Income growth enough for your life expenses?

MUMBAI:IS your income growth enough for all your life expenses? The answer to this question may not be that easy. Financial planners unanimously say the way we earn and spend has been changing over the years. Also, the way we work has changed which has a major impact on our future self.

FOUR HIDDEN ISSUES

We all know that income needs to grow at least to meet inflation. Inflation is nothing, but the increase in the cost of goods and services every year. For instance, if you paid ₹100 to buy something last year, if inflation has gone up by 10%, you will have to shell out ₹110 for the same thing this year. “If your income is not growing at least to the level of inflation, you may not be able to meet all your goals. Also, chances are that it will take longer for you to fulfil your financial needs,” said Vishal Dhawan, founder and chief executive officer, Plan Ahead Wealth Advisors.

Another issue with steady income growth according to financial planners is the high burnout rate across the industry. “Retirement at the age of 60-65 is a thing of the past. I don’t think anybody currently at the age of 30 will be able to work full time till the age of 60-65, in terms of talent and health. I have been noticing that a lot of people burn out by the age of 40-45. I have many clients who talk to me only on Saturday afternoon because all other days they are fully occupied. It takes a toll on their health,” said Melvin Joseph, a Sebi-registered investment adviser and founder, Finvin Financial Planners.

This also means that you will be “forced into retirement at an early age or to take up alternative options with not much emphasis on income growth”, said Dhawan.

Along with this, you will also have to fight the young demography. “When you are 55 and by then if there is a 35-year-old available at half your salary, why should the management keep you at 60? You will slowly become redundant with the availability of young talent at cheaper rate,” said Joseph.

THE SOLUTION

It is not doomsday yet. “There are two waystodoit— takecareofyourhealth and reskill regularly. For instance, reskilling through executive programmes or by taking a break from work can be an option. For this, you need to start planning early. At the age of 25-30, you shouldn’t stop reskilling,” said Joseph. You also need to adjust your lifestyle. “I know many families in Mumbai who go out every weekend. One particular family goes to Lonavala every Saturday, stays in the same hotel and calls it a lifestyle expense without saving,” said Joseph.

You also need to lower your expectations if your income is not able to meet them. “There are two categories of people—those who limit their expectation and those who rework their plan based on their growing lifestyle expenses. I know many families where both the husband and the wife are government employees. They manage the family expenses in the best possible way and manage their other goals as well. They may not think of buying an iphone or shopping regularly. Then there is another category of individuals who are looking for a higher lifestyle and look to upskill, so they earn more and spend more. Now the point is whether you want to adjust on existing income or skill yourself and earn more,” said Joseph.

RE-EVALUATE YOUR GOALS

If income growth is going to be muted then you need to recalibrate your overall finances. “If income growth is going to remain muted, all other things can also be calibrated according to income potential in the future. It is all a factor of looking at everything holistically,” said Suresh Sadagopan, founder, Ladder7 Financial Advisories.

Take a relook at your goals. “In a lot of cases, expenses grow more than income over a period of time. Here you need to prioritise. See whether the goals are important. You have to strike the balance. One way to do it is relook at your goals and the timeframe set for it. Say you want to buy a house in five years. If it is not feasible, then consider extending it to 10 years,” said Sadagopan.

According to financial planners, a lot of times, the problem may not be of income, but lack of proper money management. “It is not always the income. We have clients earning ₹3.5 lakh-₹4 lakh a month, but say the income is not sufficient. There is pressure for highincome individuals as well. You have to re-evaluate your priorities and be flexible with your goals. In most cases, the income may not be the problem, but the lack of money management, managing lifestyle and expectations,” said Sadagopan.