The New Year break sees many of us take stock and set out great intentions on how to manage our work and financial arrangements for the year ahead.
To make the best use of your time, start the year with a financial checklist. Choose the options that relate to your current circumstances and future goals. The importance and priority level of these options will change over time so it’s important that you review every couple of years and adjust as you go.
1. Setting up a new Practice
Setting up a practice during the early stages of your career can be a very exciting and challenging time. Costs can include renting/buying the building itself, a dedicated fit-out, computer systems, equipment and more. When deciding how to finance such a project, all of your personal and professional financial goals need to be taken into consideration at the same time. Even if the money is there, you may not want to tie it all up in expensive assets and find yourself unable to fulfil other financial goals.
2. Funding for Children’s Future & Tax Efficient Gifts
Supporting your children through school / college can be an expensive exercise. If you start to plan for this when your children are young, it won’t create as much of a burden when the time comes.
Many people don’t realise that they are allowed to gift €3,000 per person, per child each year without having to pay CAT (Capital Acquisitions Tax) or affecting their inheritance tax threshold. €250 per month saved in trust growing at a rate of 5% per annum could be worth €60,000 after 15 years. By doing so from an early age a substantial nest egg can be built up which may be a very welcome gift for education, travel or even a first home when they grow up. A simple bare trust can accommodate this for parents with the maturing funds being gifted to their children at a time they see fit down the road.
3. Income Protection
You have worked very hard to achieve the career and lifestyle you have created. Illness and injury is almost always unexpected and can affect anyone at any time. If you are self-employed the newly introduced state invalidity benefit of €198.50 per week is unlikely to go very far in meeting your personal and practice costs. Between lost earnings, your costs of living and professional overheads, the financial burden of missing work due to illness or injury can be hugely stressful and certainly not conducive to a quick recovery. Income protection policies provide a replacement salary in the event of illness of injury. You can choose from policies that commence from the first day of illness or a deferred period such as 4, 8, 12, 26 weeks which is more appropriate for those who are employed or have limited HSE sick leave cover.
4. Life Cover & Mortgage Protection
If you have dependants this should be your absolute primary concern. Life cover will protect your dependents in the event of untimely death, disability or long term illness. It will provide a benefit that will maintain a standard of living and allow your family to meet their costs. You can build in the option to have any outstanding loans paid off so that will not be a burden on family members.
If you have any kind of a mortgage, a specific mortgage protection policy is essential. This ensures that your mortgage will be paid off in the event of untimely death.
5. Retirement Planning & Superannuation
Whether you are young and starting out or further down the track, it goes without saying that the earlier you start a pension the better. How you plan for it depends on two broad questions: ‘When do you want to retire?’ and ‘What do you want to do when you retire?’ This will give a framework of how much will need to enjoy your desired lifestyle and how to fund for it between now and then.
For the healthcare community however, there are additional arrangements to be taken into consideration in the form of Superannuation. It is important that whoever is managing your retirement plan knows how to a) source your entitlements and b) combine them in a tax efficient way.
6. Selling Your Practice
With any good retirement plan, the final stage is gaining maximum value for your practice if you choose to sell it on. Valuing your practice can be tricky and varies widely depending on your business setup, tangible and intangible assets. It is recommended that you prepare for this process 1-2 years ahead as you may want to make some adjustments to how the business is structured and operated to make it more attractive for sale. You may also want to consider a specialist medical accountant to manage this process smoothly, effectively and ensure maximum possible return.