It’s that grand time of year where we usher in a new cohort of doctors. To my new colleagues – welcome! Let us ignore the recent furore over financial turbulence in the medical world for the time being. Instead we’ll focus on the fact that you’ll soon enough be enjoying the satisfaction, some of you for the first time, of being paid!
During your two Foundation years you will learn the ropes of hospital life as a doctor with all its idiosyncrasies, ups and downs. In that regard, I think it only prudent that you establish a solid financial foundation too.
When there’s a spare bit of bandwidth not being taken up by learning how to use a fax machine, or which ward clerk’s chair not to sit on, think about working through this financial induction for (new) doctors. You’ll find action points in blue at the end of each section.
Nothing fancy is required here. Chances are you already have a current account into which you’ll be paid. As long as it has a debit card along with it then you’re pretty much set. It may be worth looking to see whether you can upgrade or change your student account for a graduate account. Some bank accounts offer extra perks for a fee, e.g. Barclays Blue Rewards or the Santander 1|2|3 Account. Although worth looking into, in my opinion these are rarely worth it. Unless you’re on the ball it may end up costing you more than you save.
Some people have multiple current accounts to allocate money for different purposes. For example, it’s common to have a separate account for ‘day-to-day spending’ or ‘fun’ money. This physical separation of cash may prevent you from spending all of your money at once! The FinTech banks, e.g. Starling or Monzo, are often used for this and also have other attractive benefits, such as fewer fees when used abroad.
Some people use old accounts they’re not actively using to reap the rewards of switching bonuses, a moderately time-efficient way of generating small (~£100) amounts of cash.
→ Make sure you’re getting the most from your bank account(s)
Budgeting / tracking
Along with ‘moist’, the word budget seems to invoke an involuntary shudder in most people. Budgeting can seem laborious, unsatisfying and unnecessary yet it is a vital pillar of financial wellbeing. I won’t give you a detailed run-down on how to make, follow or curate a budget as there are a plethora of resources available online. Some people find app-based budgeting tools useful.
I will, however, suggest that you can start by simply tracking what’s coming in and out of your account(s) each month. Perhaps a simple spreadsheet with two tabs: money in (your salary, any interest you earn on savings, other income) and money out (perhaps split into categories e.g. rent, entertainment, food etc.). 30 minutes on the final day of each month should suffice to fill this out, and build the habit of keeping an eye on your financial goings on. You can embellish it in time if you so desire.
→ Set up a budgeting and/or tracking system for your finances
Unfortunately you’re probably graduating with debt, the bulk of which will undoubtedly be your student loan. You may have other debts too; overdrafts, credit cards, car repayments or other loans. I’ll leave student loan debt aside as the answer to “should I pay it back early or not?” is a bit more nuanced.
The interest rates on your other debt, if not 0%, are likely to be astronomical; 10%, 20% or even 30%. It is therefore imperative that you rid yourselves of this financial lead weight as soon as possible. The two commonly described methods are the snowball method and avalanche method. Whichever you choose, the key is to eliminate your debt as soon as is feasible so you can start building your wealth.
→ Start clearing any non-student loan debt ASAP
Unless you’re bathing in luxury and going ham at payday parties, it’s probable you’ll be able to save some money each month. The core principle behind saving successfully is ‘paying yourself first‘. It’s universal to have direct debits leaving your account at the start of the month e.g. for rent, utilities or subscription services. It’s therefore wise to set up a similar process for your savings. By setting up a direct debit to a designated savings account you take the process of saving money, and the temptation to spend all of your disposable income, outside of conscious control.
Common practice is to first build up savings equal to ~3 months’ worth of expenditure, to act as an emergency or ‘rainy day’ fund. The question: “where is best to put my saved money?” is difficult to answer. Even the ‘best’ savings accounts and cash ISA’s offer interest that doesn’t match inflation, leaving them poorly-suited for medium- or long-term saving. They are reasonable repositories in the case of emergency funds and for other short-term savings though. For longer-term financial growth think about whether to invest your money instead – I won’t delve further into investing as it falls outside the remit of this basic induction.
→ Start saving money each month; little and often is better than nothing at all
→ Make sure you’re getting the best interest rate available
→ Consider investing as a long-term strategy for growing your money
(NB for a full explanation of the different ISA’s available, see here)
A roof over your head
Building a nest egg is all well and good, but it should have a purpose. Amongst other saving goals, it’s possible that you’ll be looking to buy your first property in the not too distant future. Two things to consider are your credit score and the best place to save.
Having a higher credit score is better when it comes to being approved for mortgages, so it’s prudent to start buffing your credit rating early. Experian, one of the UK’s credit agencies, gives examples of how to do so. Part of this can involve getting a credit card. Credit cards can be extremely powerful monetary tools if used correctly, but the ultimate method for financial self-sabotage if not. Get to grips with the basics and use them properly for maximum benefit.
It’s well worth thinking about using a Lifetime ISA (LISA) for the savings earmarked for your house deposit. LISA’s, into which you can put up to £4,000/yr, can be used towards purchasing a property up to £450,000 in value. They come with a free 25% government bonus that is not to be sniffed at. With maximal contributions, your LISA could be worth over £10,000 by the end of FY2.
→ Take steps to optimise your credit score
→ Consider using a credit card to help do so
→ Think about using a LISA to save money towards a house
HMRC will be taking income tax (PAYE) from your pay each month. Certainly in F1, and probably F2 too, you’ll be in the lowest rate (20%) tax bracket. It’s still better to pay less tax where possible, so you should claim tax relief on professional expenses. Check the ‘tax’ section of the resources page for a variety of guides on what you can claim for and how to do so. This quick and easy process could save you hundreds of pounds each year.
Other expenses you can claim include money for relocating and travelling to/from work. You claim these directly from your trust, and each will have a different process for doing so, therefore it’s best to contact your HR department about their preferred method. This is money to which you are contractually entitled and can again save you many hundreds of pounds.
→ Claim work-related expenses back each tax year from HMRC
→ Claim relocation and travel expenses, where applicable, from your trust
The old adage is that you should insure what you can’t afford to replace. Unlike your car, insurance for your life, income protection, home contents, phone etc. is optional. Whether it’s ‘worth it’ is an entirely personal decision and ultimately unpredictable. The best insurance is the one you never have to use.
→ Consider the need to insure facets of your life, in particular income protection insurance
You may have only just started working, but it’s worth having a quick think about retirement planning too. Indeed, you may be tempted to think about financial independence and/or retiring early. I often see questions about whether it’s wiser to opt out of the NHS Pension and use a personal pension (or other investment vehicle) instead.
In my opinion the current NHS Pension (2015), although a shadow of its historic self, is still a reasonable scheme to be a part of as a savings vehicle for retirement. It is also my view that it will be meddled with and devalued in the future, so relying on it for 100% of your retirement income isn’t wise. Don’t just take my word for it though.
Much as you won’t be a Consultant after you finish FY2, you won’t be a personal finance aficionado after having read this induction. One of the best financial steps you can take is to continue educating yourself – it is only then that you’ll be empowered to make reasonably informed decisions about your financial health.
Throughout the post I’ve linked to other articles that explain various facets of personal finance. Where possible I’ve tried to link to impartial, non-affiliated, government or otherwise neutral sites. There are a whole host of financial media available, be they websites, videos, podcasts, books or forums. If, however, you just want a simple and robust place to start then look no further than the UKPersonalFinance flowchart.
Most important advice of all
I have two final pearls for you. Firstly, a cliché. The best time to plant a tree was 20yrs ago; the second best time is now. Time is money, as they say, so start off on the right foot and reap the benefits for years to come.
Secondly, you’ve survived the gauntlet of medical school and are starting an equally tough journey on the career path of a doctor. Therefore the best thing you can do with your first pay-check is to treat yourself – you deserve it!
I hope you’ve found this post useful; do share it with your new colleagues if so. Be it on the ward or in your wallet, I wish you all the best for the year to come.