The Cost of Daily Habits

The table below from the BMA website is the true salary of “trainee” doctors for the first 9 years of our careers. I’ve highlighted salaries (based on a 40-hour-week): red for FY1; orange for FY2; yellow for CT1/ST1 and CT2/ST2; and green for ST3 – ST7.


So like most truths, it isn’t very glamorous.

Don’t get me wrong, we’re not starving nor is this a plea to establish a new charity called ‘Medics in Poverty’ but I want to erode the traditional thought that doctors are really well off.

Now that we’ve established that we earn a very modest salary compared to other professionals, the importance of a financial education shouldn’t be underestimated.

One of the most important concepts that will help you improve your financial health is the latte factor. It’s not just advice about not buying Costa every day because most people (myself included) don’t feel that £2 here or there really matters.

If you’re out with your friends enjoying lunch then there’s absolutely no problem with spending £20. A problem tends to arise when this becomes a daily habit or even a status symbol such as the classical ‘keeping up with the Joneses’ syndrome.

If £2 every day doesn’t really matter, what’s the problem?

Jane is our newly appointed 25-year-old FY2 doctor who earns a respectable but not particularly enviable £28,357. After deducting income tax, national insurance and a pension contribution of 7.1% this is whittled down to £20,839. We haven’t even considered student loan repayments.

For simplicity’s sake, let’s say a latte costs £2.

If she purchases one latte just three times a week, then it costs her £312 of her after-tax salary every year. In itself, that’s a considerable sum of money. However, Jane isn’t concerned because it only represents 1.1% of her before-tax salary.

Most people only think of money in absolute terms. After all, £312 is £312 right? When Jane is working, £312 doesn’t feel like that much, especially spread over 52 weeks in a year. However, how long can she continue working for? 30 years…40 years…50?

We should go one step further by considering how much capital is required to generate an income of £312 because our life expectancy and working lives are both finite.

With current cash ISAs hovering around the dismal 1% annual interest mark, we can be certain that it’ll take £31,200 of capital to generate enough income to sustain just three lattes per week!

Now onto annuities.

An annuity is essentially a lifelong guarantee of a certain level of income you receive when you exchange a portion of or all of your pension fund.

Sounds great right? The only catch is that like cash ISAs, current annuity rates are also shocking, and are likely to remain that way for the foreseeable future. For example, £100,000 only translates into a maximum annual income of £4,886 according to Hargreaves Lansdown. Not to mention, there are a lot of strings attached.

What this tells us is that we need a pension fund of £500,000 just to generate an annual pension of £24,430!

Based on these annuity rates, Jane needs an after-tax retirement fund of £6,385 just to maintain her seemingly innocent coffee habit when she is 65:


Instead of calculating how much a habit is costing you, consider how much income is required to sustain the habit.

As we increase our savings rate and reduce expenses, not only are we moving towards our goalpost faster, we realise that the goalpost is actually moving closer to us as a smaller capital pot is ultimately required.

P.S. I learned everything I know about finance from this book, this book and that oneamongst many others. For a more extensive list, don’t hesitate to drop me a line at If you prefer learning through listening use this link to earn a free audiobook of your choice by signing up to their 30-day free trial. Simply cancel with the click of a button if you decide later on that the service isn’t for you, no questions asked.

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