As an established medical professional, you will likely be earning more than the average Australian and feel financially secure. However the operation of a successful medical practice is not easy – and it often requires significant financial investment.
If you want your practice to be successful it takes more than medical skill. In the absence of a financial adviser, you will also need a significant level of business acumen to navigate the ins and outs of important financial obligations such as bookkeeping, taxation, insurance, incomings and outgoings and salary sacrifice.
By understanding how to structure your finances your practice you’ll improve your level of financial security for yourself, practice and family. You should look to exercise careful financial management across the following areas:
Make a budget and track your expenses, then add a buffer and spend less
Knowing what your income is and aiming to not spend more than that is easy when you’re on a salary. But when you’re running your own practice things are less predictable and you may find yourself coming up against unexpected costs. Therefore, start now and track your current situation. Once you have a few months’ worth of information, you can critically analyse your expenses. Look at where savings can be made, reduce your expenditure and reserve savings for unforeseen future business costs.
Pay down bad debt
You really don’t want to go into a business with bad debt so if you have credit card, car or store debt, concentrate on reducing this debt as a top priority. If you have a large credit card debt you may want to consolidate the debt onto one low rate card that offers an interest free period or consider a low rate personal loan.
Pay off a mortgage vs adding extra to super
Owning our own home outright is a goal for many but there are significant tax concessions afforded to superannuation, making it one of the most effective ways to build wealth for retirement. Superannuation also helps you diversify your savings across a more diverse range of asset classes, compared to investing in just one asset class, like property. So if you’re looking to reduce your tax bill, and accumulate wealth, consider contributing extra to your super.
Review your superannuation fund
You may still be using the ‘default’ fund that you joined when you started working in medicine but does this still suit your changing needs and higher income? It’s worthwhile considering your options as you want to be sure the fund offers low fees and sound investment performance. It may even be the time to consider a self managed superannuation fund (SMSF).
Did you know it may even be possible to purchase your consulting rooms through the fund?
Start extra super contributions early
Thanks to the wonders of compound earnings – the earlier you start saving for retirement, the more you will accumulate over time.
Your employer is required to direct 9.5 per cent of your wage to superannuation each year however, if you work for yourself then you do not always need to make these contributions. Despite this, it is worth reviewing your budget to see if you can afford to keep making superannuation contributions as it helps increase your balance over time and super is still one of the best vehicles to accumulate wealth.
Review your insurance needs – both personal and business
Insurance is designed to financially compensate you if you become seriously ill or injured. There are many types of insurance cover available; the main ones to investigate are life, disability, trauma and income protection. Your superannuation fund may offer some form of insurance cover as well.
Generally speaking, the cost of cover is heavily dependent on your age and health – so the earlier you obtain cover, the cheaper it is.
Additionally, as you move into running your own practice, you’re going to need practice indemnity insurance. This is different to your personal medical indemnity insurance. You may consider engaging an insurance broker to help assess your risks, and suggest cover that will best suit your changing needs.
Put an estate plan in place
Talk to a solicitor about putting a Will in place. A Will needn’t be overly complex but it is important that it accurately reflects your wishes. Also bear in mind that getting married causes a Will to be void; but getting a divorce doesn’t.
Start working with a financial adviser
There is no better time to get professional help with your finances than now. Working with a qualified financial adviser can help put you on the right path to long term wealth creation. An adviser can provide you with an overview of what you should be focusing on now. They can work with you on putting strategies in place to achieve your goals and objectives over the longer term.
Operating your own practice is not easy. You may have the technical expertise to excel in your chosen field but that is only half the battle. Seeking professional advice from a financial adviser will ensure you start off on the right foot. Your financial advisers can assist in establishing the appropriate tax structures, working with financiers for borrowed funds, and cash flow planning.
The medical field, combined with private practice, can bring many pressures and stressors therefore, establishing a financial strategy and investment plan early will not only reduce the risk of poor financial outcomes but will set you up for deliberate financial and business success.
Who are Hewison Private Wealth?
Hewison Private Wealth are sponsors of the Royal Australasian College of Surgeons. They are independent financial planners and wealth management experts with a focus on assisting medical professionals.
Hewison Private Wealth can assist you with your personal financial planning needs as well as provide advice on the setting up of a private medical practice.
For more information contact Simon Curtain or Glenn Fairbairn.
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The views in this blog are those of the individual and may not represent the general opinion of the firm. The information provided above is general information only. It does not consider your needs, financial situation or objectives. You should seek specialised advice from a qualified financial adviser
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email firstname.lastname@example.org or visit www.hewison.com.au
Please note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.