Indian Medical Professionals are among the best in the world and are highly respected in the global community. However, when it comes to money management, most Medical Professionals are making several mistakes. I list major, common money mistakes that most smart, intelligent Medical Professionals commit.

 

1. Too many loans:

Although most Medical Professionals have a high and stable income, their expenses are equally high. One of the key reasons is that they have too many loans. Most Medical Professionals often have a home loan, practice property loan, car loan, equipment loan and loan against property. They end up paying a substantial amount of their income towards EMIs.

Besides EMIs, practice expenses, insurance premiums and personal expenses eat into earnings quite quickly. There is often a whole lot of spending on interiors, and acquisition of real estate (instead of just renting it out). Since these are big-ticket items, servicing debt and maintain others expenses result in a liquidity crunch even for mature practices.
Some Medical Professionals also take on loans because their accountants advise them to do so from a tax planning perspective. This is primarily to harness the advantages of depreciations and interest deductions. However, such ad-hoc decisions are considered without taking a holistic view of the doctor’s liquidity and personal needs, which often put Medical Professionals in severe cash flow problems.

2. Over –concentrations in real estate:

Although it sounds stereotypical, most Medical Professionals own real estate like there is no tomorrow. One of the biggest reasons is that they have a lot of income in the form of cash that can be comfortably cushioned in real estate investments. Additionally, they believe that not only is real estate insulated from market vagaries, but it also gives stellar returns along with tax benefits. As a result, they borrow to invest in real estate and are leveraged(which means they take on debt).

Like most Indians, Medical Professionals too have completely forgotten the Indian real estate crash of 1995 and the subsequent lull for several years until 2003. This is a very dangerous strategy to adopt as this can prove to be lethal during real estate crashes, especially since real estate is an illiquid investment.

3. Inadequate insurance against risks of death, disability, professional liability and loss of income:

Most Medical Professionals buy life insurance as an investment and pump in a lot of money into life insurance policies. Given a doctor busy schedule, these investments are often done in a rudimentary manner as and when patients or life insurance agents make pitches. Since Medical Professionals earn very high incomes, they often pay sizeable premiums and get a low cover.

Despite paying high premiums, most Medical Professionals are under-insured when it comes to life insurance in a big way. There is no assessment of the actual financial risk their family will face, in case of their premature death, and most liabilities are not covered.
At the same time, they have negligible or no professional liability cover, negligible disability cover, no income protection and no social or employer benefits. This area must be adequately addressed to ensure lifestyle maintenance, wealth creation and wealth protection.

4. Investments done in an ad-hoc fashion, due to time constrains:

The portfolio of most Medical Professionals would probably look like this: more than 60% in real estate investments, 10-20% in debt(PPF, insurance policies, bonds and post office),15-20% in cash(savings account, fixed deposits and cash), and negligible gold and equity.
Many Medical Professionals have just these investments: real estate, PPF and insurance policies.

Considering that Medical Professionals are a busy lot and do not even have time for their families, they end up making decisions based on the advice of their chartered accountant, colleagues, banks, real estate agent, family members, insurance agents and patients.
As is evident in the sample asset allocation above, the portfolio is not sophisticated or balanced. You can clearly see that it is a haphazard investments built over time.

5. Lack of planning and vision to build a business:

Medical Professionals usually spend a lot of money in doing up the interiors of their practice or sometimes in cosmetic fittings. However, when it comes to building a business by investing in people or undertaking marketing initiatives such as doing a workshop at a cost, very few have the inclination or aptitude to do it.

Investing in essential equipment is great, but it is better to defer expenditures that will not generate revenue or improve client experience.
Medical Professionals normally spend on upgrading their skill sets or in attending conferences; surprisingly, they mete out step-motherly treatment on spending on brand building and marketing initiatives.

6. Lack of a financial plan:

Most Medical Professionals do not understand the concepts of financial goal setting, cash flow and debt management , insurance planning, asset allocation, maximization of post-tax incomes, retirement and estate planning(wills, power of attorney and trusts), for the simple reason that there is no formal educations in personal finance or financial planning.

It is because of this limited knowledge that they end up making costly mistakes. Their realization of the importance of a financial plan is reactive rather than proactive, in that it is only when an event happens that they realize the need for a financial plan or the need to take a holistic view of their financial situation.

7. Myopic view of tax planning

Some Medical Professionals generally believe that the objective of tax planning is to minimize taxes and often end doing things that are not in their best interest. They take several loans, buy real estate and life insurance in an unplanned fashion, and indulge in tricks to fool the taxmen such as showing limited income or a weak balance sheet with the only objective of not paying tax.

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