Has Your Earning Capacity Saturated?

Published: May 1, 2015 at 3:00 pm

Last Updated on

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.

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.  You can also use the robo advisory template

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 or the robo template this weekend.

It is important to not lose hope. Let us hold on to it with perspective.

pic credit: pix shark


Do share if you found this useful
Share your thoughts on this topic at the  Reddit freefincal_user_forum

Reach your financial goals like a pro! Join our 1600+ Facebook Group on Portfolio Management! You can now reduce fear, doubt and uncertainty while investing for your financial goals! Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community. The 1st lecture is free!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!) or you buy the new Tactical Buy/Sell timing tool!
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. We operate in a non-profit manner. All revenue is used only for expenses and for the future growth of the site. Follow us on Google News Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps