Your rent is due at the end of the month, you want to book that holiday you’ve been planning and you’ve made plans for dinner and drinks tomorrow night with uni friends. Sound familiar?
As a junior doctor it can be hard to make your salary go beyond the here and now while paying general life costs and maintaining a good work-life balance.
Luckily there are ways to balance spending and saving money, to enjoy your time as a junior doctor and still save up for all that life has to offer later on.
It doesn’t happen on its own – it takes a little financial planning and literacy. That’s where we can help!
What are the elements of money management?
The simple elements of financial health and money management are as follows:
- Optimise income
- Optimise expenditure
- Optimise savings growth and asset building
I have used the word “optimise” rather than “minimise” and “maximise” because there is a lot of flexibility in the trade-offs we can make for the sake of income and expenditure, as you’ll see below. At the end of the day, it’s down to your personal choice and what’s important to you!
Optimising income as a doctor
So how can I grow my income as a doctor, and make sure I am getting the most return on my time?
There are various sources of income you can draw on as a doctor, and these are broken down into passive and active sources.
Active income is any income received in return for performing a service – most commonly in exchange for your time. It requires work to be achieved.
Your main source of income – your salary – will be active. It’s directly proportional to the amount of time you put in!
Medical locum shifts are also active forms of generating income. For these, you will be paid an hourly rate varying from £20 per hour up to £100 an hour or over, depending on your seniority, experience and how crucial it is for the post to be filled.
As consultants, it is easier to supplement active income through private work, working additional Programmed Activities (PAs) and working on the Waiting List Initiative. You can also supplement your salary through Clinical Excellence Awards, or taking on extra roles such as being a Clinical Director or Director of Medical Education.
You can boost your active income in other ways, outside of medicine, as well. Working a second job, tutoring A-level students, writing exam questions for online banks – all require time input but can boost your income in the short term.
It is extremely difficult to grow an active salary without increasing your hourly wage, as it constantly requires time input.
Passive income is an extremely desirable form of income as it involves an initial investment of time or capital, but then, in theory, provides you income perpetually with minimal ongoing input of time or effort.
Examples and ideas of passive income for doctors are described below:
- Investment income – includes savings interest, dividend income and investing in businesses and startups. We’ll discuss this in the third section on optimising savings growth, later on.
- Property income – again, we’ll discuss this later on.
- Royalties – you might achieve this by writing a textbook, album or piece of art and receiving regular payments for these. This might also include creating an app, computer program, innovative technology or teaching course.
- Advertising revenue – such as through a website, blog or social media (think influencers). You could even be creative and advertise on your car!
- Affiliate marketing – payments through referrals to affiliate programs. Almost like getting £10 for referring your friend to Uber, but bigger.
- Starting a business – the sky is your limit, but the idea is using an initial investment of time and/or money to create a lasting business that generates an extra stream of income
The examples are endless, but passive income is an excellent way to grow your income without the added constant expenditure of your time. It is a great way to reduce burnout, and develop a very healthy work-life balance without sacrificing your income.
Optimising your current earnings
Once you’ve established your sources of active and/or passive income, it’s important to ensure that you’re not losing out because of payroll errors or being tax inefficient!
Here are some simple steps you can take to ensure you’re taking home the most you can:
- Ensure you’re being paid the right amount – this applies to your NHS salary. Use our pay calculator to ensure the amount on your payslip correlates correctly with your time worked.
- Reclaiming the tax on expenses you are owed.
- Exception reporting for extra hours worked (you can be repaid at bank rates, or through time-off-in-lieu).
Optimising expenditure as a doctor
There is a simple rule of financial health – ensure your expenditures are less than your income. This applies to anyone!
Budgeting and financial planning
The most effective way of optimising expenditure is being aware of your financial activity. There are lots of different ways to budget and curb your spending, so you need to try and find one that works for you. Check out our dedicated page to help you budget and keep an eye on your outgoings.
Reclaiming your work based expenses
Another important way to reduce your expenditure is by ensuring you claim all of your appropriate entitlements:
- Claiming courses and training through study leave – ensure you read your trust or region’s study leave policy thoroughly! Did you know that although you can’t claim for specialty college exam fees, you can claim for travel and accommodation to sit the exam?
- Relocation expenses – if you’re moving hospital or deanery to change jobs, you might be entitled to some compensation under the HEE regional relocation policy. For example, moving deanery from rented accommodation to another rented accommodation may entitle you to reimbursement of moving costs. If you have to sell your house to buy another one in a new deanery, you may be entitled to reimbursement of up to £8,000 in legal fees and stamp duty.
- Travel expenses – if you’ve been placed at a temporary second placement, you might be entitled to travel expense reimbursements to this new temporary workplace
- Tax rebates on employment expenses.
Minimising the cost of your debt
Debt is extremely common and takes many forms:
- Student loan
- Car bought on finance
- Credit cards
- Bank overdrafts
- Mortgage on a home
Not all debt is bad – for example, very few people would be able to afford a home without a mortgage, and hopefully, your student loan has helped you gain a degree that increases your future earnings.
It’s important to assess how much debt is costing you. You can often see this on your bank or credit card statement and it will become more obvious once you start budgeting. Interest rates on debt are given in percentage terms, also expressed as annual percentage rate or “APR”, and this is a good way of comparing types of debt.
It’s important that you prioritise paying down debt that is costing you, in percentage terms, more than you can get as a return on your money.
For example, credit card debt at 20% interest should be paid down before student loan at 5% interest, before trying to save money generating a 2% interest rate of return.
We’ll talk more about debt in another dedicated article later on.
Making use of loyalty and rewards programmes
Once you’ve decided and planned your spending, there are great ways to make the most of rewards and loyalty programmes.
You might be able to save 1% of your spending by making use of these, which doesn’t sound like much to start off, but can add up if you’re thinking on a yearly basis!
Some ideas for these are:
- Nectar points or Tesco Clubcard points when doing groceries or fuelling up
- Using 18-25, 26-29 or other railcards when travelling
- Getting a credit card that gives reward points or cash-back
- Loyalty points for coffees and lunches
- Shopping from places that give NHS discounts
The Points Guy is a great site for finding out about credit card and loyalty program points, which you can use later for a cash benefit or equivalent!
Optimising savings and asset growth
The third element of financial health is ensuring the best use of the assets you own.
Read on to our article on saving and investing to continue learning about this third facet of financial security!
A note about pensions
Pensions are a very efficient way of saving money for the future. We discuss this more in our dedicated article on pension basics, but if you haven’t joined the NHS pension already, it’s worth considering.
Next steps checklist
Now that you understand the principles of money management, you’re ready to get started with trying to optimise your income and expenditures as we described above.
If you’d like to learn more about investing and how you can make your savings generate more returns while minimising risk, read on with our page on investing basics.
For now, here’s a little checklist you can use to get started:
- Check your work schedule, contract and use the pay calculator to make sure you’re being paid the right amount
- Check if you can reclaim any tax on employment expenses
- Set up an HMRC online account
- Set up an automatic or manual budget or expense tracker
- Check to see if you’re entitled to any study leave expenses, relocation expenses or travel expenses
- Sign up to loyalty and reward points programmes, and consider getting a credit card
- Consider joining the NHS Pension if you haven’t already
- Read our article on saving and investing
Please note that the information above doesn’t constitute specific financial advice, but is only guidance to help you make an informed decision. You may want to consult an independent financial advisor who can help ensure it applies to your individual circumstances.
If you have any questions please do feel free to leave a comment below or send me an email.