Has my earning capacity saturated?. Is this all that I am going to earn for the rest of my life? Do I need to erase some of my dreams because I am never going to earn enough in order to achieve those?
These are some of the most unsavoury questions in personal finance. Most people confront them at some point in their lives. The answers are typically not pleasant. At least that was the case for me.
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As a boy, I knew little about the importance of money. I demanded very little from my parents. What I wanted, I got. So mine was a happy childhood. Money did not drive my choice of education. I did not choose a degree based on career prospects. I chose what I liked or what I thought I liked.
I never had any kind of notion about what a 'good' salary was. I remember the reactions of my classmates when I told them my research fellowship. Some of them went 'is that all? How do you manage?' To be frank, I did not know what 'manage' meant. I would draw my salary, give it to my parents and did nothing more.
I was 31 when I got a tenured appointment and for the first time got a 'respectable salary' (meaning my friends would not go, tsk, tsk!)
A year or so later, during a discussion about how scientists behaved in certain labs, one my colleagues made an observation which I would never forget. He said,
these guys found out pretty late in life that their salaries are not commensurate with their dreams. Beyond expenses and essential financial goals (child's marriage, education etc.), these guys cannot buy anything else. They don't have the cash flow. They salaries have saturated. So they are frustrated and it shows in their work.
Those words shook me up pretty bad. For the first time in my life, I realized the importance of holistic money management. The need to take into account future financial goals and if we will have the necessary cash flow to fund them.
The following summer, I spent a lot of time staring at cash flow charts in Excel, answering:
If my salary did not grow beyond the typically expected 8-10% growth, will I be able to invest enough for my all my essential financial goals?
I have been doing this exercise (now fully automated with financial plan creator) each year since then.
When I did it for the first time, I had only retirement as the essential goal. Since then, I have become a parent and now have my son's education and marriage as additional essential goals.
Thankfully, due to the 6th pay commission, my salary increased and I could accommodate the additional goals.
However, I have not be able to factor in my dreams, desires or non-essential goals (relatively speaking) for the last 9 years.
I think it is safe to say that my earning capacity has saturated.
I would not be surprised if many others are in the same boat. For most people, there is a limit to how much they can earn and therefore, a limit to how much they can realistically want.
Yes, yes, we must never give up on my dreams and wants, be optimistic, strive for it as long as we can, it is never too later and all that sort of thing, but who are we kidding?
Correct me if I am wrong, I think for most people, earning potential is determined in a narrow time window, typically after school.
How much we earn is decided more often that not decided by what we choose to read and where we choose to work.
An income over and above that is typically rare.
The moment when we holistically realize what our present and future purchasing capacity is going to be is a watershed momement.
If you have not though along these lines, I urge you to ask the questions that I did with the financial plan creator this weekend.
It is important to not lose hope. Let us hold on to it with perspective.
Kolkata DIY Investor Workshop May 28th, 2017
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