Doctors income no longer secure: How to protect yourself

Did you assume your income as a doctor would always be secure?  People always need health care don’t they? We are all aware of the devastating health and economic effects of COVID-19.  We have read so many horrifying accounts of deaths and healthcare system overwhelm from overseas, and are in a fortunate position to be in Australia (fingers crossed).

Doctors are busy preparing for COVID-19 have also realised their income is not so secure after all.   With this less rose-tinted perspective, junior doctors  should be better prepared in case of future income threats.

Financial Consequences of COVID-19 for Non-Employee Docs

Many people are facing tough times with COVID-19 closing their businesses, and cutting hours of paid work.  Doctors should be in a fortunate position due to high incomes, but some are currently facing dramatic reductions i income too. 

GPs and private specialists don’t receive a wage.  These doctors rely on Medicare billings and patient “Gap” payments.  These guys have to run a business as well as practice medicine.  No patients mean no income.  Pretty different to the assumption many have, that doctors’ incomes are recession proof. 

Because these doctors  are not employees, they receive no sick leave (paid recreation, professional development or parental leave).  They may have practice rent to pay, and employees (Nurses, receptionists, cleaners…).  These ongoing expenses continue despite income dropping precipitously since COVID-19. 

Government job keeper allowances should reduce the burden by subsidising employees’ wages.  Doctors may be also eligible for government financial support, a huge help in paying for the basics.  I suspect the job keeper allowance of $1500 /fortnight is inadequate to cover most doctors’ expenses, but it will prolong their emergency savings. 

How recession proof doctors financially affected by COVID-19 are depends on their basic living expenses, how much risk (leverage) they have taken with investments and the size of their emergency savings.

Lifestyle Inflation and COVID-19

Lifestyle inflation is when people increase their cost of living as their salary increases.  It is a common trap for most people, with doctors’ seeming particularly susceptible.  We almost all succumb to lifestyle inflation to some degree. 

After all the work of medical school, and delaying earned income until our mid-twenties, we deserve to treat ourselves a little.  But what starts as a treat to yourself with that first wage often continues for decades, growing to become more extravagant every year, egged on by your medic mates doing the same. 

We tend to upgrade in almost every area of our finances as we can afford to.  Doctors decades into their careers on wages of $200,000+ can end up not understanding where all the money goes, and with very little savings and investments. 

It happens by stealth: one deserved and affordable upgrade at a time.  The biggest issue with lifestyle inflation when it comes to personal financial shocks is when regular financial commitments become inflated  A big mortgage for that “doctors’ house”, the BMW loan and private school fees are some common culprits. 

If an individual has committed to large repayments that cannot be easily cancelled, susceptibility to financial insecurity increases.  Fancy wine, and other expensive habits in contrast can be ceased during an economic shock (painful as this may be), mortgage and car lease repayments are less flexible.

lifestyle inflation doctors

Property Investments During COVID-19

Property has always been a favoured investment by Australians. High earners receive disproportionate benefit from negative gearing, so is a commonly used strategy for doctors.   Some  may be heavily negative geared into multiple property investments. 

Negative gearing means  you pay more in interest, property management and maintenance than you receive in rent.  The idea is that the capital growth will more than compensate for money lost in the early years of investment. 

Having your investment largely paid for by a tenant and the tax man is a very attractive proposition! It can be tempting to over leverage, particularly when considering the alternatives as a high income earner – paying 45% tax on any earning outside superannuation.

Tenants all over the country are suffering with lost or lower income.   The government’s support packages thankfully will ease some of this burden, but not all. 

Tenants are requesting reductions in rent to help them through the crisis, and some have been unable to pay rent at all. 

The government, and each state has been instituting new laws that allow rent deferral for tenants in financial strife, and disallowing eviction of tenants due to non-payment of rents to ensure everyone has a safe place to stay for the duration of the crisis. 

Unfortunately, this crisis will mean lower rents, and more prolonged rental vacancies, putting financial strain on landlords who are still accruing interest on large mortgages. 

Those heavily negatively geared with a loss of income are in a stressful space right now.  This “Black swan” event is likely an emergency situation they would never had considered in emergency planning.

What Can you learn from COVID-19: How to Prepare for Economic Shocks?

  1. Keep your Essential Spending Reasonable
  • Keep essential expenses low (mortgages, car payments, utilities and school fees) to maximise flexibility in the event of future financial shocks
  • Luxury lifestyle upgrades and status symbols (if your ego is delicate enough to need the validation) should be paid for with cash.
  1. Pay off consumer debt and avoid getting into more
  • Consumer debt will keep you broke through compounding interest (the wrong sort!)
  1. Save an emergency fund

There has been debate about whether doctors really need an emergency fund.  The theory was – if there’s a real emergency, I can cover it with my credit card and pick up some extra work to pay it off fast.  Not looking real smart right now.  Everyone needs an emergency fund, above and beyond likely anticipated emergencies. 

If you are leaving hospital medicine to start in the land of general practice or private practice, make sure you have a larger emergency fund as you leave the (sometimes suffocating) security of government employment.

  1. Sort out your Insurance

Life insurance, total permanent disability and income protection insurance are all pretty boring ways to spend money. 

You will be ineligible for insurance if you develop certain health conditions.  Insurance companies are keen to exclude any conditions you are at all likely to suffer from (if you ever saw a doctor for back pain….) 

It is generally cheaper and easier to get insured the younger you are.  Time is ticking!

  1. Invest – but always limit the downside risk
  • Consider investments carefully, get professional, independent advise and don’t take on debt without carefully thinking through worst case scenarios to make sure you will be able to hold on (especially with property as buy/sell costs are huge)
  • Remember increase returns promised by leverage also come with increased risk (assess carefully and don’t over leverage)
  • Remember to get good quality landlord insurance, although this will not cover prolonged vacancy it should compensate for non-payment of rent
  • Look at the risks FIRST before being seduced by promised returns!

Coronavirus has taught us that medicine isn’t necessarily a secure job after all.  Learn from this by making your finances as secure as possible.  Rethink your emergency preparedness strategy and make sure you are financially secure and prepared before leaving the safety of a government job

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