Posted tagged ‘doctors’

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.

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Doctors need insurance! – Life and general insurance

July 22, 2008

Insurance is mandatory if you have a car!

If your car is worth insuring what about other assets ? What about your practice? Your Dentist’s chair? Your hospital?

Most doctors need at least some insurance to be in place as part of their overall financial plan.

The question is how do you work out what insurances you need, how much and what for?

And which is your most valuable asset?  If you have insured your house, car, your life, should you not have some insurance for your medical needs and your life too?

Think through what would happen to even the best laid financial plan if the doctor, at age 40, suffered a health trauma and was not able to work again. It would not matter what other strategies had been put in place, almost certainly the plan will fail and the doctor, and his or her family, would be in dire financial straits. Barring generous relatives, the financial future would look dim indeed. On the other hand, insurances are a bet you are most likely to lose.  The insured, i.e. the doctor, pays a premium to the insurer (the insurance company) in return for the insurer promising to pay an agreed amount to the insured if a specified event occurs. The process of the insurance company considering the risk and evaluating the risk is called “underwriting”, then the pricing is arrived at by the “actuaries”. The “price” so arrived at is called “premium” – which is a risk transfer fee. The probabilities are that the specified event will not occur. And the premium is calculated to be sufficient to pay out to those insured who do suffer the event, cover the insurer’s administration and selling costs, and then leave a profit for the insurer. Most of the insureds will end up paying more in premiums than they will receive back as benefits.

That is, most of the insureds will lose the bet. And I guess we are all happy losing this bet!

So some balance is needed when considering insurances. The advisors tend to be salesmen who talk up the need for insurance and the sums that should be insured. It is not uncommon for doctors to be over-insured and wasting money.

The key steps when evaluating any insurance proposal are:

(i) Identify the risk, i.e. what is the event you wish to insure against? – It could be theft, illness, disablement, death, malpractice suit, etc.

(ii) Ask what is the probability of that event occurring? – the probability of illness is far greater than death, hence a critical illness insurance which covers say 20 diseases will cost much more than a pure death (or life!) insurance

(iii) Ask what are the economic consequences of the insured event occurring? The cost of losing a mobile is negligible whereas the cost of a dentist’s chair breaking down could be much higher and more critical.

(iv) Ask what is the proposed cost of insuring against that risk and those consequences?  And

(v) To then decide if the cost worth the benefit?

This is the most difficult part. Most people do not know the cost of their family being on the roads if they are not around. Hence they think the premium being asked for is high. Only when you know the cost of “not having” a product can you compare the cost of “having” that product. A competent financial planner will guide a doctor through these key steps as part of your financial planning process. This requires a consideration of a many subjective factors and attitudes.

But it all gets down to risk management: understanding risk and being comfortable with it. Indeed a financial planner has to consider risk management when preparing a financial plan for a doctor.

This is so even if the doctor has asked the planner not to: the plan should on its face contain a statement that risk management advice has been declined. This is because a financial planner can be negligent and in breach of contract if they fail to advise on insurances.

What should the sum insured be? A basic principle in insurance is that the sum insured must be connected to the expected loss from the insured event occurring.

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 www.myirisplus.com , track their portfolios and E-file their tax returns. It might just help.