college,the tuition fee was Rs 4100 per annum for general category and Rs 1100 per annum for reserved categories. In my entire MBBS course duration, i didnt spend more than Rs 25,000 as tuition fee and another Rs 20000 for books and accessories. And after completing the four and half year course, i was paid around Rs 40000 per annum as stipend during my 1 year compulsary internship. So i practically spent nothing for my degree. Ditto for my postgraduation and superspecialisation. My only investment had been hours and hours of hardwork everyday for several years in a row.
The people who spend 3 crores for their childrens’ education calculate the returns in a different way. They may be black money hoarders or traditional businessmen who would like to establish a hospital for their child. You have reasons to crib based on their aptitude but not on their investment acumen.
Lastly, nobody takes an education loan of 3 crores. That is never going to happen in India. Parents with surplus money might be vary of diminishing returns in fixed instruments and might feel better to invest that money in their child’s medical education, which might make about 1-1.5% ROI per month compared to 6.5% p.a in Fixed deposits (pre tax),and they may even have suitably diversified their portfolios. To each, their own. 👍
Pradeep
We can safely say this article is aimed at 0.0000000001% of India’s population who pay crores of rupees as capitation fee to join private medical colleges. They do that because they already have a hospital to run which was setup by their parents. Believe me, these doctors will then start adding more crores for their children to join medical college.
Students joining Govt colleges don’t pay such high fees. And finally which doctor retires after 30 years of service? They along with lawyers can practice as long as they can walk and talk. Do you know how much Ram Jeth Malani charges for an appearance? Same can be said about many doctors practising in big hospitals across the country.
subra
Kalyan – it is high time that students paid fees close to real costs. If i were to set up a new college today and create infra, I will have to charge Rs. 2 or 3 crores for the whole thing. At this stage the govt hospitals have it subsidized – and people pay NOTHING to study, but they do pay 2 crores for a medical seat – that does not come free by the way.