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7 Common Financial Mistakes that Medical Professionals Make

Ranked among the high-earning professionals, medical professionals are predisposed to making costly ‘financial miscalculations’ in their personal lives. In this article, 7 of the most common financial mistakes that you are likely to make as a medical professionals have been captured- and how you can overcome them.

  1. Paying little attention to your finances

The number 1 financial miscalculation that many medical professionals make is simply not paying adequate attention to their finances. To avoid this this mistake, you should view and manage your personal finances as though you were managing the finances of a business.

Your finances will be profitable and will support you long after you’ve stopped working if you manage it well.

  1. Not saving enough

Living below your means is key to be successful with any savings and investment strategy. It is simply a daunting task to attain your goals if you don’t have a plan to get there. Starting to save for these goals is the beginning point.

It is a common recommendation that individuals should save 10% of their income. As a medical professional, you may want to consider hitting a higher mark for two main reasons:

  • Medical professionals are classified among high-earners and as such, they have a high standard of living. To maintain these standards, you simply have to accumulate higher nest eggs.
  • Medical professionals do not start their earning years till their late twenties courtesy of the many years spent in the medical school and in training. So, in essence you have less time to accumulate and compound wealth. To cover up for starting late in the game, you need to increase you savings rate.

3. Not being tax savvy

The higher you ascend in the income scale, the more tax you’ll pay. The old saying of a shilling saved is a shilling earned holds water in this context.

There are many tax shelters and breaks that you as a medical professional can take advantage of. Nonetheless, it is surprising how medical professionals are not keen in maximizing their deductions and simply remit more in tax.

As a medical professional, it is important that you work with CPAs and advisors who fully grasp their situation, are acquainted with the various tools available, and are thorough in coming up with the right plan for you.

  1. Not being properly insured

This is not a problem that is exclusive to medical professionals only because most people have inadequate insurance cover.

As a medical professional, having the right coverage is a must. The coverage may include malpractice, disability, liability, life and umbrella insurance. There are variations to the limit on these policies based on income, area of specialty, assets, and personal situation. To secure the right plan, consider consulting with an agent or advisor who understands your needs.

  1. Not picking the right investment

Since as a medical professional you have ample means, you will often be pitched all kinds of exotic investment. If you intend to invest, a proper investment strategy which is adequately diversified and risk tolerant is key for your success.

It is Warren Buffet who advices to always invest in what you know; if you don’t understand a business, then stay away. This principle is often true and should always be followed.

It is common for medical professionals to invest in medical ventures such as surgery centers. Such investments should never be more than 5-10% of a medical professional’s net worth, unless they are directly related to their day-to-day activities. Consider investing where you can monitor the activities and operations of the business venture.

  1. Loaning money

As a medical professional, it is not uncommon to be approached by friends, siblings, parents and relatives for loans. Perhaps this is because of your combined affluence and nurturing nature. Should you consider going that route and can afford to help others out, then it is good to give out the money as a gift.

In the event that you would like to give a loan, it is important to ensure that the party borrowing the money has the earning power to repay the loan. Make sure you have proper documentation and a clear interest charge.

  1. Not managing debt adequately

Learning how to manage debt from an early age is something that every medical professional should strive to do. It begins with loans that you are given at college or medical school, which can be to tens and hundreds of thousands of Kenyan shillings.

If you decide to branch off to private practice, there are loans linked to leasing, purchase of equipment, business operations and practice management. Medical practitioners also often carry high balance mortgages on their primary residences.

When you sum up all this leverage, you may end up paying an awful lot of interest. To be successful in this area it therefore calls for proper management of the leverage, paying low interest rates, acquiring the right debt and, most importantly, managing cashflow. It is important that you have knowledgeable, ethical and resourceful brokers, bankers or advisors to help you maneuver the debt maze.
‘invest in what you know; if you don’t understand a business, then stay away’-Warren Buffet

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