The Hidden Reason Doctors Are Struggling Financially

What hundred pounds could buy back then, you now need £139 to buy it. Now you yourself see it when you go to the shops, when you go to buy things, you've seen the prices of things seem to have gone up. But our income as medic has not followed that rise in prices. It has gone up a little bit, but it's not catching up. So that's why you see even a consultant jps, like registrars, people who are working hard. Seems like you're really struggling because inflation is happening, you are being dragged into higher tax bands. Even when you're getting paid a little bit more. If you put in any money in your pension, you get tax relief on it. Why do we get all these tax reliefs? If the government wants you to do something, they sometimes make some financial incentives. So isa, the government wants people to save and invest so they don't depend on the government welfare. If you put any money into your pension, you get tax relief now. And that tax relief can become massive if you're a higher rate taxpayer. But if you're paying into your pension, the government gives you tax relief. So they don't pay money into your account, but they give you tax relief because your NHS pension or your workplace pension is deducted from source.

Okay, Adebayo had a question about self assessment tax refund. Do you want to ask your question?

Thank you, sir.

Yeah, thank you, Andy. Yeah, the question is around self assessment tax reform form and the regular tax reform form. What categories of people will require self assessment tax reform form and what categories of people will do the regular.

Thank you so much, Very important. So your question is who needs to do a self assessment? Did I get that correctly?

Yeah, yeah.

Good. So I've written a whole article on this. Someone from my team will find it and share it. We also share it on the WhatsApp group. Basically is who needs to do a self assessment is on moneywide doctor.com. but I'll tell you one, if your income is exceeding 150k, happy days, you need to do a self assessment. Okay. Two, if you've got a business, for instance, if you're a doctor, you're working through a limited company or you've got like side hustles or you've got other things you do, you need to do a self assessment. Does that make sense so far?

Yes, it does.

Let me give you other examples. If you want to claim tax relief because for hmrc, self assessment is for them to get you to declare your additional income that you haven't declared so that it can be taxed on it. But from your point, from my point, from your point as a tax efficient doctor, self assessment is also an opportunity for you to really declare some extra expenses or things that you've not claimed tax on. For instance, if you put money in your SIP and you're a 40% taxpayer, then you can claim it back through self assessment. If you've done some expenses, let's say your professional expenses, you've registered for exams, you've paid for your cct, you've paid for Royal College, you paid for all that stuff and you exceed £2,500 per tax here, you wouldn't be able to claim it through the regular route. So the regular route, if you don't know how to claim it the regular route, I've done a video on it, it's on our YouTube channel and there's a full guide, step by step guide you can use, watch the video and claim. But the regular route allows you to claim only £2,500 per tax here. So you can claim back up to four previous taxes. But if, let's say at the bar, if you spent like £5,000 you want to claim, then you can do self assessment. So these are some of the criteria of those who need to do self assessment. There are a few others as well. The article is do you need to send a self assessment as a doctor, but that applies to you whether you're a doctor or not a doctor. Basically, if you're in self employment, if you're in a business partnership, if you have a high income, if you have capital gains, either you've sold the house, made money and or you've sold some shares, made money, or you bought an asset and disposed of it, you made some money, then you need to do self assessment. Even it could be crypto or not just stocks. Also for people who have high income child benefit charge. So if you're earning more than 60k while receiving child benefits, you'll be required to pay the high income child benefit charge. Okay, so these are sort of the scenarios that you'll be required to do a self assessment. Right. Debayo, did that help?

Yes, it does.

Right, okay.

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Now, let me just highlight something basically, because I see some of the questions about the lifetime isa, and thank you for that question, Adeboye. It's a brilliant one for Lifetime isa. It all sounds good, but I've done a video on the dangers of the Lifetime ISA. If you decide to put money in Lifetime ISA, you can't get it till you turn 60. You can if you want to, but you're going to pay a penalty. You lose the 25% government bonus and you might actually end up most times, most likely you end up with less than you put in. So if you put in £4,000 and the government give you £1,000, you are likely going to end up with. If I, if I do the math, you end up with 3750 because you're going to lose the government bonus, but you also lose some money. Some platforms also charge you a fee. So money in the lifetime, I tend to look at it the same way I look at pension money I'm not going to use for the next several years. It could be a couple of decades or it could be a decade for you, depending on where you are. And some people say, oh, why? Why are you putting money? I'm not going to get it to your sister, I ask them, are you.

Not going to be around?

Are you not plan to be around at 60? Because I am. And if you look at basically the nhs, pension is great, but most people may not want to wait till 68 or 71 to cut down on work or whatever they want to do. Some people might want to take their sip at 55 or 57, but it's really important to point out the Lifetime ISA, you can't get it till you are 60. Okay? The second thing about Lifetime ISA, you can obviously use it before you are 60, but for buying your first house. The third thing, which many people miss, is that if you're using it to buy a house, the house cannot be more than £450,000. So £450,000 is the maximum in terms of house. And this is where people fall into traps because Basically, they are saving in the lifetime isa and they are trying to buy this house, but the prices of houses are going up and then they're not able to buy the house with the lifetime ISA because the price of the house they want to buy is 450,000 and above. So it has to be below 450,000. If you're buying a house for 450,000 or less, you're fine. Once it's above 450,000, you can't use the Lifetime ISA. That means you just have to wait till retirement to use your lifetime isa. The fourth thing is, obviously I know some doctors in the UK now who are in this webinar, have moved to Canada, I've moved to Australia. Well, you can't contribute more money to your lifetime, Isaac, but it's still yours. You can assess it at 60 and if the lifetime ISA stock and shares, you can invest it, keep it invested. Okay, then another thing obviously to look at is one big issue I think with the lifetime is that most people don't tend to remember is that you can't add any more money into your lifetime isa once you cross 50. So you can get it to your 60, but you can't get add any more money. I remember we like to add money to our lifetime ISA. Why? Because we get an extra 25% from the government. So it's like if I put in 4k, I get 1k. If I put in 4k, I get one k. But that stops at 50. That is where you are at a big disadvantage if you just have a lifetime ISA savings because then you just have this money in the savings account sitting around for the next 10 years and it's not giving you a good return. That means that money is not working hard. And my whole idea of tax efficient investing is that your money needs to be working harder than you. It needs to be working really hard. But if it's in the stock market through a lifetime I start at least it's in the stock market and is exposed to market returns. And you might say there is volatility. So there could be a bit of risk. But long term, obviously if you have a long term horizon, you stand to make far, much better return than someone that just has it in a savings account exposed to inflation. All right, so Sonia, do you think we could take the second one? If you call the second question out. Whoever.

Yeah, the name Omalola has had several questions. So maybe you can combine them all into one.

Yeah, Omalola. Okay, it's your turn now. Thank you. Sonia? Yeah.

What if someone having lifetime ISA passed away?

Can it be passed down to family or next of king? Excellent question. Yes. Basically your lifetime isi is part of your estate. So if you pass away, that could be passed on to your family or nest of kin. Sadly, I just need to touch on this because most, if you watch content on YouTube and all that, most people don't know ISAs as a whole they allowed to pay in 20k per tax here. We all know that, right? £20,000 per tax here. Okay, good, we know that. But on some instances you can actually pay in 40k. So. And it's sad if you have a spouse that passes away. If you have a wife or husband or partner that dies, you are allowed for the next three years to put an extra £20,000 in your ISA. I mean, I wouldn't call it inherited ISA, but that's what it's like. It's like, okay, my spouse has died, you are allowed to put in 20,000 for yourself and another 20,000 for three years in a row if you lose a spouse. And so if you've got an extra money to put in your, in your ISA, I'm talking about ISAs as a whole or the allowance, good for you. But if you don't have it, basically it is of no use to you. It doesn't matter. That's where tax rules tend to favor the halves and then not really the have nots. But wherever level you are in, you can take advantage of the tax rules to your benefits legally. Okay, so Malola, did that answer your question?

Yes, please.

The other question is.

Oh, there are two of you there. That's good. And who am I speaking to now?

Yeah, just the auntie husband.

The husband. What's your name, sir?

Hola. Hola.

Good. Hola. Yeah. What's your question?

What do you advise regarding pension? Yeah, does you want taking pension? I mean workplace work, pension, is it advisable or once you just get the money and invest it.

Now here's the thing most people don't realize. Pension is one of the powerful tax efficient tools you can use to invest in this country. And I'll explain that for you. If you put in any money, your pension, like Sonia says, like a no brainer, you get tax relief on it. Why, why do we get all these tax reliefs? If you do what the government, if the government wants you to do something, they sometimes make some financial incentives. So isa, the government wants people to save and invest so that they don't depend on the government welfare. So there's Some benefit you get tax free pension. If you put any money into your pension, you get tax relief now and that tax relief can become massive if you're a higher rate taxpayer. Now let me give you an example. Hola. If you are working in the NHS and before you get your pay, the pension is deducted. Okay? Is that correct? The pension is already deducted from your pay slip. Are you with me, Ola?

Yes.

Good. So your pension is deducted and I don't know what you earn, but if you are the highest pension level, I think it's about above 50k, 60k or thereabout, 12.5% is being deducted from your pension and it's going to a pension port. The NHS pension is called defined benefit. So it's a pension port. It's not being invested, it's basically your money is going out to pay those that pensioners now and in your own time you get paid as well from the port of those paying in. So that defined benefit. So it's not being invested in the stock market, it's not taking any risk or anything in the stock market. Now you put it in 12.5% or 9.8% depending on how much you earn. Guess who else is putting money into the pension pot? Your employer, whether it's your trust or whatever. Your NHS pension, your employer is putting 23.7%. That means if you earn a hundred thousand and 12.5% is going into your pension port, your employer is putting so yourself 12.5%. I know it's painful. You're not seeing the money. You're like, what's happening here? I need my money right now. I, I'll invest it myself. But that 12.5% going in, let's say you earn 100k, that's 12.5% of 100k is £12,500. But your employer is putting 23.7%, that's £23,700. You can imagine what that is doing is that your employer is contributing to your pension. So if you decide to leave the NHS pension, what you're going to do is that you are going to stop contributing. But guess who else stops contributing? Your employer. So you lose that. So if you think you're being paid 100k and that's your salary, no, you're not being paid enough. You're just being paid some money now and some money is being paid into your future. That's your pension port. Okay, now what's the other thing, the other reason? I'll say apart from that money your employer is contributing. Because if you leave, your employer wouldn't even have to contribute any money. The second thing is that if you contribute to a pension, someone said the government contributes and yes, the government contributes. How does the government contribute? Taxes. Normally, the income you're getting should be taxed. Let's say you're a 40% taxpayer, you should have had to pay 40% on that money. As long as any amount of the income above 50k is 40%. We know that already. But from 0 to 12,570 pounds is tax free. From 12,571 pounds to 50,271 pounds is 20% and above that is 40% and obviously above 125k is 45%, apart from the 60% tax trap which will admin and address. But if you are paying into your pension, the government gives you tax relief. So they don't pay money into your account, but they give you tax relief because your NHS pension or your workplace pension is on deducted from source. So that money is not taxed before you receive it. So that means that it's actually a boost to your pension port. And if you had a private pension, for instance, if you had a SIP like me, like I don't work for the nhs, you have to have a private pension yourself. Let's say you run a limited company or you're self employed, or you even an NHS consultant, but you want to avoid the 60% tax trap, so you want to maximize your pension allowance. If you put money in your pension, the government also gives you tax relief. Guess what? Because that money has already been taxed, it's coming out from your pocket. And if you're a 20% taxpayer, you're going to automatically get 20% of that amount if you put it in your SIP. So if you put it in your self invested personal pension, you're entitled to 20% of that. But if you're a 40% taxpayer, you get the 20% automatically and then you need to get the other the rest of it, the other 20% through your self assessment. So you have to do a self assessment to claim the rest. So that's one of the reasons you do self assessment. How does that sound to you Ola? Does that sound like a good reason to have a workplace pension?

Yeah. Thank you.

That's not all. And this is coming from someone who doesn't have a workplace pension. Myself, I mean if I worked in the nhs, it be a no brainer, I would have the NHS pension. And while I worked in the NHS pension. I had the NHS pension. Yes.

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Now there's another reason I've not mentioned a third reason or a fourth reason. If you are in the NHS pension, whatever contribution you have made is index linked. So that jargon four is moving up with inflation. So like I said in one of my write ups, if you see my video, one of our one of our creatives that when I came to the UK exactly ten years ago, September 2015, what hundred pounds could buy back then, you now need £139 to buy it. Now I don't need to explain this to you guys. With CPI consume consumer price index or inflation figures from the government, you can check bank of England inflation rates but you yourself see it when you go to the shops, when you go to buy things, you've seen the price of things seem to have gone up. But our income as medic has not fallen followed that rise in prices. It has gone up a little bit but it's not catching up. So that's why you see even a consultant jps, like registrars, people who are working hard, doing locums and it seems like you're really struggling because 1 inflation is happening, 2 there's fiscal drag, you are being dragged into higher tax bands even when you're getting paid a little bit more. Okay, now if you're in the NHS pension in particular now if you're not in the NHS pension, this might not apply to you. If you're in a private pension, then that is not defined benefit, let's say defined contribution, this will not apply to you. But defined benefit is index linked. That means it rises with inflation. And Evola has contributed some money to the NHS pension and as at the time he left The NHS pension. His pension port was £50,000. If he waits to collect the NHS pension at 68 years, which is a very long time for most people, he's not going to get the same £50,000. He's expected to get £50,000 in addition to the new, in addition to the change due to inflation. So you get whatever £50,000 could buy at this point and what he could buy in, let's say 20 years when he takes his pension, or for 30 years. So it's index linked, basically rises with inflation. These are some of the benefits of your NHS pension. I've done a full video. I think someone in my team team will share it. I wrote 10 things you need to consider before you leave the NHS pension. And apart from all these things I've mentioned, remember that the NHS pension is like a guaranteed salary for life, basically, as long as you're alive. And then secondly, you also have this ill, ill health benefit. So if you are sick, you can get some benefits from the NHS pension and there's debt and service benefits because of time. Basically we are in an investment master class. I may not be able to go into all those details, but these are things you should consider very carefully before you leave the NHS pension. Right, so that's the NHS pension in a little bit. But here's the question you ask. Do I have to wait till 68? No, if you're making tax efficient investing plans, you don't have to wait till 68. I'll give you an example with, let's say Ola starts investing, he's investing in stocks and bonds. Maybe he has a real estate investment as well. But he's not relying on the NHS pension alone. He has a sip, a self invested personal pension that he can actually put money in and then he invests it into the stock market at 55. Or if he's taking it after 2028 at 57, he can decide, you know what, I want to retire now, I want to cut down. And he can assess his SIP at that age. That's his pension, he can assess it. I can draw down 25% of it tax free, and then the rest of it is taxed like income. And basically that seems like a no brainer to me. So rather than pay capital gains tax now, the government is going to contribute to my future by allowing me to keep all the money, allow it to compound in the stock market, allow me to invest it myself, allow me to invest in commercial real estate or stocks and bonds, and it grows. And by the time I'm hitting basically 55, 57. I want to draw it out. The government will not tax me at capital gains, they will tax me as income. The implication of that is that if I withdraw only 12,570 in a whole tax a because I have other income, the only tax I'm going to have to pay is 0 pounds. So that's the implication of that. So basically this is how to work with the system, not letting the system to work against you because 12K. Yeah. 12,500 is tax free. Let it. That's correct. 12, 570 pounds is tax free. But imagine if you needed a bit more money, you wanted £50,000, then you can take up £50,000 and then your tax would be 20%. But remember if you had paid tax on it while you were working as a consultant or registrar or even a nurse. I think a nurse reached out to me on Instagram, he was paying 50% tax. So you would have had to pay 40% on that. But now you're able to take it after it has grown and compounded over the years, you're able to take it at even a lesser tax rate. And this is just one of the strategies. There are multiple other strategies as well. Okay, so I'm going to pause here now and take one more question. Ola, I hope that has helped your question anyway.

Yeah. Next was Prince.

Prince, do you want to go for it or should we just crack on? Good evening. Hi Prince.

Yeah, I'm happy to be with you on this section. My, my question was you were talking something about emergency funds. Yeah, sorry, I'm very new to the UK so I really do not understand by investing emergency funds in the isa. Something something.

Okay, I'll just quickly clarify that for you. What do you understand as so, so far from what I've said, what do you just generally don't have to be 100 was an emergency fund.

Something you keep up for emergencies, you know, just like.

Excellent, that's it. So the question here now is where do you keep it? In fact, the first question is how do you build it? In fact, the question before that is how much is it? So the first question you answer is how much do you need to keep afloat? Basically your essentials, you have to pay for light, you have to pay for water, you have to pay for your council tax, you have to swell your car, you need. Maybe you might need to pay for child care. You need to know that amount. Well, I was able to leave my salary job three years ago and apart from just hitting Financial freedom. I knew like, okay, I knew how far I could go even if I go a year or two. So you need to know how much you need every month to keep afloat. Now. Okay, find that amount, you multiply by three. That is your emergency fund. That's your goal, that's your target. That's what you're aiming for.

Are you talking about over how long.

Should you save it?

Yes. When you say emergency fund. Sorry, I'm trying to understand. You were saying what I need to keep afloat. That means it's almost like my expenses for a month. Is that what you're trying to say?

That's correct. You're getting it.

Yes.

Your expenses per month.

Okay, so I'm supposed to keep my expenses a month for like three to six months. The amount.

That's what we're trying to say, that amount. So a simpler way to say it is your expenses for three months.

Okay, okay, okay.

If you know your expenses per month, multiply by three. Or if you. I usually say to doctors who are locum. Self employed, say one for the road. If you're self employed, you want to be going six months as much as you can. I know not everyone can go six months, but three months is a good start. Why am I so insistent on it is because when people start investing without building those basic foundational blocks, when the stock market crashes, when they are stressed out. I didn't say if the stock market crashes. I said when the stock market crashes. Because in 21 years of investing, I've seen the stock market crash like three times and it's like a reg. It's not regular, but it's something that could happen. So you should plan for it. Now if you have an emergency fund prince, if the stock market crashes, you won't be panicking as someone else who needs to now go sell their investments because they need money. Let's say you have your investments, the stock market crashes, you need money for child care or something comes up, you can fall back to your emergency fund. And I gave an example of two doctors in my mastermind, this lovely couple. The same month their boiler blew up, their car had an issue and a relative needed some a relative abroad needed some support for a health issue. So now they already had done the seven steps to invest. They already in this, they are started investing. They had the emergency fund, but now they could phone fall back to the emergency fund without selling the investments. Because the problem is that if you sell your investment at the time when the stock market is down, for instance, when this happened was during Donald Trump's trade issues. So the stock market is down, you will sell at a loss and that could have been a good time to actually hold or be buying more. So that's what your emergency fund is. Now the question is, how do you save it? People say it's very difficult and I say yeah, of course. But guess what is difficult? What's more difficult is finding yourself in a situation where you are in a tight corner. You have nothing to fall back to. So working out a plan to save your emergency fund, I suggest to use my Amass framework. So Amass. If you've looked at my videos on YouTube or looked at my blog, I talked about Amass. It's something I started about 10 years ago and then I started writing about it around 2020 even. Sorry, around 2020 even before. Money wise Dr. Amass is basically automate automated monthly allocated saving system. In a nutshell it just means you save your money automatically. You don't do it manually, you don't try to be disciplined, you don't try to remember and transfer it at the end of the month instead of a direct debit to automatically transfer a fixed percentage. Remember you're trying to save up your emergency fund. And let's say your expenses is £2,000 per month. So you're looking for 6k. Okay, 6,000. How do you get to 6,000? Let me assume that your income is £3,000. Okay, but you really need to get 6,000. I don't know your responsibilities or excellences you need to pay. But if we go by the fact that you need to do at least 20% because that's what we recommend in the money wise doctor rules. You want to put aside 20% of your income as part of your Freedom fund. What I mean by Freedom Fund is basically money that you can use to set yourself financially free. And it depends on where you are. Your Freedom Fund, if you are in debt, you want to be paying down the debt. If you have like a credit card debt of 25%, it doesn't make any sense. Investing in stocks or whatever that is going to give you 15%. There are some credit cards that are 101%. Yeah, I've had a business credit card. So if you have a credit card that you have not been paying off in full, it could be foolish to be trying to get returns on the stock market at 15%. So you want to pay that off with your Freedom Fund. Now if you have no such blood sucking debt, the next level will now be to save your Emergency fund, where is that money coming from? From 20% of your income going into an automatic account. By automatic I mean set it up at direct debit so you don't have to do it manually. Now if you've saved up your emergency fund, the next level is now let's mean business. We go into investing. So that same amount is going automatically into your special investment account. I mean it could be your stock and shares. I say it could be your SIP, depending on your strategy. So that's basically the direction you clear the debt. You save up your emergency fund, you are building the blocks, you start investing. And even when you start investing, if you don't want to analyze individual companies like I do, if you could just buy index funds, you can buy S&P 500 if you know the index fund to buy, you could buy a global index fund, basically buy the whole developed countries index fund companies and you can set it up to invest in the background why you continue to do your job. And that way it seems like nothing much is happening, but you're investing and you're compounding. And in 10 to 15 years they're entirely different. And most people think, oh, 10 years is very fun. I said to them, 2035 is closer than you think. We often overestimate what we can achieve in one year and underestimate what we can achieve in 10 years with a plan. I think I've shot over a little bit on your question, but I hope that answered your question.

Prince, Just one clarification. Since I just came into the UK newly, I only have one account. When you say set up a debit account, a debit account or a debit, set up a direct debit of 20%. Where am I setting it up to?

Yeah, oh, I get what you're saying. So it depends on your current needs. But if I were the one, I'll probably setting it to go to my cash ISA because that's where I'm saving my emergency fund. But if you already have an emergency fund, like for instance, I don't want to put any money in my cash isa, this whole tax here because I have the emergency fund, except I use it, I want my entire allocation to be going to my stock and shares isa, because I want to buy baggage on the market, I want to buy index fund, I want to buy individual companies. I kind of like invest in startups and as well as all that, I mean these are some of the things we teach in the four weeks Investing Academy where we go a bit more in depth, digest things, do exercise practical exercises and hands on stuff. Okay, right. Did that help? Yes it did.

Thank you very much.

Excellent. Lovely.

Well, I hope you found that helpful and more importantly, I hope it helped you to see investing in a new light. This is just a small section of what we cover in the full masterclass. If you like me to drop more of these clips, just let me know in the comments. Comment, invest and share this video as well with friends who may need to hear this. And if you are ready to stop winging it and guessing. Guesswork is not good for investing if you want to learn how to become a confident investor. To learn how to invest properly, check out our Investing Readiness Scorecard with the links in the description. It will help you determine whether you're really ready to start investing and what you need to do before you even start thinking about investing to reduce the chances of you losing money. And until then, see you soon.

Bye bye.