As a busy doctor or dentist it is understandable that keeping on top of financial matters often gets left at the sideline. If your finances are organised, you have no debts, a solid retirement plan and measures to protect your wealth, then you are off to a good start. However, typically most people don’t maximise their financial position, and actually often fall into common financial traps that can easily be avoided.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it.
(1) Not knowing where your money goes
Knowledge and awareness is key when it comes to money management.
A lack of understanding on where your money goes, results in overspending, unnecessary spending and stress because you are never confident on your financial position.
A simple spreadsheet can help you to record your expenditure in an organised way, enabling you to track what your money is being spent on. Alternatively, if you are not very comfortable using spreadsheets, there are many money-management apps for your mobile phone.
Once you get a good grasp of where your money is being spent, you will be able to cut back on unnecessary items and set a budget for luxuries.
Most of all you will have peace of mind that your finances are organised.
(2) Buying a house you can’t afford
When it comes to buying a home, emotions can sometimes take over.
Dream houses, or houses in desirable areas, usually have a high price tag too. Are you about to commit to a house purchase that will leave you high and dry every month?
Make sure that your monthly mortgage payments won’t limit being able to live your life, take holidays and plan for retirement.
An independent mortgage adviser can discuss affordability with you and check mortgages across the whole market, to get the best rate. A financial adviser can discuss wider financial options too, taking into account your income and wealth.
(3) Not paying off your credit card each month
Credit card debt has a high interest rate attached to it and whilst credit cards can be useful, it is important to not fall into the trap of paying the minimum balance.
If you use a credit card for emergencies, or on a regular basis, it is always best to pay the balance in full whenever you get your statement.
This way you don’t pay unnecessary interest, or get yourself in the situation where the credit runs out but you are still paying back the debt.
(4) Not protecting your wealth because it is an “extra cost”
Creating an investment portfolio is the exciting part. However, it is also vital to protect it so you don’t stand to lose everything.
The same applies to protecting your income stream, particularly if you have a family that relies on your salary.
Some people consider insurance such as Life Cover, Critical Illness cover and Income Protection, as just an unnecessary cost.
When you consider though the peace of mind it brings to you and your family though, can you really attribute such a low value?
Ensure that at least your liabilities are covered in the event of sickness, accident or death.
(5) Leaving your pension planning until it’s too late
There has always the option to pay into a pension gradually from the start of your career, and before there was another option to add lump sums upon realising equity in a property, or when the children had left home, for example. This meant once upon a time you could be tardy in your investment.
These days, adding lump sums isn’t always available due to new legislation.
Annual limits mean that you can only contribute £40,000 to a pension each year and not incur a tax implication.
In addition, for high earning healthcare professionals your £40,000 annual pension allowance can be whittled down if your income is over £110,000 per year, sometimes as low as £10,000.
Pension planning is essential. Generally, the sooner you start, the more effective your pension plan will be.
(6) Forgetting to use tax breaks through the year
Most tax breaks have a shelf life, a “use-by date” that you need to take action. Often this is within the tax year.
Forgetting to use valid and useful tax breaks because the deadline passes is a common trap for busy healthcare professionals.
For example, the ISA threshold in 17/18 is £20,000, meaning contributions made to this level, before 5 April 2018, will be tax-free. On 6 April 2018, this allowance is gone and whilst a new one will be issued for the next tax year, it may not be as generous.
Pension contribution allowances for tax relief are of the same nature – use it, or lose it!
(7) Ignoring the importance of short, medium and long term financial planning
It is essential to plan, financially, across the short, medium and long-term. Failure to do all three could have a knock-on effect on the rest.
- Fail to manage your finances in the short-term and it will become more difficult to recoup funds in the medium and long-term.
- Fail to save in some form for the long-term and your retirement could be hard without access to an income stream.
A financial adviser can help you make a solid financial plan, adding timelines and deadlines so you can sit back and enjoy life to the full.
Don’t fall into common financial traps. Work with a financial adviser.
Dental & Medical Financial Services have been helping doctors and dentists with financial planning for over 25 years. Call to discuss your options with Darren:
Tel: 01403 780 770
Follow us for regular updates:
?