Financial planning for doctors


Chapter 1 - Income

Do you know what your income is? You might be surprised to discover that many people don’t. Then again, you might not!

Part of the reason for this is that different people define income differently. For example, if your employer pays you a salary of $80,000, then from the employer’s point of view your income is $80,000. However, that $80,000 is subject to tax. A pre-tax income of $80,000 will incur tax of around $17,500. That means that you only take $62,500 home. So, from your point of view, your annual income might be just $62,500.

Superannuation is another complication. If your employer is paying you the compulsory 9.5% on a salary of $80,000, then he or she will probably say that you earn $87,600 – $80,000 of salary plus $7600 of super contributions. But from your point of view, it is unlikely that you would consider superannuation as income; most people don’t.

In terms of your personal budget, we will focus on what economists describe as ‘purchasing power.’ Purchasing power represents the amount that you can spend. So, a pre-tax salary of $80,000 gives rise to purchasing power of $62,500. Unless we state otherwise, in this e-book, when we use the word ‘income’ we are referring to purchasing power – the amount of money that you have available to spend.

Sources of income


For most people, the main source of income is their employment. However, there are other forms of income that should be included in any budget. These include earnings from investments, private or government pension payments, income that is shared between spouses or former spouses (for example family support payments received after a separation) or any other form of predictable cash receipt. For example, many people quite confidently predict that they will get a tax return each year.

Please note we do not include potential lottery winnings as a source of income! (But we do include the tickets as an expense in the next section…)

Calculating your income


In order to calculate your income, you simply need to add up the cash that you will receive from each of these sources. The following table shows you how to do this (you can download a blank version of this table here).

[insert table]


So, we can now see how much is available to spend on a monthly basis. We encourage you to download your own version of this document and calculate your own monthly income budget.

Of course, later on you might decide that you’d like to know your annual income. If you remember your 12 times tables, then ‘annualising’ your monthly income will not be a stretch.

Last year’s or this year’s income?

In strictness, a budget is a plan for future income and expenses. So, wherever possible, you should use the coming years income figures. Sometimes, these figures cannot be known (for example, investment income such as company dividends can vary over time. For example, in the 2018 reporting season more than 80% of ASX companies increased their dividend compared to the previous year). In those cases, you might like to use the previous year’s income as the best estimate of what you are likely to receive over the coming 12 months.