Being a locum has many advantages: greater flexibility, autonomy and variety. But there are some disadvantages too: peaks and troughs in income, difficulties with getting a mortgage and uncertainty about your financial situation if you fall ill or die, to name just a few. Modern life can compound matters too.
A recent report has found that 1 in 4 families are now single parent households. Sadly, being a GP doesn’t make you immune to such statistics either and increasingly I am being asked for advice about this very situation.
But fear not. Here are my five tips to make your finances as a locum run more smoothly in the future.
1. Who’s going to look after you and your family financially if you fall ill and can’t work or you die?
The NHS Pension scheme is still a good starting point for many doctors, but you do not qualify for any sick pay at all, and unless you die while in role during a contractual locum job you won’t qualify for death in service. So what can you do to ensure you and your loved ones are taken care of no matter what?
A suite of protection policies is an essential part of your basic financial planning as a locum. Ensuring your mortgage and any other debts are cleared in the event of your death, plus a sum for your family to use in the future, is a basic need and is surprisingly affordable. But beware not all policies and providers are the same. Also it’s worth considering a policy that offers guaranteed premiums as opposed to reviewable, so you won’t suffer increased costs in the future that could tempt you to cancel the policy.
Things are more complicated if you fall ill either in the short or long term. You have two options here. Ideally take both.
Critical Illness is a lump sum payable on diagnosis of a defined list of critical illnesses. What qualifies as a ‘critical illness’ varies company to company, so take your time to understand what your policy will offer you. The best ones also cover your ability to perform the duties of your normal occupation, so a specialist knowledge about your type of medical practise is vital in a provider here. Not many really understand the difference between a surgeon and a GP, and some policies will only pay out if you are unable to perform ANY job…including scanning things at the supermarket checkout!
Income protection is a replacement regular income when you are ill and unable to work. As you will receive zero sick pay as a locum, you need to consider a policy that pays out sooner than your employed counterparts. Policies can start immediately after falling ill or after a set time period such as 4, 13 , 26 or 52 weeks. The longer you wait for payment, the cheaper the premium. Again career specific understanding by providers is so important. Take expert advice from a specialist IFA like Legal and Medical to fully understand the ones that will suit you best.
2. Set aside a ‘rainy day’ fund
It seems like an obvious one but it’s surprising how many people I meet that don’t do this. Decide on a sum, maybe a few months outgoings, and put it away in a bank account. This will also help you to choose an income protection that pays out a little later and is therefore a bit cheaper as you have this to fall back on too.
I get asked more questions about getting a mortgage as a locum than any other topic. It’s always a bit less straightforward than for other doctors, as you generally need at least two years accounts before most companies will lend to you. However there are a few that will consider you after you hold one full year’s accounts. If you are planning to buy a house, inform your accountant before finalising your accounts. Generally your accountant’s objective is to legitimately minimise the tax you pay, but in doing so will reduce your taxable income. When you want to get a mortgage your objective is to show that you can comfortably afford the mortgage repayments and your accounts along with your bank statements will need to evidence this.
Child maintenance is also a bit tricky when applying for mortgages. Often maintenance forms an integral part of your family’s financial situation. Some lenders will totally disregard it if you are receiving it but will fully take it into account if you are paying it when calculating your affordability. That always strikes me as rather unfair! Other lenders will take the receipt of maintenance into account but not fully. 65% is sometimes used. But they may also then limit the term of the mortgage to the timescale you will be in receipt of the maintenance, e.g. until your youngest is 21. With most of us trying to stretch our mortgage terms until retirement, this can cause issues. It can be a minefield that eats up hours of your time and can feel a little bit like a wild goose chase at times, so why not shorten this process by speaking to us. We have seen this many times before and can help to select the right mortgage for you.
4. Childcare vouchers
Juggling childcare and work is mind boggling and very expensive at times. So unless you have an adoring grandparent or two on tap make sure you are claiming all the government help you can especially if you have a 2,3 or 4 year old as you may qualify for free childcare session.
5. Keep up to date on your NHS pension scheme
As a locum you faithfully send away your forms and payments to the NHS Pension scheme and hope it’s all going to the right place and being credited to you!
Once a year every pension scheme has to provide its members with a statement of benefits. The NHS Pension Scheme is no different. An online total rewards statement is the easiest way, but some doctors struggle to get access. This statement is your annual method of checking you are on track and being credited appropriately so it’s a vital part of your financial housekeeping. They can be as clear as mud when you do get them we ask all our clients to forward a copy to us. It holds so much useful information and we are always happy to ‘translate’ what yours means for you and your future.
So there you have it. A few simple things everyone can do to make their financial lives less complicated and add some calm to a sometimes manic life!
Our articles are designed to be informative but do not constitute financial advice. We recommend seeking specialist advice before making a decision.
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