Graduating and Starting Work

Finishing university and starting work as a health professional, is an incredibly exciting time, both emotionally and financially. No longer juggling part time work trying to make ends meet, it’s likely you will shortly be earning more money than you have ever before!

But now you have a steady income that’s hopefully growing, what’s next? We see multiple avenues people take, some by rewarding themselves for the last 6 years of hard study by way of luxury holidays or buying that car they always wanted. Others prefer paying off the debts they accumulated, buying a house (or houses), or doing further education. Some choose to do nothing at all and just save it in the bank.

It’s easy to become overwhelmed with “what should I do first”? There is no “right” or “wrong” answer and thankfully, you have plenty of time to achieve all your goals. Start by making a list then go through and prioritise the items on the list from most important to you to least.

To help you in prioritising your list, it’s important to firstly understand what will happen with your income, in what form you earn it, the various tax implications involved and how it will likely change over the first few years of your career.

Incomes & Lending

It is likely that your first job as a graduate will be on PAYG ( Pay As You Go), and this can be paid as a full-time salaried job ( Eg $85,000 per year) or as a Casual employee ( EG $80 an hourly rate). The benefits of PAYG is that your employer pays your income tax , provides sick leave or holidays for full time and part time employees and you should receive contributions into your superannuation.

After some time working, that employer or future employers will likely transition you to an income that matches your billing. This could be as a commission basis but still PAYG, a salary with a commission under PAYG or a Service Facility Agreement (SFA).

• Under a PAYG agreement (commission or salary + Commission), your employer would still pay your Tax, Super and in some cases holiday and sick pay. With this arrangement, obtaining a loan can be straightforward, as you provide payslips and tax returns to evidence an example of your income to show your serviceability.
• With a SFA agreement, you would effectively become self-employed, and you would be required to lodge Business Activity Statements (BAS), tax returns, hold your own Professional Indemnity and Income Protection insurances, and pay and claim for items such as education expenses and so on. Many health professionals may find this arrangement more lucrative from a taxation perspective, however it may involve some additional hurdles when it comes to borrowing money.

Banks traditionally would require self-employed customers to provide 2 years of tax returns with your income considered as the average of those 2 years. This can make borrowing challenging under lots of circumstances. For example;

-If you moved to SFA in November of this year, you have missed 3 months of year to prove your income and after your finish the financial year in June. For example if you moved to an SFA ( self employed in November) You would have (Nov, Dec, Jan – June) of income in the tax year and the tax return doesn’t get done until December the following year . So you would need to wait a full another year to show your true earning potential ( with a tax return) but with our specialty we can work though this with you.

– If you take 3 months off for study or a long holiday – this would mean your income for the year would look a lot lower and you would likely need to wait another financial year to ensure the bank assessed you at a higher income level.

– If you changed employer from one that was on PAYG and you moved to another under an SFA – you would need to wait until you completed 1 -2 years as a self-employed dentist. In this instance, you may wish to arrange finance before making the change.

All of the above examples are issues we see everyday from customers who haven’t planned out their financial goals and more importantly they approached a bank or a banker who has little to no experience in dealing with health professionals or is not really driven to want to help.

At JS Medical and Dental Finance, we understand the challenges of your income and work with you and your advisors to deliver the correct information to ensure you can meet those goals and align you with the most competitive option for your situation.

Setting Those Goals

The most common questions we receive are

• Should I buy a house before a practice and will it affect my borrowing power?
• I have multiple properties, will that make borrowing for a house or practice difficult?
• Does a car loan make a difference to my borrowing potential?
• How is my HECS debt taken into consideration by a lender when borrowing?

All of these are legitimate and important questions! In short, any debt including HECS, home loans, credits cards , business debts  and car loans will be taken into account to ensure you can service your debts.

Home Loans are regulated loans, which means you need to be able to show you can service your debt and living expenses on your current income. Therefore, a lot of people may decide to enter home ownership while they are employed before they buy a practice, where their income will become variable or uncertain for a period of time.

As for buying multiple properties, having car loans and HECS debts when you are entering further debt – it is wise to take a cautious approach and don’t just rely on lenders assessment. Increase in interest rates recently and cost of living has seen many people struggle with affordability. When you are relying on dentistry as your income to service your living costs and debt repayments, it is common to see pressure on your budget as patients decide to delay treatment as they are feeling the exact same squeezes financially.

In summary, we recommend you set some financial goals , revisit them on a yearly basis and adjust accordingly. Team up with some career advisors – At JS Medical and Dental Finance we offer car loans, home loans, Self Managed Super Fund lending and Business Lending.
We are bankers that have been in the industry for more than 20 years each and are proud to have assisted our customers, many through career-long relationships with us to see them from their first house purchase to building an investment portfolio and business enterprise.

We can also assist with putting you in touch with specialist accountants, lawyers and financial planners amongst other specialist health advisors. We are privately owned and operated and not aligned with any bank or financial institute so you can be assured that our best interest is YOUR best interest!