As a junior doctor, your finances may not be in the best of health with loans, overdrafts and credit cards to pay back. While saving may not be a priority at the moment, as you move through your career and start earning more, it will become increasingly important.
It is also worth noting that research carried out by Wesleyan Medical Sickness showed 41% of doctors wished they had started putting money away earlier in their career, so it is never too early to start.
Build up an emergency fund
One of the first things you should begin saving for is an emergency fund – essentially a reserve of cash that will keep you going in the short term. This should tide you over if you are unable to earn for any reason or face any unexpected expenditure, if the car breaks down for example.
The amount you save will depend on your lifestyle and circumstances, but we usually recommend the equivalent of three months' net income. Keep this money where it is easily accessible - in a bank or a building society account for example.
Don't let inflation eat into your savings
It's easy to let your savings build up in your current account or a low interest savings account, but if the return on your savings isn't outpacing inflation, the buying power of your money will erode over the long term.
For example, if you have £10,000 in an account today paying interest at the Bank of England base rate of 0.5%, in five years this would be worth the equivalent of just £9,018* today and in ten years' time it will be worth £8,132. To learn how inflation could be impacting on your savings, try out the online calculators on the Wesleyan website at www.wesleyan.co.uk/investments.
Saving for the short term
If you're saving for the short term, for something like a car or a holiday, you will probably want to keep your money easily accessible. In this instance it's worth considering setting up a Cash ISA, which is like a normal savings account but you won't have to pay income or capital gains tax on the interest or on your money when you come to withdraw it. Up to £5,640 can be paid into a Cash ISA in the current tax year, and the government has pledged to increase this allowance in line with inflation each year.
Saving for the long term
If you have a long term saving goal, you might want to consider share, or equity, based investments. When investing in shares you should be prepared to leave your money in for at least five years. You should also be clear about how much risk you are prepared to take with your money – can you afford to get back less than you put in?
Many people choose to invest in a fund which is a collective investment, where lots of people put their money together to access a wide range of investments. Spreading money in this way reduces the impact of loss from a single investment and funds are usually managed by an expert manager.
There are also ISAs that invest in stocks and shares in a tax efficient manner, such as Wesleyan's with profits ISA. You can invest a total of £11,280 into a stocks and shares ISA this tax year if you don't use your Cash ISA allowance. By investing in a with profits ISA you are investing in a fund that has been designed to smooth out the highs and lows of the stock markets. The amounts paid out are therefore less volatile than the stock markets, which is an attractive feature of these policies.
As you build up your savings and investments portfolio you should look to keep your money in a range of assets so that if one type performs badly another may perform well during the same period. Also remember to review your portfolio on a regular basis so you can identify any underperforming funds.
If you're new to savings and investments or want expert guidance, talk to a financial adviser who understands the medical profession and can help you build up a savings portfolio that suits your needs.
* Based on the current inflation rate of 2.6%
The above information does not constitute financial advice. If you would like more information or need specialist financial advice, call Wesleyan Medical Sickness on 0800 358 6060 or visit the website at www.wesleyan.co.uk/doctors.