I really enjoy working with doctors, in particular locums. I feel I can add massive value to their complex lives. Locums do a great job for society but do not have the time to manage and grow the financial rewards that come from their great work.
Many locum doctors believe this sort of stuff is done by their accountants or their umbrella company. This simply isn't the case. In fact, locums could be missing out on many benefits as their accountants and umbrella companies don't know what they don't know.
Good financial planning is a specialism that can only be performed by a good Financial Adviser who will be the link between a locum's accounting, legal professional and a good bank balance.
First, there's lifestyle creep. Doctors who have previously worked as a full time permanent employee of the NHS will not be used to the extra earnings that come from locum work. The prospect of a large increase in earnings can be an especially exciting time for a young locum doctor who has spent long hours over many years learning their craft. But when their income increases, their lifestyle probably will too.
I remember a time I was referred to one locum who had just earned £4,000 in a week and was chasing his agency like mad to get the payment made as he didn't have enough cash to pay all his bills that week. I see older locums with children who they quite often put through private education. Once these commitments are made they are difficult to get out of.
Second, there's the negative side of being a locum, the uncertainty. Lack of regular work could be due to a lack of demand in their specialty or because their unable to work due to accident or illness. And depending on how a locum sets themselves up, be it PAYE through an agency, self-employed, limited company or via an umbrella company, sick pay and pension contributions can be unclear.
Third, there's umbrella company trouble. There can still be a lot of bad practice carried out by umbrella companies where the net pay received by the doctor is less than what they should be getting.
However, following 6 core financial planning principles, locum doctors can ensure they take the relaxing long view with their finances rather than suffer short term stress. Here are the six principles I lay out for my locum doctor clients.
As mentioned above. Locums who operate through an umbrella company need to be careful. I've seen instances where the umbrella company is still making far too many deductions (like Employer National Insurance) from a locum's pay.
Locums should take professional advice from an independent Financial Adviser alongside an independent Accountant.
We needs closely monitor lifestyle creep. There's nothing wrong with enjoying the fruits of your labour, but you need to walk before you can run.
Locum doctors need to at least start by understanding and being aware of their spending and look to budget. Its sounds obvious, but they need to be spending less than they earn.
Once I get my locum clients on top of their spending, there's usually a gap. The gap is the difference between their income and their spending – breakout income.
This breakout income can be put to good use for their future selves.
The first to do with any new breakout income is to build a savings buffer so a locum can dip into this during gaps in work or for unexpected large one-off expenses.
Working as a locum doctor is a job that definitely requires my clients to be at 100%. Therefore, locum doctors are probably at risk more than most when it comes to taking time off work due to accident or illness.
Whilst a buffer account could provide cover for a while, if the accident or illness was more serious and led to long periods where they were unable to work, they would need to consider what bills still needed to be paid.
For a small monthly premium, a locum doctor can get insurance that pays out a monthly income whilst they are unable to earn.
Working as a doctor is tough, stressful work. The latest NHS pension for newer members will not payout until state pension age which could eventually be well past age 70.
It's vital to build a personal investment portfolio alongside any NHS pension to ensure early retirement/financial freedom.
Any good strategy starts with a plan and what better way to do it than a visual cashflow that predicts, plots and adjusts various scenarios so you can truly stress test objectives. We use interactive visuals to show our locum clients exactly where they stand and what they need to do next. They do the tough work in the hospital, it's up to us to take care of their financial health.
Carl Roberts is a Managing Director and Chartered Financial Planner at RTS Financial Planning.
