"7 Financial Planning Tips For Salaried Employees"

90% EMPLOYEES WILL NOT REACH COMPANY DEFINED RETIREMENT AGE 60

oday, in this modern world science, technology, artificial intelligence(AI), automation have given high speed to life. Still financial awareness and financial education are something that many ignore at the cost of future. Financial education is something that should be taught in every school. Money management should be given equal weightage with other subjects like algebra, physics, biology, etc. At present people are conditioned to get a degree, get employed only. In absence of financial literacy they feel that earning more is the only solution. And hoping for better finance which they have no idea about. People must know both, how to earn and manage money for better life.

In the survey carried out by Willis Towers Watson(2016), 56% of the employees fear that they will have less comfortable retirement than their parents and 52% of respondents feel financial problems are making them less effective at work.

Now NEW NORMAL is the trend. Covid 19 acted as catalyst, it would have shown the impact in next 10 years otherwise. In India middle class or working class is the biggest sufferer of covid. People suffered the trauma in form of loss of lives, loss of jobs, financial loss in business. In some time again the life will be normal and everything will be like pre covid times. One thing, everyone must remember that 90% families may face financial disaster after leaving job.

Here are 7 reasons for the failure of employees in the present days.

Negligence causing financial disaster

Negligence is the first reason of failure. When it comes to finance, Negligence or treating money casually are the main reasons for financial failure, sooner or later. People work hard for their livelihood, running in a race where the end is not visible. With the search engines like google, bing, etc today we can access any data in seconds, but still 90% of the population is ignorant to management of finance.

For instance, Milind is 35, employed and well paid, he just got his monthly paycheck. Milind hardly saves much, instead of saving and investing wisely, he spends it on weekends, partying with friends and gathering useless liabilities. Most of the people in our society are like Milind. We live in today without knowing the actual impact in some years from now.

There are no rich people who are financially ignorant, except in the case of those who get large amount in inheritance. People tend to be ignorant because they forget that their job is the only source of income. They forget that this source is not dependable after the age of 45, for most of the people.

Have you spent hours fretting over where you will arr ange money to pay your demands ? if “yes” strikes your mind, then you must have failed to manage your expenditure over your income. Most of the people invest because of obligation or they make casual investments. Ultimately it leads to loss that they come to know in 50s.

In India people believe in relationship, people invest on relationship, should you ask a question who is paying for that relation. Ultimately negligence leads to loss that they come to know in 50s. It is obvious that knowing how to manage finance could immediately give confidence to solve all your mental stress.

Hence eliminate financial negligence and be careful about your own money and future.

Skill set near the level of saturation by age 40…

Never get content with the skills you have, always seek to learn new one. Normally people reach the level of saturation at work in 10 -15 years of work experience. The challenge is that people don’t continue to be update. The truth is every employer always needs the work force with updated skill set. This causes a major chance of unemployment and failure, after the age 45. By then most of the people feel the risk of losing job.

In this phase of COVID 19 it is very clear, the average age of employees in an organisation has gone down.

Many sectors which were available to work with have vanished. With the growth of technology, there are newer needs every day. With new requirement comes newer skills. Updating oneself with such skills would help to hustle with life.

Automation at work

Rapid growth of technology, science, artificial intelligence (AI) and automation began to bloom as spring’s rose. Machines have been replacing humans since the early 20th century and It is undeniable that every worker is going to be replaced with machines in the future. Eventually some day software programmers will replace themselves with super computer. Automation becomes one of the reasons to plan your monthly income with or without job.

With greater efficiency and productivity, the production may be boosted up but workers are the one who are greatly affected. Replacing workers with machines leads to financial disaster for employed class.

This causes the decrease in wage affecting the workers and also causes unemployment which makes the financial situation worse.

Let us discuss the numbers, even a small percentage leads to large number of jobless families.

Robot added per 1000 workers, wages decline by 0.42% and the employment to population ratio goes down by 0.2%, this means the loss of about 4,00,000 jobs.

Adding one robot to a geographic area reduces employment in that area by six workers.

The automotive industry employs 38% of the existing industrial robots.

By 2030, 8% to 9% of the existing jobs will disappear.

“Covid 19 has accelerated our transition into the age of the fourth industrial revolution” says Klaus Schwab, founder and executive chairman of the World Economic Forum.

Thus now people need to compete with machines too. One thing is clear, you can’t stop from adopting automation, you can plan your pension for entire life.

Longer Life Expectancy (80+) means 30 -45 Non Working Years After Leaving Job

A survey was conducted on employed people, in answer to the question of Retirement age most of the people said 60 (sixty). Unfortunately retirement at 60 represents just the point of view of employer. Your employer defines the retirment age, it has nothing to do with your preparation for 30 – 45 retired years. As in this modern time no one working in private can depend on job blindly after 45 age. With one of the best initiatives of the Government Ayushman Bharat, people will get medical treatment but may struggle for livelihood.

India is a country with about half of its population as young employees now, these young people will become old in some years. Hence it is a big issue and people need to plan their life after leaving job. People need to plan sufficient pension for life urgently, as it takes 5-10 years to create that.

Depending on pension plans for monthly income

Earlier the Government used to take responsibility of employee’s life after the 58 or 60. The term is pension, it used increase with cost of living, it was good and dependable, so people know and like the name pension. But when it comes to the present situation, pension is not dependable. When you buy pension by paying your wealth of entire life, you get fixed monthly income for all the years.

So if you are spending Rs. 100 a month now, you will be spending Rs. 200 in 10 years for the same life style. Can you reduce your lifestyle by 50% in 10 years, and when it is about 30 to 45 years after leaving job?

Pension plans don’t give you liquidity too. For instance, you cannot access the pension assets in case of unexpected medical costs, a child’s wedding or other immediate demands.

Thus depending on pension does not help you out much financially. Try not to completely depend on pension plans as a financial support. It is believed that pension plans do not work out as dependable option.

Other popular products like Mutual Funds and others need high requirement of capital investment. So if finance is not planned properly, having sufficient income after retirement is not easy.

Financial advisory in India

Almost every topic says to educate yourself financially, since it’s not taught in schools. But the word “how” comes into play here, so how could you learn finance ? Have you ever heard about financial advisory companies? Do not mix advisors with bankers, agents or product sellers.

Financial advisor is an individual or company who charges you for advice. Advisor assesses the financial needs, personal and financial situation of an individual and helps him. Financial Advisors work on strategy and planning, they help in managing the investments, Income Tax, insurance.

The Indian financial space has handful of financial advisors. The good one are available to wealthy only. There are less than 3000 CFPs (Certified Financial Planners) and only RIAs (Registered Investment Advisors) in India. The good one are available to wealthy only. Most of the advisory space is covered with bankers, insurance and mutual fund agents. They are interested in sales of the product at end.

No one is interested in planning and ensuring your sufficient pension. You need to take responsibility of planning your own pension.

Investment options

People wish for an investment plan which has high returns and less risks but unfortunately this kind of investment does not exist. In reality risk and return are directly proportional. Higher the return, higher the risk and vice versa.

Here are some investment options

Direct equity

Investing in stocks is not an easy thing to do, it has zero guarantee of return. But still if you have chosen correctly that will return you with a lot of profit. To directly invest equity, one needs to open a demat account.

Debt mutual funds

Debt mutual fund schemes are suitable for investors who want stable returns. These also have risks like interest rate risk and credit risk. But risk is bit lesser than equity funds

Real estates

The second property you buy, can be your investment. The location of the property is the most important factor that will determine the value of the property. Unlike other assets, real estate is highly illiquid.

The most important part for you is regular monthly income.

To conclude, think before you fall into a financial disaster. Negligence is something that could spoil all your hard works you have struggled to earn a livelihood so never be ignorant, moreover learn new skills, don’t be content with the acquired skills. Since automation is growing rapidly, don’t let yourself be replaced by machines. To add further, plan well about your retirement. Don’t be too dependent on pension, try to create your own sources of income.

Remember, you are the only person who can ensure right amount of pension at all times.

“7 Financial Planning Tips For Salaried Employees”