“Being free from worry about financial things is a real blessing. Of course, you don’t need a billion to get to that point.”- Bill Gates
Income estimation is an important parameter while deciding a savings-cum-investment plan.
Income in case of individuals can be any or all of the following:
a. Salary
b. Rental income from a residential or commercial property, leasing out of a transport vehicle etc.
c. Income, courtesy of a side hustle
d. Recurring income from a large investment made in any fixed income securities
Above is not an exhaustive list of income sources for individuals. But Salary is the most important source of income for individuals to be considered while defining a savings cum investment plan.
My personal misconceptions with Salary are outlined below:
a. Salary will continue to increase till retirement.
b. Savings can be deferred till later half of work life when with a higher salary the savings target can be achieved with less effort and less no of years.
c. My lifestyle will hit a plateau after a few initial years of work life and hence no further increase in expenses. This would result in saving disproportionately without any effort.
d. Job hopping will be easy and no worry of being out of job market before reaching retirement age.
Each of the above misconceptions turned out to be false even before I turned 40.
Salary is not directly correlated to no of years of experience. It is also determined by basic rules of demand vs supply.
Jobs and skills do become redundant. Further, upskilling will call for further investments.
Lifestyle never hits a plateau. The wants continue to rise with every previous want satiated. Also, the increase in expenses is actually far more than the inflation rate tracked in business dailies.
Procrastinating on decision to save is costly. Savings should start early and continue as a discipline.
Job hopping calls for extra stress and comes at a heavy cost to lifestyle. And then a phase when a feeling of inertia sets in to continue at a job longer than required. Family constraints will also set in to filter out better jobs out of current/home location.
So when it comes to personal financial planning, salary is an important determinant to factor in for salaried professionals.