‘Would you know of any good placement agencies?’, asked an obviously worried Rahul.
A month down the line I had Karan calling with a similar question- his company was downsizing and he had been put on a three month notice. Both these guys aged around 40, were well qualified and had a good experience with big companies in the country.
It seems like it is becoming too common to face a mid-career crisis in India. We used to think of this more as a developed country thing, but the rate at which these things are happening, I feel we are catching up fast! Every other day we see start-ups winding up and thousands being laid off, even the premier institutions like IITs are blacklisting companies for campus recruitment since some of them have reneged on their earlier promises of recruitment.
So really, let’s give it a serious thought. It is not happening to you, but what guarantee that it might not happen anytime in future? Should we rethink the whole career/ earning years paradigm?
In a normal lifecycle this is what we assume will happen- finish graduation by 20/21, maybe take a year of two of experience before doing post graduation, by around 25 you are into the beginning of your career. Marriage by 30, kids in a couple of years. So more of less by 35 you complete the family and are totally engrossed in your career moving at a great pace. With the kids around, you may decide to get serious about your money, about their education and related things. You are already 10 years into your career, but you have probably not built enough, except for maybe the house you are staying in, which is still owed to the bank. And if you get the pink slip at 40 the stress game begins!
By this time you are probably specialized in a particular field of work and are at a fairly senior level. Getting a job with equivalent designation or pay becomes tough. Moving industries would also be tough due to job specialisation. The whole thing might entail movement to another geography which will mean uprooting the family to a new location. If the spouse is also in a job, it might be a double challenge to move to a new location.
So all along the thought has been that serious wealth accumulation can start post 35, but looking at these changing scenarios, does it not make sense to build the war chest well before you hit the mid thirties. It will save you a whole lot of emotional turmoil if you hit the mid career jolt, as you have some key pieces of your money jigsaw already figured out.
Let us look at why it gets difficult to create a meaningful corpus in the early years of life. For most, the initial years of the career are lost as you try to figure out how to handle money. Unfortunately our education system does not give us enough knowledge about practical money matters. It comes only through experience- all of them not necessarily good!
The traditional way a youngster learns about money is his first job is by asking friends about what they do to save tax. And the standard answers are buying insurance policy and making FD’s. Sometimes a PPF account is mentioned. Then next thing that happens is buying house. So all money is stuck in either insurance policies which have abysymally low returns or in the EMI for the house in the far flung suburbs which probably earns you a measly 2% yield through rental income. So there is no wealth being created anywhere. By the time you realise all this and you can spare some funds to create wealth, you are in your mid thirties.
How to make it possible to have the so called pot of gold by the time you are 40!
Look at the table below.
This assumes a starting salary of Rs.20000 at the age of 25. The salary grows at 20% for the first ten years (till age 35) then it increases at a modest 8% every year. It might not be a linear growth as shown, but more or less, in the first ten years of your job, you will grow at a higher pace as the base is low, later the jumps start reducing s a percentage of the total salary.
Assuming there are two kids at age 32 and 34, look at the possible corpus that can be created. We have assumed a modest 12% growth using equity investments on a monthly basis. The savings are at 50% of the salary from age 25 to 30, 40% from 30 to 35 and 30% from 35 to 40. You can touch a corpus of Rs.1 cr at the age of 40. All it requires is smart planning and lot of self discipline.
Some pointers for achieving this are mentioned below:
- Start saving and investing from day one of your career.
- And don’t be miserly in your savings. Target 50% of your net income-at least.
- Prefer creating financial assets to physical assets, as financial assets are easily manageable irrespective of where you are located. You might move cities for career growth or family reasons.
- Keeping money aside for short term goals in debt funds/instruments, go aggressive in equity investments with the rest.
- Even if you look at going in for physical assets (property) take a hard look at your cashflows. Ensure that you have sufficient margin to tide over situations where EMIs may go up or one amongst the couple decides to take a sabbatical.
- Build cashflows in such a way that you finish the loan before you kid goes to primary school
- If the EMI is not allowing you spare funds to create financial assets, look at reducing the loan amount to a more manageable EMI. Of course things will be different based on whether the house is for self use or an investment.
- Take help of a professional to work out all these scenarios, you will be in a better position to make sound decisions.
- Above all, a simple lifestyle will give you all the surplus you need to create your pot of gold.
Keeping things simple helps. Some of the things mentioned above are really simple, but they can help you navigate the difficulties in your financial lives even if you go through a mid career crisis.