In this episode of PodMD, Certified Financial Planner, Simon Hepson from Oxlade Financial will be discussing the topic of; Financial Health Checks.
- Transcript
Please note this is a machine generated transcription and may contain some errors.
*As always, all in this PodMD podcast is intended for health professionals and the comments are of a general nature. Information given is not intended as specific medical advice pertaining to any given patient. If you have a clinical issue with one of your patients please seek appropriate advice from a colleague with expertise in the area.
Oxlade Financial is an independent financial planning practice that specialises in helping medical clients. They help doctors use their income to build real wealth and reach the lifestyle they aspire to.
Today I’d like to welcome to the PodMD studio, certified Financial Planner, Simon Hepson from Oxlade Financial; talking with myself, Peter Chaplin from Rooms with Style.
Today we’re diving into a crucial topic, a financial health check. Doctors are incredibly busy caring for others, but when it comes to their own financial health, many find themselves managing overly complex structures, overwhelmed with decisions, frustrated with high tax, or simply too busy. This episode is designed to help you identify any gaps and provide practical tips to get you on the right track. Simon, thanks for talking with us on PodMD today.
Simon: Thank you for having me.
Question 1
Simon, most doctors are incredibly busy focusing on patient care, their practice, family and friends; why should doctors invest their time into their finances as well?Simon: That’s a good question, Peter. The cost of neglecting finance, or worse, getting these decisions wrong can be life changing, and unfortunately, I’ve seen doctors come to me after they can’t retire or with a realisation that they’re not where they thought they would be after so many years of hard work. Like most things in medicine, prevention is better than the cure, and by investing time, even if it’s something like an hour every six months, doctors can make sure they’re on track to live the life they want and avoid nasty downsides. On our website we’ve got a visual explanation of this concept for visual learners, and it shows a curve which is if people manage it themselves and get it mostly right, it might look something like that curve; and what good advice doesn’t, and paying really good attention to your finances, it sort of lifts that curve at the starting point. Because it’s exponential, it means the improvement to clients lives is profound, and even when your clients approach us thinking about retirement, you know it’s not too late. Obviously yes, the best time to start thinking about your finances was 20 years ago, but the next best time is now. Or even if you have been thinking about it, the best time to check in, or maybe level up is now. On the flipside, the chart also shows what can happen if mistakes are made, and similar to there being small positive change having large impact long term; so too can mistake significantly drop quality of life later, and part of that challenge is the unknown unknowns, which can only come alight in the future, like that doctor come and see me when they’ve missed retirement.
Question 2
Certainly not being able to retire when you want to sounds particularly nasty. What’s the first step in a financial health check for our listeners?Simon: First off, and most crucially, is to work out what you actually want, and what you want to achieve in life. This can be things long term like being able to choose work instead of feeling pressure to earn an income, or decline some lists and take others that are more interesting. It can also mean more immediate things, like feeling progress towards paying off the home, whilst still enjoying life and not living a student life, scrimping and saving anymore. Having these ‘why’ statements behind your investments in your strategy really helps to ensure you’re making the right choices, and helps keep you on track too. I’ve seen too many examples of doctors who are asset rich, but income poor, and that translates to not being able to live the life they want because they didn’t think about what the target was when they started investing; they just started, which is good in itself, but hasn’t turned into the outcome that they want. I also see too many examples of the thought being ‘ah yeah, I’ll get to it later’ or ‘hey, I’m a doctor, I earn good income, I don’t need to pay attention to this, I’ve got other things that I want to do’. Here at Oxlade we practice goals based advice, so all of the strategies and investments we recommend are really just the means to the end; getting you to what you want, and that looks different for every single client, and good advice is about getting you to where you want, achieving your goals, which again bringing it back to the start, this is why it’s most crucial that you know what that looks like. What is it you want? So, I highly recommend have a proper sit down, with your partner if you have one, and write out your goals and go deep. Ask yourself why having X amount in the bank is not nearly as motivating as, why do you want have X dollars amount of in the bank? What does that mean for your life in the future? If listen has made some pointers to start, then you can think about the areas of work, lifestyle, home, family, community and then this really should grow from there and feel quite natural after you’ve done a few.
Question 3
Certainly knowing the why, that sounds like a critical first step, and hopefully will stop people from procrastinating. I can see that, that would give a lot of clarity and focus to doctors, and so with the ‘why’ understood, what comes next?Simon: Naturally, people typically jump right into the building asset part, which is great and necessary, but again, you need to start from the start and really build strong foundations first. This is across four main paradigms or areas; cash flow, risk, structuring and debt. If you don’t have a strong foundation, you’re risking building a house of cards which might fall over, when inevitably, there are challenges – external challenges or things that might pop up and this might lead you to not creating the life you want if you haven’t built those foundations really strong. It also can lead to building the wrong types of investments, like I mentioned in the last question, which might give a good return, but again, don’t fit the wider picture, or as any doctor will very rightly hate; paying too much tax. The core of this foundation layer is ensuring that you have a positive cash flow to use to build assets that you’re investing in a right entity, or person’s name that you’re not taking either excessive, or not enough risk, and that you’ve got a plan to pay down debt whilst using it effectively. Around all of that, you need to make sure that you’ve got the right protections in place, and we commonly refer to this as the ‘s*** hits the fan plan’. The foundation layer takes time to get right, but really is vital to achieving financial success long term and it’s also not a set and forget thing. So, whilst establishing these upfront is key and will be a bigger focus initially, as foundations do also need to be reviewed ongoing, to ensure no small cracks are appearing which can then turn into massive faults and again undermine that long term journey for you.
Question 4
That certainly makes a lot of sense, Simon. I could understand that a lot of people, including doctors, wouldn’t have those strong foundations. Once those foundations are in place, what sort of investments should doctors use?Simon That’s the million dollar question, Peter. This is naturally a core part of a financial plan. If listeners are particularly drawn to this question, I will point out that we’ve done another PodMD episode on this, dedicated to investments so you can have a listen to that one. For today, the truest answer is that doctors should choose investments which give the best opportunity to meet objectives, on time or early, balanced with taking acceptable risk; which is a bit of a nothing answer on the surface, but it is the truth and understanding this concept will help doctors link investments to those ‘why’ questions we went through earlier. This really means there’s no set answer to that question, there’s no set mix of investments that will work for every doctor in every situation. The general rules to help listeners is that they shouldn’t be overexposed to any one asset class and should focus on relevant time horizons for different parts of their asset pool. For example, having cash for emergency access, but then having shares and, or property for long term capital gain for the next 20-30 years or longer. To bring us back to focus as part of the health check, doctors should be thinking and asking themselves, will this investment deliver me to my goals after paying off any debts and taxes? It’s a really hard question to answer and part of the reason why we exist, it’s a tricky question. In general, some errors or red flags to watch out for to doctors; as I mentioned, being overexposed to any one asset class and a common one is residential property, particularly because it gets funded by a lot of debt and you don’t want debt in retirement if you can avoid it. Now you want to keep an eye on or you may have some errors around paying off the home loan at the exception of everything else, obviously we want debt gone, but we need to be thinking about long term growth too. This ties into superannuation and not using that effectively or ignoring it, it’s such a great investment vehicle and a really good way to pay less tax – we do love that. Putting excessive complexity into this situation, and you mentioned this in the start, Peter and this is, things building up overtime and going ‘oh I can take on this bit of complexity and then that bit of complexity’, but it ends up building this picture of ‘oh well, I’ve got to focus so much time or picking stocks in areas that we don’t really understand’ and then it flows into making the wrong investment choices and being overexposed or not having the right mix. Picking the right investments and keeping on track, especially through challenging markets, is really hard, and again, that’s an area that we help our clients with being a bit of a sounding board and a buffer and going ‘hey, the news is pumping out a lot of negativity and especially right now, but having access to that independent professional in your corner is what I like to describe it as a bit of a superpower that doctors can choose.
Question 5
They’re fantastic insights, Simon, thank you for that. What else should doctors do with a financial health check?Simon: The final part of undertaking a health check for doctors is, for the doctors to consider if they have the right team around them and your listeners should honestly reflect and ask themselves, do I have the time, skills, knowledge and inclination to keep driving things the way that I am right now? Am I getting the help and access to help that I need? Do I have the right relationships in place and am I working with people who have my best interests at heart? For almost all doctors, finance is at most an interest and very commonly not that at all, and not something that doctors want to do as a job in their spare time. Outsourcing to level up is a really good thing to reflect on.
Question 6
Terrific – thank you, Simon for your time here today in the PodMD studio. To sum up for us, could you please identify the three, key take home messages from today’s discussion.Simon: The first one is to invest the time to do a health check, even if you already on a pathway. You’re taking the first step, you’re listening to this podcast, so keep the momentum driving and look at things when you get home, start with the ‘why’ and then build up from there with solid foundations and the final point is, make sure you’re getting the right help.
Terrific, Simon. Thanks again for your time and the insights you provided.
Simon: Thanks for having me, Peter.
We do hope you enjoyed this podcast, but please remember that the information discussed here is of a general nature and is not intended to serve as advice. The views and opinions expressed in this podcast are those of Oxlade Financial, not PodMD. Oxlade Financial reminds you that any information or opinion in this podcast is general in nature and does not consider your personal objectives, situation or needs. Nothing in this podcast is a recommendation and you should seek personal advice from a registered financial advisor before making any decisions.
