Providing advice to doctors over the years has highlighted some recurring financial mistakes that keep presenting themselves. Below are the top 7 we’ve identified and how you can best navigate them.
1 – Preparing your own tax return
The regulations and laws surrounding tax are constantly changing. For doctors with their own practices or with many income streams, navigating your tax return can be daunting. Specialist knowledge is required to ensure you don’t miss out on the opportunity to secure the best possible tax return. It is crucial that your tax return be completed by a tax specialist, ideally one with knowledge about the medical industry.
2 – Working with the wrong financial advisor
Everyone benefits from working with the right financial advisor, and for medical professionals with many assets and investments, this element of your wealth management is even more crucial. Over your career, you may outgrow your existing financial advisor or perhaps notice that you aren’t receiving a high level of service.
You need to seek advice from a medical financial specialist who is informed about the nuances of allowable deductions for doctors and medical specialists. They will also be able to inform you of the most tax-effective way to structure any trusts you may operate.
3 – Failing to save for the long term (and for tax bills!)
High income earners are often lulled into a false sense of financial security, and doctors are no exception. As they enter the workforce later due to the amount of time spent at medical school, doctors have less time to save for retirement.
The ideal saving ratio might be 20% – 25% of your total income if you intend to retire at 65. For optimum wealth management this should be combined with intelligent superannuation and tax strategies; this will include maximising your super contributions for the best possible tax outcome.
4 – Not focusing on superannuation until too late
As many doctors are self-employed, superannuation contributions can often be pushed down the priority list. It is important to make regular, tax-effective contributions to your super from early in your career and to look to maximise the contributions as your cashflow situation improves over time.
5 – Investing in high-risk schemes
An abundance of disposable income can be dangerous without proper wealth management – just because your income is high, does not mean that you should be drawn into high-risk schemes. It is important to identify risk tolerance levels for your investments and manage them accordingly – your financial advisor will help you in this area. If you invest in a way that aligns with your risk tolerance level, you will be able to safely generate an additional income stream and grow your wealth.
6 – Having an undefined tax strategy
Everyone needs a defined tax strategy. It is particularly important for medical professionals as, while their pre-tax income might be satisfactory, they do not realise that their after-tax position may be drastically different. Intelligent wealth management considers each element of your financial situation and can lower your tax bill by implementing better investment strategies and maximising your superannuation contributions.
7 – Poor Non-Deductible Debt Management
High income earners, including doctors, can easily fall into the pattern of living beyond their means. This may involve credit card debt, personal debt and student loans and can be a significant issue.
The interest expense can take a serious toll on your everyday income and your long-term savings for retirement. Your overall financial position can take a hit and you will not be able to take advantage of tax-effective investments to grow your wealth. If you’re suffering from poor debt management, you need to act immediately.
You should construct a realistic plan that will see you go from making monthly repayments to making monthly savings instead. If you’re unsure how to do this, consult with your financial advisor to help you get back on track.
Ongoing advice is critical to the process as an individual’s wealth grows. Endorphin Wealth recommends that you regularly review your strategy to ensure it remains in line with your desired lifestyle needs.