Managing money in a relationship can be intense when your spouse or common-law partner is a doctor or training to be one. You may enjoy handling the day-to-day affairs or may be doing so by default, thanks to your spouse’s inflexible (and sometimes insane!) hours of practice or study.
If you’ve been designated as the chief financial officer in your relationship, by choice or necessity, know that you’re not alone among physician families. Consider these five proactive ways in which others in your shoes have approached the role to create order and power up financial plans as a couple.
5 tips for successfully navigating the financial management role
1. Nurture a healthy financial partnership
The way that you communicate about finances as a couple can bring rewards and reduce risk, whether the discussions are about paying bills, sorting out tax issues, managing investments or reaching out for advice if you need help.
Planning finances together can open up or reveal opportunities to save money, reduce tax bills and offset weaknesses with strengths — even if you keep your assets separate.
For instance, are you making the best use of tax credits and discussing who should claim them to reduce the household tax burden? If one of you earns significantly less than the other for a time, determine whether income splitting is possible, which is another way of reducing overall household taxes.
2. Plan income and cash flow together, as a couple
Consider planning strategies commonly used by physician families to keep more money in your household and reduce taxes, over time. For example, from a tax perspective, it generally makes sense to pay bills using income from the higher earning spouse if that allows the lower earner to invest more of their income: their investment returns will be subject to a lower tax rate. These positions may flip back and forth between you and your spouse over time, as work opportunities ramp up or down, or you start a family.
You might also explore other creative ways to bring the “power of two” into your financial plans. For instance, some couples opt to live on one income for a time, dedicating the second one to a common goal, such as paying down debt or saving for a future parental leave.
3. Manage household debts and expenses to live within your means
As household income grows, it’s tempting to spend more as a reward for sacrifices made in leaner years, while your spouse moved through medical school, residency and perhaps fellowship journey.
Before either of you go on a shopping spree, tally up your combined income/debt situation and revisit your budget. It’s common for early career physicians to be carrying a big pile of education-related debt, which may include credit card and line of credit debt as well as student loans.
Whether you decide to pay off liabilities together or handle them separately, knowing what’s owed and setting out a plan to manage or eliminate debt will help you stay on budget and meet your goals.
4. Look at the business side of the practice
Your spouse may have already explored the pros and cons of incorporating their medical practice as a way to save taxes and defer some income until retirement.
Incorporating gives a physician control over the amount of earnings taken home each year. This allows you to balance overall taxable household income — keeping it lower if that’s to your overall financial advantage — while leaving a surplus inside the business for now.
While corporate assets are separate from personal income and property, they form an important component of household financial planning, alongside RRSPs, spousal RRSPs, tax-free savings accounts, federal government pensions and other assets.
As a spouse, you may also have responsibilities as a shareholder in the medical corporation, or as an employee with a role such as billing agent. As an employee, it’s legitimate for you to earn a salary from the corporation at the market rate, effectively directing corporate revenues back to your household, rather than to a third party.
5. Plan strategically for retirement
Retirement may seem a long way away but coordinating plans today as a couple can help you allocate savings and defer taxes in the most beneficial way for your household, while keeping retirement income needs in mind. While most doctors have to fund their own retirement as self-employed professionals, they often get a late start on savings, delayed by their many and expensive years of medical school, residency and perhaps fellowship.
On the other hand, you may already be making a head start if one of you has a pension plan or other reliable source of retirement income to count on. This can factor into your household financial planning, early on. It may allow you to spend money on other things.
Finding guidance and resources when you need them
The role of household chief financial officer may sometimes feel like a second job, but the day-to-day tasks can be more rewarding if you’re confident that you and your spouse are making the right moves. Comprehensive financial planning allows you to better manage your income, guided by your goals for family life, now and through the later years of practice.
Your MD Advisor* can review your financial situation today and look ahead to suggest options for more tax-effective use of your household’s income, savings and investments, so you can secure your financial future as a team.
*MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.
The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals.