Archive for the ‘Doctor’s Finances’ category

How can a doctor retire?

September 4, 2008

How can a Doc retire early?

Docs start earning quite late in life – at least the big bucks come at a late stage. So is it really possible for a Doc to retire early?

It really looks difficult. Docs unless they are super specialized and have created some kind of aura about their capabilities do not really earn the mega bucks of sports star or a film star. However, they do have a lot of flexibility in their profession. They can be on their own, be in a partnership or grow it like Dr. Reddy of Apollo Hospitals.

Having established that it is a good idea to retire early, and to never stop, how does one go about doing this?

Investing early and well, normally means the doc can retire early and well. If things are done properly then by, say, age 55, or whenever the kids are coming off the doc’s financial hands, the income from investing starts to exceed the income from the practice. This is a great position to be in, particularly if the income consists largely of unrealized, and hence un-taxed, capital gains. Also given our current tax structure where there is no INCOME TAX on dividends, the doc may be in a good position to retire.

Interestingly, most docs continue to practice even when they are at this point. But thankfully they can skip the long hours, choose lesser locations, and work more sensibly. They can also decide to and take many more holidays and long weekends. And there is a huge difference between the doc driving to work because she wants to, and the doc driving to work because she has to. One is happier than the other.

The major issue here relates to the costs of general practice. Unfortunately Docs do not have much training in considering Fixed Costs, Variable Costs and Marginal Costs! Not all costs fall just because the doc is doing fewer sessions. Many costs, for example, rent, some wages, depreciation of equipment and so on, stay the same regardless of how many sessions are completed each week. These costs are called “fixed costs”. This is because they

are fixed irrespective of how many sessions are completed each week. It is also called a Period Cost. At the end of the period, the cost has to be paid – immaterial of whether the equipment or place got used. A common mistake is to assume that there are no fixed costs. A doc completing, say, 7 sessions a week (only Mornings) and making Rs.15,00,000 a year may reason that his income will fall to, say, Rs.950,000 if he cuts from 12 sessions a week. Sadly this is not so. More probably, because fixed costs stay the same, profit falls by much more than this, say down to Rs.700,000, if not less.

How can he avoid this? There may be some options which he can consider:

  1. He may start teaching at a Medical college including doing sessions on how to handle customer psychology. Lady docs are sometimes preferred because of better soft skills.
  2. The doc can stop practising solo or in a group practice where costs are shared equally irrespective of the number of sessions.
  3. The doc should try to change to a practice structure where all costs (or virtually all costs) are variable costs not fixed costs.
  4. The doc can join a friend who has similar ideas and become a partner. One of them could used the infrastructure in the morning and the other person in the evening.
  5. The doc could also get into an arrangement with 2-3 junior docs who will use the geography of his practice are – and split the fees.
  6. One more alternative is to sell a portion of his practice to a deserving junior and get into a fee sharing arrangement.

Many of these arrangements may look difficult, and in many cases involves the DOC selling all or part of the practice to younger Docs. In at least one case I know the doc used his practice till his age of 81, but sadly many of his customers had gone away. He had to just sell his premises to a dentist. The practice fetched him nothing. Surely retirements could have been better planned.


Doctors and wealth creation self help

July 29, 2008

Doctors can create wealth. A lot of wealth. However, it may or may not happen from their earnings alone. It can happen only with good wealth management techniques. Ha, the word wealth may mean different things to different people. When we talk of wealth we mean an amount of money which will let doctors do what they wish to do rather than what they must do. When Dr. Sunil Balinge and Dr. Dhavale decide to charge Rs. 5 for every patient in a slum in the suburbs of Mumbai, they are putting their wealth to good use.

The distinction is easy to understand – when Mr. Azim Premji, Mr. Ratan Tata and Mr. Rahul Bajaj work at their age of 70, it is by choice. When a 70 year old vegetable vendor or a taxi driver works hard, it is by force.

Wealth creation is largely for 3 purposes – one to support a good life style, second to help you in your non-earning times and very importantly to do charities.

There are enough books and magazines on wealth management, on real estate, on commodities – really that can get you active without earning a dime! Here I am creating a blog which is in the nature of a help for creating, preserving and giving away wealth.

Doctors as a group have a high IQ, they have undergone a lot of training and understand the advantages of discipline. All these are very, very useful ingredients for being a good wealth manager too. Surprisingly (or maybe not surprisingly?) creating wealth and managing wealth is a lot like managing health. Doctors only need to be re-introduced to some simple concepts like starting early, compounding, investing regularly, and some such concepts in investing.

If doctors understand that a gynecologist cannot attend to your tooth and an anasthesist cannot perform a brain surgery, surely they will understand that a broker, a chartered accountant, a financial planner and a fund manager have different roles. Won’t they?

A doctor understands the compulsion of a chemist – he cannot charge for time spent, but a doctor can charge for time spent. This is the difference between a financial planner and a product seller. Simple is it not?

Investing is not really rocket science. Wealth management is not as difficult as say brain surgery. However the skills required are not frivolous either. Nor can it be learnt by watching television or reading a generic pink daily.

So here we are empowering you to manage your wealth. You manage lives. This magazine will help you manage your life-style. Empower you to learn about risk, about retirement, about how to listen to your financial consultant, about how to document your assets, about how to plan for your kids’ education, how to set up a charitable trust and such other topics. I wish doctors keep reading my blog and giving me a feed-back about what they would like to see here.

Doctors, Dentists and Investing. Are they different?

February 14, 2008

Are Doctors different when it comes to investing?

We do think the answer is a resounding yes! Doctors are different when it comes to investing. Their incomes are higher, more stable, more secure and last longer than any other occupational class. This includes dentists who, despite having higher incomes, may have shorter working lives. As a rule, their IQ is higher, much higher than the median of the “other” clients whom we meet. It means that usually the standard advice given by accountants, lawyers, financial advisors, relationship managers, and investment advisors does not apply to Doctors!

Doctors’ incomes are high compared to the average person.

The average 40-year old doctor makes more than twice to three times the national average for 40-year-old males. Doctors as a broad occupational group have a statistically high median income relative to both the national average and to other professional groups. Most doctors marry someone from the same or a similar socio-economic group, and therefore their spouses tend to have high incomes too. It’s hard for doctors’ spouses, especially wives, to do too much work outside the practice whilst the child bearing and rearing years are in full swing. But most make some contribution. This pushes the total household income higher again.

Doctors’ incomes are stable.

They do not fluctuate season to season like a farmer’s income or fluctuate month to month like a stock broker’s income. Next year will probably be a lot like this year. The trend tends to be an upwards sloping and linear and the monthly income and cash flow is predictable and reliable.

Doctors’ incomes are secure.

I do not know anybody who knows anybody who knows an unemployed doctor. The 45-year-old Doctor is not lying awake at night wondering whether he will be retrenched the next day, or the next year. But the neighbor next door probably is. Life time employment is history, and now short term performance based employment contracts rule. The average guy is only as good as his last quarter’s sales figure or his most recent work performance appraisal. It’s a stressful way to live. There is a serious shortage of Doctors. Everywhere, from Bihar to Boston and from Americas to Zambia, there is only demand. The problem is too much work, not too little. Most doctors have the luxury of being able to choose when and where they will work. Doctors’ incomes do not disappear when the economy takes a dive, and are not tied to any economic cycle. Nor do they need to worry about their job being outsourced to a cheaper location.

If anything, there is an inverse relationship between the state of the economy and the state of the waiting room: more people get sick in hard times. Doctors’ incomes have great longevity. The average retirement age for an Indian is 58, and most are significantly under-employed well before this. Age 58 is irrelevant to doctors. With good health management and common sense there is no reason why a doctor cannot continue working well into his or her seventies, and beyond. We know plenty of doctors earning a good living working four or five sessions a week at age 75. They love it.

And it will be a sad day when they finally hang up the stethoscope. On the economic side, older doctors are still adding to their capital at a time when most people their age are starting to exhaust theirs. This has a double effect: when they do retire they will have more, and it does not have to last as long. This height, stability, security and longevity manifest themselves in many ways over a doctor’s economic life. These features should be borne in mind at all times when considering the financial options and strategies open to doctors.

Doctors are afraid of accountants!

Unless they are married to one! (And many are). Doctors are phobic about maintaining accounts, so they would rather happily outsource it and stay away from it. However when something goes wrong – divorce, income tax raid, family split, etc. they wish they had spent more time learning the basics. At least such people should go to , track their portfolios and E-file their tax returns. It might just help.