Thursday, 9 July 2015

Confessions of a salaried worker

I have a confession to make. It is not pretty, and it may not be something I like (or dislike for that matter) very much, but it is the brutal truth. Facts are facts, and must be stated as such. 

You might wonder what do confessions have to do with a personal finance, early retirement blog?

Well this confession has to do with my professional earning career. It is not earth shattering, but it is probably true for a lot of us, so please bear with me, and read on.

Without further ado, here is my confession. Throughout my professional career I have always worked for someone or the other.  From the day I graduated from college, I have spent every hour of my professional life employed by someone else.  I have always had a boss at work, I have always had an office to go to, I have always had pre-defined working hour expectations (with some reasonable flexibility of course), I have always eaten lunch during pre-defined "lunch hour" at work (again with reasonable flexibility), I have always had to apply and take permission for holidays, I have always had quarterly and yearly goals to meet (set by someone else), I have always had someone to "performance evaluate" me, basically I have always had a job.

Now this is not too terrible you'd say; Why is this a big deal?  A very size-able percentage of us live our professional lives exactly this way.  So what gives?  Well it is simple! Numerous years of working like this have made me a financial wuss, a financial patsy, a financial wimp (or whatever other favorite term you might have)  I am programmed, I am indoctrinated, I am trained, to rely on a salary hitting my savings account like clockwork at the end of the month. My financial life, and by extension my entire life, revolves around this amazing phenomenon of corporate employment, the monthly paycheck! Paycheck to paycheck is how I live. Goddamn I am domesticated!  Surely life wasn't meant to be lived this way! 

Nowadays with the advent of instant SMS alerts, we probably all get beeped the moment our salaries get deposited into our linked savings accounts.  It is hilarious (and somewhat sad at the same time) when we are sitting at work in a large team meeting, and all our cell phones get beeped at roughly the same time cos all our salaries got credited together!  Practically everyone pulls out their cellphones and surreptitiously glances at their screens to check the amount credited.

Anyways I rant too much.  Don't get me wrong here, a regular monthly salary is not a bad thing at all. On the contrary, I am sure all of us who are in this same boat realize how critical this is to our very existence. In fact I argue that my entire personal finance journey is built on one basic simple foundation, my monthly paycheck. My aggressive push to early retirement is solely built on this one primary assumption, the predictability of getting my monthly salary.  Everything else, from savings rate, investment strategies, SIPs, financial goals, etc are secondary to this primary assumption!  And I completely realize how blessed I am to have this most powerful tool in my arsenal as I go about conquering my financial goals. I firmly believe that the success of anyone's financial life, is rooted in financial discipline more than anything else, and my monthly income from my job is the precious petrol or gasoline, on which my financial discipline engine runs!

Typically in my financial career, I have received 12 salary credits in any given calendar year. (I guess if you get paid fort-nightly or even weekly, the concept is the same, just that you get paid more frequently) 11 of these 12 amounts tend to be within 5% of each other, that is how rock-stable my salary has been!  The one month that is different, is when I get my annual bonus, which is kinda like a kicker since it gives my income an additional boost.  The next calendar year, the story repeats with hopefully a higher salary base, depending on the annual increment I get.  This cadence has worked fabulously over the last couple of decades, and helped me take down one financial target after another.

I assume the monthly cadence would be the same for most salaried employees.  I do have a small variable pay component, which is covered in the 5% perturbation in the monthly salary amount. However,  there is a huge work force out there (probably outnumbering us salaried stooges by a large margin) who does not have the luxury of a stable monthly income.  Everyone ranging from self employed professionals, entrepreneurs, sales/commission linked workers, I mean doctors, farmers, shop-owners, salespeople, financial agents, distributors, small business owners, the list is endless. Heck nowadays more and more people are employed in jobs with a large variable compensation component linked to individual performance or meeting sales targets, which also falls into this category.

So my question to you daring souls out there, who meet the above definition is:  How do you setup your strategies to meet your financial goals?  I am sure your financial goals would be no different from mine.  But how do you plan to hit those goals, without having a stable income to rely upon? Practically all the personal finance literature I have come across describes strategies that are focused on financial discipline like regular SIPs, RDs, regular monthly savings and other such variants.  All of these strategies make the implicit assumption that you have a regular source of income!  Yes, there is literature, books etc out there that provide advice and guidance to self employed professionals like doctors, that do get into some depth on this topic.  For example, put your lumpsum earning into a debt fund, and then do an STP into MFs, or others that advocate investing lumpsums as soon as you get them etc.

But what I would like to learn is, how do you folks who have a widely varying and unpredictable monthly income, apply these strategies in real life?  In good months, Do you invest all extra money in one big lumpsum? Do you put it into an FD? Do you put it into a debt fund and STP into your favorite investment avenue? Do you pay-down loans with the entire amount?  Do you buy a single premium policy? How about in bad months?  Do you draw down from your existing investments to bridge the gaps?  Do you withdraw from your emergency corpus?  Do you take a loan?  Do you get into credit card debt?

I am looking to learn here from folks who have spent their entire (or part) professional lives very successfully but with an unpredictable income stream.  Please share your strategies, learnings from personal experience, point me to available literature, maybe any specific personal finance books, articles, anything that would help me understand more about hitting predictable personal finance goals with an unpredictable income stream.

I leave you with this analogy.  If I need to drive from Mumbai to Ahmedabad in a car that I know can run on average at 60Km/hr, I can certainly plan my journey very well.  I know stretches near major cities where my avg speed will be less than 60Km/hr, and stretches on national highways and toll roads where I can do better than 60Km/hr.  I know roughly where I will be at lunch time, and can plan where to eat upfront.  I know when/if I will need to refill petrol, and can plan that out too.  I can inform the hotel in Ahmedabad when I will be checking in, with a reasonable degree of certainty. There are so many things that I can do to ensure a pleasant journey simply because I know the avg speed that my car can run at!  Now imagine the same scenario, but travelling in a car with a faulty clutch/engine, that can run anywhere from 10-100Km/hr.  You don't have any control on when the car will slow down to a crawl at 15Km/hr or speed up to a lightning fast 90km/hr.  How do you plan this journey? Do you pack your lunch upfront with you?  Do you take extra cans of petrol?  Do you not book a hotel upfront, and wing it once you reach Ahmedabad?  Heck are you even certain that you can make it safely on the road and reach your destination in one piece!

Curious and looking forward to learn!  Thanks for getting through this post :-)


  1. Question asked in this blog post makes sense.
    This question goes to all the entrepreneurs and business running individuals. How do you actually plan it all, or its just the cash at end which matters :P

  2. Question asked in this blog post makes sense.
    This question goes to all the entrepreneurs and business running individuals. How do you actually plan it all, or its just the cash at end which matters :P

  3. Day job is not really that predictable to the contrary it represents concentration of risk (one could get sick, hit by a bus, get fired, corporate downsizing, skill obsolescence, automation ....etc). Its only perceived as stable due to a paycheck at the end of the month. In finance smoothing out unpredictability is done though diversification (of income sources) that is why businesses diversify their businesses (conglomerates).

    If one is working for some one they should also work from themselves on the side and build an alternate income source this attitude what separates the rich from the mediocre( The center class).