Money Mistakes Doctors Should Avoid

Today, Indian doctors are revered throughout the world as being amongst the very best. With a lot of focus being given to the patient care side of the business, most doctors end up neglecting their professional as well as personal finances. While it might seem like it’s the more intricate aspects of financial coaching that get overlooked, it’s actually the very basic concepts that get ignored. And this negligence can have detrimental effects on the doctors’ finances. The most common money mistakes that doctors routinely commit are:

  • An abundance of loans

    • Doctors don’t have the most stable income; their income depends upon the number of patients who come in for treatment. Despite this, their expenses are rather high. One of the major contributors to this large expenditure is the amount of loans doctors purchase. While the kind of loan purchased might vary from one doctor to another, doctors generally are holders of home loans, practice property loans, equipment loans, car and personal property loans. Higher the number of loans, higher the expenditure towards EMIs to pay off those loans.

    Insurance premiums, practice expenses and EMIs are major contributors to a depleting income. Add to that, spending money on buying real estate instead of leasing it and paying for swanky, new interiors, and you have a close to exhausted income. Since these are considered to be the big-ticket items for the doctor’s practice, servicing debt and maintaining other expenses could result in a liquidity crunch. This holds true even for the doctors who have built up a reputable practice for themselves.

    Many doctors act blindly on the advice of their accountants and purchase loans in lieu of tax planning. The primary reason for this is harnessing the advantages of depreciation and interest deduction. Very often though, this is done without accounting for the doctor’s liquidity and personal needs and causes severe cash flow problems for the doctor.

  • Over concentration in real estate

    • It’s no secret that doctors hoard real estate. A big reason for this is that large chunks of their income can easily be cushioned in real estate investments. Doctors not only believe that the real estate sector is insulated from market downturns, but also that it provides huge returns and tax benefits. Eyeing all these perceived advantages, doctors borrow money to make real estate investments and end up taking on debt. This strategy tough can be extremely dangerous, especially during market downturns because real estate isn’t a liquid investment.

  • Inadequate insurance against risks like death, disability, professional liability and loss of income

    • Most doctors view life insurance as an investment and pump in a lot of money into it. Given that doctor’s lead extremely busy lives, there is not much thought put into whether the policy purchased adds any value. The first agent who makes the pitch gets the sale.

    Due to high incomes, the premiums a doctor pays are sizeable, but the cover received in return is very low and most doctors remain underinsured. There is no forethought or assessment of the family condition to deal with the premature passing away of the breadwinner. Most liabilities aren’t covered, there is negligible disability cover, no income protection and no security benefits. It is imperative to appropriately look into this area to ensure lifestyle maintenance, wealth creating and wealth protection.

  • An ad-hoc approach to investments

    • On an average, a doctor’s portfolio follows the following pattern:

    • More than 60% invested in real estate
    • 10-20% in debt such as PPF, insurance policies, bonds and post office
    • 15-20% in cash like savings account and FDs
    • Negligible gold and equity investments

    Most doctors do not have the time to thoughtfully build their portfolio and, so they make decisions based on the advice of their CAs, colleagues, banks, family, friends, patients, etc. The result is a portfolio that is neither balanced, nor sophisticated. Instead, it’s a haphazard mix of investments that accumulate over time.

  • Absence of a written plan

    • Concepts such as financial goal setting, cash flow and debt management, insurance planning, asset allocation, retirement and estate planning are alien to most doctors for the simple reason that there is no formal education in personal finance or financial coaching. And it is this lack of knowledge that ends up costing them. They realize the importance of having a written plan in place only once something happens that damages their finances.

  • Lack of planning and vision to build a business

    • Often, a lot of money gets spent on superficial things such as doing over the interiors of the clinic in a bid to attract more patients. Investing in essential equipment is good and even necessary but it is better to defer expenses that will neither generate revenue, nor improve the patient’s experience. Also, doctors spend a lot of money to attend conferences where they could upgrade their skill set. But, these same doctors hesitate when it comes to spending on marketing and building their brand.

  • Myopic view of tax planning

    • Tax planning is viewed as an instrument to minimize tax and following this philosophy, many doctors end up doing things that aren’t in their best interest. They take several loans and purchase real estate and life insurance in an unplanned manner. They also indulge in tactics such as showing a limited income or a weak balance sheet with the objective of not paying tax. However, the right goal of tax planning is to maximize post tax income and that is the goal to work towards.

Understanding these typical money mistakes is the first step towards rectifying them. The key is to learn from them and make better choices in the future. This will ensure that you will enjoy the real value of money.

Why a Goal Based Investment approach is your Best Bet

Traditionally, Indians have always been considered to be ‘good savers’. And while creating a savings corpus is a good thing and quite necessary to secure one’s future, this exercise can become quite pointless if these savings aren’t channelized into the right investments.

Over the years, we’ve moved from a savings mindset to a consumption one. Today, people would rather channel all their money into the next End of Season’s Sale rather than save and invest for the future. Of those who do invest, a majority are only concerned with and driven by one factor: Returns. But this is rather a foolhardy approach which ends up having the opposite effect on your wealth than the one you intended. By approaching your investments in the right way, you could end up creating a larger corpus, making the most of what the market has to offer and best of all, meeting your goals.

A goal-based approach to investing is the best way to make the most of your investments. The reason it is so successful is primarily because of two reasons. Firstly, when you set a particular goal, it caters to your unique needs. Therefore, you are emotionally invested in the process and tend to save diligently to meet the goal. Secondly, because this process accounts for your risk appetite and time horizon, the investment recommendations you receive are best suited to help you meet your needs. Therefore, those who invest towards goals end up more successful in their investment endeavours.

To begin the process of goal-based investing, you first need to figure out what your financial goals are. The basic idea is that unless you have a goal to work towards, you’ll end up going around in circles, even though you might have a general idea about your goals such as retirement, a trip to your favourite destination, children’s education, etc. It is upon further probing that realize that you need more clarity.

Start by asking yourself, “What’s important to me about money?”. Then go one step further and list down your answers in order of importance to you. There might be several goals you wish to achieve. Prioritizing your goals is imperative as it will help you zero in on your most important goals and channel your savings effectively. Once you’ve clearly defined your goals, begin quantifying them based on time; short-term goals for a period of 0-2 years, mid-term goals for 2-5 years and long-term goals for a duration of 5-25+ years.

Once you have established what your goals are, all you need to do is make payments towards each goal. This can be done either in the form of Lumpsum payments or by opting for a Systematic Investment Plan. Whatever option is chosen, the key is to be consistent with adding money towards each goal for maximum success.

There are a few important things to remember when you decide to go the goal-based investing way.

  • 1) First, understand that when you’re investing in goals, particularly of a long-term nature, don’t be hasty in making judgements about this approach not being profitable. This is because short-term performance isn’t the best indicator of your overall position and shouldn’t be used to gauge your success. If you stick to your goal-based investment plan diligently, you’ll find that you will be able to spend a lot more in the future than you think you are capable of.
  • 2) Second, due to our lives undergoing constant change, our priorities and goals tend to keep changing. So, it is extremely important to review and re-plan any goals that might become void because of changing life situations and circumstances.
  • 3) Third, money holds different meanings for different people. For some, it could mean a secure future or access to education, while for others, it could mean the ability to travel or buy whatever they wish to. No two people will ever have the same goals that make them happy and so trying to match your goals with someone else is a pointless exercise.
  • 4) Fourth, when it comes to getting advice regarding money matters, there’s no shortage of sources; family, friends, colleagues, insurance agents, etc. Be smart in what advice you take on. If you end up taking on all the advice given to you, it would result in a combination of products that might not necessarily go together and could end up hurting you instead.

Making enough money to lead a secure, comfortable and happy life is very important. But, a lot of times, people go too far in this bid to make money. A far more effective option is investing the money you have, even if it might not be a large sum, to make the most of your savings. Ask yourself what’s important about money to you and your financial goals will appear, giving you a clearer picture of how to best use your money to achieve those goals. So, go ahead and start listing down your financial goals to create a blueprint for your vision for your future.

7 Common Money Mistakes People Make

Financial independence is something a lot of people strive to achieve. Despite the high percentage of people looking to achieve this status, very few actually manage to. However, it isn’t impossible. The best way to achieve it is to understand how to manage money efficiently and make it work in your favor.

Indians are among the best in the world in most professions and are held in high respect within the global community. When it comes to money management though, the same people are guilty of committing several mistakes.

  • Lack of goal-setting and planning

    • Nothing meaningful in life can be achieved without setting goals and planning. There might be instances when course corrections might be needed but there also exist certainties such as death, and retirement that will take place. The idea is to set goals and plan for all eventualities from the start to avoid any problems later.

  • No written financial plan

    • Due to a lack of formal financial education, most people do not understand the nuances of financial goal setting, cash flow, and debt management, insurance planning, and related activities. This limited knowledge leads to costly mistakes. Reactive responses to the lack of a plan can be avoided by adopting a holistic view of one’s financial situation.

  • Investments done in an ad-hoc manner, due to time constraints

    • Work constraints are increasingly forcing people to cut back on family time. Hence, financial wellness takes a back seat when it comes to using the little time that remains. As a result, people base their decisions on the advice of those around them; CA, colleagues, family, friends, banks, etc. Thus, the finances of most people are a hodge-podge of products accumulated over time.

  • Too many expenses and loans

    • Due to a mentality of borrowing money to achieve goals but also often defaulting on loans, banking and recovery agencies are booming businesses. Historically in India, the savings rate has been high but over time, has witnessed a considerable dip. Despite having a moderately high and stable income, people’s expenses and loans, nullify their earnings.

  • Inadequate insurance against risks of death, disability, professional liability and loss of income

    • To most, insurance is an investment tool or a tax-saving option. As most people do not look at tax saving prior to January, insurance becomes an easy option to latch on to. Ad-hoc advice from friends and family members is another reason why people end up with a plethora of irrelevant policies.

    Often, despite paying high premiums, most people end up with inadequate insurance coverage. There is negligible assessment of the actual financial risk a family might face. Most liabilities, critical illness cover, disability cover, no income protection or social benefits are other parameters that go uncovered.

  • Over-concentration in real estate

    • As stereotypical as it sounds, people do tend to hoard real estate, believing it to be a great investment avenue. There’s also the belief that in addition to being insulated from market oddities, real estate also provides huge returns and tax benefits. So, many borrow to invest in real estate and end up leveraged. This is a highly dangerous strategy to adopt. Especially during real estate crashes, the illiquid nature of real estate makes it a lethal investment option.

  • Myopic view of tax planning

    • Most believe tax planning to be a tool for minimizing taxes. They indulge in tricks like showing a limited income or weak balance sheet to fool the tax man. This can be avoided by understanding that the right goal of tax planning is to maximize post-tax income.

 

A basic solution to avoid these mistakes is to create savings, rather than an expenditure budget. Initially, especially if you aren’t in the habit of doing so, you might find it very difficult to construct a budget that works for you. But persevering and creating a savings budget is imperative to one’s financial health.

5 Big Money Questions You Should be Asking Yourself

“The importance of money flows from it being a link between the present and the future.”- John Maynard Keynes

With the amount of time people spend thinking about making more money in the present, it is quite surprising that planning one’s finances and maximizing them the right way for the future falls low on the priority list. People would have a financial masterpiece on their hands if only they spent more time on planning and allocating available funds in a systematic way as opposed to spending time and effort on accumulating money in the first place.

People often procrastinate when it comes to planning their finances. ‘I’m still too young to do this’, “The time isn’t right”, and “The market isn’t in the best shape right now”; are very common laments by people who stall their financial coaching process. But while chasing perfection is good, wasting precious investment time while pursuing it is a foolhardy thing to do.

Like with any other venture, the beginning is the hardest part. The right time to start, the tools needed for success, and how to get ahead are only a FEW questions that arise in people’s minds. In this case, however, the questions answer themselves. Carl Richards in his book, ‘The Behaviour Gap’ has provided a framework of the ‘5 big money questions’ that simplifies the planning process till it’s just a matter of striking the right balance.

1. How much can you reasonably save?

Creating a savings corpus for the future doesn’t mean that present-day needs should be compromised upon. The ideal plan involves keeping a portion aside from one’s take-home salary after considering current lifestyle and spending habits. In this way, the future gets slowly secured while the present is lived to the fullest.

2. What is your rate of return?

Returns need to be looked at as something that will enable you to meet your financial goals. This along with the level of risk one is willing to take while investing is what dictates the rate of return one should chase. Having either an over or under-par risk profile can be detrimental to the final corpus created.

3. How much do you need?

Estimating the amount of money required in the future is very important. A thorough assessment of one’s current lifestyle and needs must be done, following which inflation must be considered. This ensures that one doesn’t fall short of money in the future or cramp up their lifestyle in the present.

4. When will you need the money?

Money can be needed at any time. As such, certain goals need to be set to make sure that you have enough funds to combat whatever need arises. This can be done by setting specific goals and a fixed end date. This way specific needs such as funds for education, home, and the car can be prepared for and emergencies too can be tackled with relative ease.

5. What do you want to leave?

For a lot of people, leaving behind a legacy that will be remembered fondly is very important. It’s like leaving one’s stamp on the future. And one of the best ways to do this is to ensure that your future generations are secure. By planning the right way, it is possible to lead a comfortable life in the present AND provide sufficient for future generations.

 

While only five questions might seem insufficient to build your entire financial future upon, they can be thought of as five separate choices that provide the necessary balance to your plan. There definitely are many more questions that can be asked but these basic questions are difficult enough to answer by themselves and they must be truthfully answered to get the best results.

The hallmark of planning this way is that the focus isn’t on investments and their rate of return. This works because the rate of return is only a small fraction of the investment equation. Several other factors like, “Can I make a trade-off if I don’t want to take the risk of investing in the stock market?” Or “Is it possible for me to save more or if not?”, “Can I retire a little later or think about pursuing a second career?” must be considered.

Building a financial portfolio cannot be the single-minded pursuit of the highest available returns. It requires forethought, frequent course corrections according to the demands of the situation, and more than anything else, an effort to maintain a healthy balance.

10 Common Mistakes That Women Make About Money

The Indian woman is quite possibly among the best money managers in the world. Whether you look at the smallest household in a remote village or an ultra-modern family living in the city, the Indian woman has always adopted and followed various methods of saving to cater to her family’s needs over generations. From the money that is handed to a housewife to manage the household expenses, small portions are cleverly set aside, irrespective of the woman’s knowledge, education or literacy. She is capable of saving money for a contingency or for a need without anyone teaching her the same; she just learns it instinctively. However, with changing times, despite our cultural reverence for saving, modern Indian women are becoming increasingly prone to financial mistakes. Here are the 10 most common ones women commit when it comes to money. These, most often, work in tandem with each other.

 

1) Leaving all the planning to the man

  • In most Indian families, money management is still very male dominated. Generally, two scenarios prevail; one where either the man doesn’t want the woman to know everything or the other where the man is more than willing to teach but the woman is unwilling to learn and understand. This could be because paying bills, tracking the payments, checking from where money needs to be received and how much, doing online payments, dropping off cheques, depositing cheques/cash in the bank, withdrawing cash from the bank/ATM, maintaining records all this sounds boring and tedious. But they also might not have the time to dedicate to these jobs because of their work at home.
  • There is also the aspect of shame. Can you imagine doing all this yourself if you were alone and there was no one to help you do it? How dumb would you sound if you asked someone – at a “not- so-appropriate point in life” – how do I make a credit card payment, or how do I pay my electricity bill online? But this doesn’t matter. Even if you don’t need to do this yourself, you need to be aware of how to do daily transactions. Don’t leave this for tomorrow; understanding banking transactions, making payments physically or online, knowing who owes you how much and how much your family owes someone is important. All this information must be known by both, the man and the woman in the house.

2) Not understanding math

  • Most women are reluctant to understand or retool their understanding of basic math. Handling basic money transactions such as buying vegetables and paying parlour bills is a breeze but when it comes to paying home loan EMIs or taxes, women get scared of seeing complicated figures and refuse to broach the topic and understand it, even though it might not be too difficult to understand.
  • Why does this happen? All you need to do is be patient and understand the workings and the calculations. In the Internet era, things are going to speed up in terms of money transactions and one needs to be able to do math to understand how much he/she is paying for a product or service to avoid being duped by anyone. Don’t shy away from refreshing your math skills or doing your calculations. Slowly, with practice, you will get faster but if you avoid doing this, things will progressively get worse.

3) Always on the look-out for deals, especially free deals – decision making starts at the price

  • When you go to buy your vegetables, you check them, bargain and go for the best value for money. Why is it that when someone offers you an “ek pe ek” free deal, you lose your sanity and assume this is the best deal by default? Is it simply because it “seems’ like a better offer? Getting the cheapest is not necessarily the wisest thing to do. You can get conned into very big scams; of buying expensive jewellery, a house, expensive insurance policies or white goods, if you get taken in by bargain deals. Focusing on smaller things and not looking at the big picture is not always a smart thing to do.
  • ‘Special deals’ are the reason why most women are taken for a ride. For us, everything seems to begin with the price and not with what is the quality of the product. Therefore, men score over us when they can walk into a store and pick the one thing they like the best at the first glance. Women keep pondering about the price and the product’s worth. Why should price be the focus when you are clear about what you need? Very often you buy things you don’t need just because there is a deal going on and then later you wonder what you are thinking of while making the purchase. It’s like the salesman knew your weak point about looking out for a bargain and conned you with a hair dryer when you are actually bald!!

4) Inertia, maintaining status quo – not taking out time

  • As an extension to not wanting to do anything with money management, staying put and postponing things that you have to learn to do is a big issue with women. This is never at the top of the priority list or it’s always last on the list of things to be done. It doesn’t feel exciting or easy enough to do so you keep pushing it for later and so it never gets done.

5) Not enhancing one’s financial knowledge

  • Usually Indians learn the basics about money from their parents. Today’s younger generation need more training on money since we are in a world that’s way ahead in terms of business, economy and competition. One needs to be aware of various concepts of money to be financially smart today. This could be through reading, watching some good TV shows or taking help from a certified financial coach.

6) To think you know everything

  • Today’s women who are well educated i.e. are either CAs or MBAs or are well-placed in good jobs or run their own businesses – think they know it all. I have come across many women who are unwilling to listen to others and understand what costly mistakes they are making with money, large portions of which belong to their respective families. They feel they know it all and they don’t need to listen to professionals in the business of managing money to consider their options.
  • Professional, seemingly savvy women and the rest who don’t claim to know much, are equally vulnerable to acting on tips, wrong advice from all and sundry – right from your friendly neighbour to your broker to your insurance agent. This could lead to a huge hole in your pocket. It’s always wise to hire a good professional financial coach and get good unbiased advice. 

7) Making an expense budget but not a savings budget

  • We have been taught how to write down our expenses and keep a watch on the same month to month. The idea behind this is to know if you are over-shooting your expenses in a particular month, when compared to the rest of the year; so you may save some money in a month and you may fall short the next month.
  • A better way to manage your budget is to decide how much you wish to save from your monthly income. Fix a percentage of the same. For example, if you get Rs. 10,000 per month, you decide to save 25% every month. So, you save Rs. 2,500 and spend only Rs. 7,500 per month. You need to figure how much is the percentage you wish to and can comfortably save every month for the future. This automatically curbs additional expenses and also helps you save for emergencies and other specific needs for the future. The best way to do this is through SIPs i.e. Systematic Investment Plans where the money gets automatically debited from your bank account at the beginning of the month as soon as you receive it.

8) Rather spend than save for the future – live for today

  • This is a common feature of the younger ‘moneyed’ generation. Women who earn well are living well for just today and do not care about tomorrow. They would rather have all the latest gizmos, gadgets and consumables than derive value out of their acquisition till it gets a little old. Envying the neighbour and getting the latest before she gets it has become a fad. This only burns a deeper hole in your pocket and prohibits you from getting what you really want and have planned for later in life.

9) Someone else will provide for me – why be financially independent?

  • To live on one’s own earnings, to provide for one’s needs, is a thing of today. Most women don’t plan at all for tomorrow. They think either their parents or brother or spouse and then their kids would look after them for the rest of their lives. They don’t believe in wanting to contribute to the family corpus that would be needed especially for their old age and health. This is a huge mistake. To follow one’s passion, to do what one really derives happiness and satisfaction from should eventually help you in earning for your needs and dreams of the future.

10) Not being aware of the need to plan finances

  • Each and everyone needs to plan for their financial future. You need to list down goals that you wish to achieve in life. For example, I need to buy a car worth Rs. 4 lacs in 2015. Quantify your goals. Write down the year you need it. Then you can start working towards saving for it. Keep on revisiting and revising your goals, tick them off when they are done and you will feel a sense of achievement that is unparalleled because you managed to accomplish the goal with your own hard work and money.

When should you start talking about money to your kids?

“Teaching kids to count is fine but teaching them what counts is best.” —Bob Talbert, American columnist

This quote forms the very heart of the philosophy behind teaching financial responsibility to children. From an extremely early age, parents and teachers focus on schooling their children with math and other skills that are said to be utilitarian in their future.  In this ever so competitive world, four-year-olds are being enrolled in puzzling and difficult classes so that they get a head start in life but amid all this training, we forget to impart an important life skill—financial literacy.

How many of us realize that when our kids enter the real world, the first thing they will encounter is money? As a wealth tech platform, we have seen that when it comes to money, smart people commit blunders, whether it is in dealing with banks, taking loans, or making investments- all due to a lack of information or simply because they are unaware.

This is the reason one should begin teaching money management to kids at a very young age. It is known that the most receptive years for learning and grasping in children are between 5 to 12 this is the best time to introduce them to savings and teach them the importance of financial matters. We must add though, that even if your child has crossed the age of 12. Although, it must be added that even if your child has crossed the age of 12, it’s not too late but a little more effort may have to be taken as they might have already developed deep-rooted habits and turned into consumers. The solution here would be to guide them through the use of examples that are interesting to them.  As they enter their teenage, they become hardwired because of peer pressure and their external environment, making it difficult to get them to follow a financial awareness plan. At this stage in their lives, they are keen to buy the latest mobile phones, gadgets, and branded clothes, and do things that their friends are doing. Telling them to act sensibly and responsibly might be a tall order if you have not infused good money habits from an early age. In fact, there is a growing need to introduce financial literacy as a subject in school from Class 1 itself.

Many of you probably give your children pocket money, but what you don’t realize is that this does not teach them the value of money or how to manage it. Most parents do not take the initiative to teach their children about money. They might touch on the concept of piggy banks and savings early on, but are usually reluctant to discuss money and family finances with their children. In India especially, money is a touchy issue, and in terms of discussing sensitive topics, ranks as high as sex education. The best way to teach kids about money is to let them deal with money early on for they need to understand its power and the consequences of their decisions.

It’s far better that they commit mistakes at a young age with smaller amounts of money than financial blunders when they grow up. By starting early, you can give your children a strong competitive edge for their future financial success and make them responsible for their financial actions. The key learning points for kids should include having healthy values about money, setting goals and priorities, making prudent choices, delaying instant gratification, and understanding the virtues of hard work. Also, always keep in mind, that even though you might not teach your kids directly, they are learning by observing your every move.