15 May

For the past decade, I have been conducting an end-of-year financial planning workshop for my students, drawing on my experience as a banker and mutual fund distributor. Over the years, I realised that personal financial planning was not just about handling money but about using money to find happiness. A crucial part of our lives is our careers, and a good career helps us earn money to take care of ourselves and our loved ones and do meaningful work. While qualifications and professional achievements play a critical role in career success, there is another less discussed aspect: the role of financial planning.

Many people assume that financial planning and career success are unrelated, but let me make my case. A successful career requires finding the right job, doing it well, and being able to switch jobs at the right time. Career coaches often gloss over the last point. While the future of work may involve individuals having portfolio careers with multiple sources of income or jobs simultaneously, it is not feasible for most people yet. Today’s typical employee must spend time at one organization at a time, continually acquiring skills to stay relevant and move up the ladder or at least retain their job. However, the skills environment doesn’t allow complacency about one’s career- companies are hiring thousands in one year and firing tens of thousands in the next.

Learning new skills in one firm may be challenging as the company expects you to focus on doing one job well. So, the only way to upskill is to do it on your own or move jobs. Sometimes, the best way to learn new things and extend your career may require you to become a freelancer. Good financial planning will give you the freedom to take charge of your career – you can invest privately in reskilling yourself, and you also have the freedom to shift jobs when required or become a freelancer.

Contrary to popular belief, financial planning is not just about wealth creation but also to meet unforeseen financial challenges. So, how can one create a financial plan that gives you career freedom and financial security? Here are a few simple steps:

1: Create a secure base

Health & Life insurance – Take adequate health insurance so that medical emergencies do not burn a huge hole in your finances. Do not rely only on health policies provided by your employers but take an independent personal or family policy at the earliest. Taking adequate term life insurance ensures that our dependents are taken care of after us.

Emergency Fund – Emergencies are not just medical. You may require money to help a family member, or you could lose your job. Create a fund that allows you to survive for about 12 months without a job.

2: Control spending

This is the most time-tested and basic financial planning advice. Be mindful of your spending, and curb wasteful expenses. Doing this will help you create a surplus for investments.

3: Plan your savings & investments

After securing the base, direct the surplus toward investments. Asset allocation is critical for this. Make sure you diversify with sufficient allocation across equity, medium-term, and long-term debt.

Mutual funds and other securities – You can do equity allocation using the formula of 100-age. Suppose you are 30 years old, your equity allocation as a percentage of your overall savings should be 70%. Following this simple formula and rebalancing your portfolio every year will ensure that as you grow older, the risk in your portfolio also reduces. PPF, EPF, and VPF are all part of your long-term non-equity allocation. You can also add gold, through sovereign gold bonds.

Build your retirement kitty – Explore NPS and open both Tier 1 and Tier 2 accounts. It is one of the best investment vehicles in India today for retirement savings and can supplement your PPF.

Speculation – Sometimes, you may hear about opportunities to invest and earn super-normal returns in certain asset classes. These could be in futures and options, real estate, cryptocurrencies, wine, art, etc. While these are not advisable for people without the relevant knowledge, even if you feel compelled to invest in these avenues, then the amount you should invest should be something you can safely lose.

4: Execute, automate and monitor

Seek execution help – Seek help for planning and execution if you cannot manage on your own. Instead of relying on bank relationship managers or distributors, use a registered financial adviser (RIA). An RIA may charge you a fee but will work for you rather than for investment companies.

Automate – Once you have an investment plan, make sure you start investing systematically. Maximize allocation to EPF for safe and assured savings. And start SIPs for other investments. Automation will force you to first complete investments and any loan repayments before spending on other things.

Monitor – Review your net worth and the growth of your investments every quarter. This will monitor your progress toward financial security and help you make necessary changes.

In conclusion, a firm financial footing can free you to make decisions that would be impossible if you are struggling just to pay bills or repay loans. A salary becomes addictive only if you cannot save a substantial portion. If you have funds that can see you through 2 years of life without a salary, it gives you options. You can quit a dead-end job or a toxic boss and look for a new job or try freelancing.
In an environment where you must constantly upskill, having this freedom will make a tremendous difference to your career and enhance your happiness quotient.

Sreeram is a teacher, trainer, consultant, published researcher, and case writer. He is a Professor at the Tata Institute of Social Sciences. He has done his Ph.D. in the area of investment behaviour and is an AMFI certified Mutual Fund distributor.

Also read: Growth mindset: The secret of successful professionals