"There is an inherent linkage between career and financial planning. But hardly anyone takes the initiative to understand it." |
"Career stability is an integral factor for financial planning. Being burdened with EMI payments very early in the job is not advisable." |
"We firmly believe that a client’s career is an asset and channelising it in the right direction is one of the main roles of a financial planner." |
Is the route to the manager’s cabin only by way of an MBA? And will you have to take a year or two off to get that degree? Or do you just want a sixmonth break to recharge your batteries? Either way, can you afford to take off for a year or two without you and your family feeling the pinch? Living expenses, rent, fees, investments...how much will you have to compromise on if you want to take a sabbatical? Surprisingly little, if you factor in your career when you’re planning your finances. But do professionals think of doing this?
Delhi-based financial planner Surya Bhatia says: “There is an inherent linkage between career and financial planning. But hardly anyone takes the initiative to understand it.” The reason why it’s important to integrate career and financial planning is to end up with a nest egg that can help you maintain your current lifestyle even when you stop earning for whatever reason.
While many professionals in their 30s are approaching their financial planner with retirement as their ultimate career goal, many in their early 20s are securing the services of a planner to realise their goal of further studies. “My clients’ children have started approaching me to help them plan their sabbaticals for further studies. This generation is more in tune with the need of synchronising their career and financial goals,” says Kolkata-based financial planner Brijesh Dalmia.
So, how do you go about integrating your financial and career plans? Your first step should be to broadly draw an outline of your career goals, and then understand how your finances will fluctuate around these milestones. When charting out your goals, make sure you remember to factor in years of recession, job breaks, sabbaticals, training, etc. Several of these might not happen, and you might have decades of uninterrupted work. In that case, you’ve got a larger cushion for your retirement; and if any of these breaks does happen, you have little to worry about.
Here’s how it works. Assume you are in your early 30s, earning Rs 80,000 a month. If you need to take a year’s break to get some professional qualification, you will have to start planning for it at least threefour years in advance. You could, for instance, invest Rs 30,000 every month in fixed maturity plans and debt-based equity plans (MIP plus balanced funds). Assuming an interest rate of 7%, you can manage to build a corpus of over Rs 13 lakh in just about three years. Almost all planners agree that the ideal age for starting both financial and career planning is between 25 and 33 years, as the maximum career changes, switches and breaks happen in this age group. “People over 42-45 have a lower probability of making drastic career changes that would impact their financial status,” says Bhatia. “Since career goals are not timebound, they can easily be moved to accommodate financial comfort,” he adds.
A career break can be postponed by a year, if its value adds to the corpus; similarly retirement can be padded with temporary or parttime jobs so as not to outlive the corpus. Dalmia says, “Being burdened with EMI payments very early in the job is not advisable. Career stability is an integral factor for any financial planner. The biggest mistake any professional makes is to enter into a loan commitment after getting the first salary. It is only after a liquid corpus of around Rs 8 lakh or more has been built that a person should plan to take a loan for purchasing a property.” Major expenses like property and vehicle should be planned as the career grows and postponed if any change is forecast.
As you go up the professional ladder, your financial plan will evolve to accommodate for changes in the economic climate and your job profile. Periodic updates are an important aspect of this comprehensive approach. As Bhatia says: “A person’s financial plan needs to be reworked every year not because of interest rate fluctuations but to incorporate the returns from his career.”
The point is that it’s imperative to save for all contingencies. And it can pay off. Money Today has already shown you how (issue dated 4 October) you can make Rs 3 crore simply by saving 28% of your salary for 30 years (assuming a starting salary of Rs 20,000 a month and an average hike of 15% annually). As we never tire of saying, the earlier you start, the more the power of compounding will work in your favour.
The logic is simple—your career is your biggest asset and its management impacts the growth of other assets. “Financial planning gives direction to one’s career. It helps one to take feasible decisions—take a break, turn entrepreneur or just change jobs,” says Amar Pandit, a Mumbai-based financial planner. One invariably links big spending decisions with salary growth. Dalmia adds: “For every salary hike or dip, investment measures have to be taken to build or protect the client’s corpus.”
