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Why Doctors need to think in after-tax dollars

Most doctors earn a fairly high level of income…before-tax that is. The mistake many doctors make is that they think in pre-tax dollars. What I mean by that is that earning a high income can be deceiving, and lead to issues such as procrastination, over-spending and borrowing too much, all of which are typical reasons why doctors do not accumulate as much wealth as they should.

Let’s look at an example where doctors take out a home mortgage.

Let’s assume you have taken out a $1.5m mortgage on a 4% interest rate, which you are repaying over a standard 25-year term. $1.5m may not seem like a lot if you are earning say $500,000 p.a. After all, it is only 3 times your gross annual salary.

However, let’s look at the real cost. The interest cost over that 25 years would be approximately $875,000. In total, you will thus be repaying $2.375m after-tax. If you are on the highest marginal tax rate, like many doctors are, this means that you would need to earn $4.657m before tax. This means that just to repay your mortgage over the maximum term, you would need to earn close to $190,000 p.a. over a 25 year period. And this doesn’t even include holidays, school fees, living expenses, car upgrades, etc.

You can see why thinking in pre-tax dollars can be deceiving and downright dangerous!

For any major financial decisions like buying a house, you should do the sums and if you are not sure, you should seek advice from your accountant or adviser.

We would be happy to assist you with these types of financial decisions, to make sure you are shaping the best possible financial future for yourself. Contact us on 08 6160 5918 or

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