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Rattan Chugh
ExpressMoney
Tuesday , July 31, 2007 at 1140 IST
Individual, woman, working professional, wife and, hopefully in some years, a mother. Those are some hats that Bidisha Banerjee wears. For Bidisha, 27 and a CA, career has a lot of meaning, since she has worked hard to be what she is today: a senior business analyst with Avaya India in Pune. Increasingly, though, following her marriage about a year ago to Samik, a consultant, Bidisha is also thinking beyond work. The Banerjees want children in a few years from now, a decision that has implications for both, Bidisha in particular.
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Bidisha is clear she would like to take a couple of years off from work. At the same time, she wouldn’t want to see a drop in their standard of living. “Even if I don’t work for a few years, it shouldn’t pinch us,” she says.
Not feeling the pinch some years later means bolstering the finances today or making lifestyle adjustments. As more and more young couples have both partners working, the family gets used to both salaries. So, if and when the time comes to live off only one salary, either by choice as in the case of Bidisha or by chance (in case of an emergency), coping can get difficult. Here are a few pointers that will give you greater financial freedom to take a mid-career break, by choice or enforced. |
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| Plan your Cash flows |
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If you don’t know how much you are spending, you wouldn’t know how much you need. If you don’t know on what all you are spending, you wouldn’t know on what you can cut back on. Therefore, it is important to make a budget for your household expenses.
In my work, I meet quite a few couples who are a little blasé or uninformed about their spending patterns. When I first ask them for their monthly expenses, they quote a figure that is a small proportion of their income — and it looks good. But when I probe further to reconcile their income and expense numbers, they come up with big-ticket shopping they indulged in during the festive season or an expensive holiday they took at the end of the year — and it doesn’t look so good then.
Point is, if you don’t account for and plan your expenses, these have a tendency to stretch to the extent that money is available in hand. Once you get used to a particular lifestyle, it gets difficult to bring it down. When the second salary stops, expenses have to be reduced significantly, which gets difficult to cope with.
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| Save Regularly |
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Apart from keeping expenses in check, it is important to regularly save while both salaries are available. “Once you are working, you get used to financial independence,” says Bidisha. Although she understands that they won’t have the same cash flows as they have today, she would like to have access to some funds that enable her to retain her sense of independence and support some of her personal expenses.
Towards this objective, Bidisha plans to save Rs 15,000 every month for the next three years to build a corpus that will support her expenses when she is off work. I have suggested to her a systematic investment plan (SIP) in a good diversified equity fund. If she deposits Rs 15,000 every month, and the SIP gives her a compounded annualised return of 15 per cent, Bidisha will have a savings buffer of Rs 7 lakh at the end of three years (See graphic:Build that buffer ).
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| Build that buffer |
When you are planning a break from break, you need a buffer. The keys to building this buffer are regular savings and investments. If you invest Rs 5,000 a month and earn a compounded annualized return of 10 per cent, you will have Rs 2.2 lakh after three years. If you can save more or earn a greater return, you will have a larger corpus to fall back on. |
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| Compounded annualized return(%) |
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10% |
15% |
20% |
| Amount |
5,000 |
2.2 Lakh |
2.3 Lakh |
2.5 Lakh |
| Invested |
10,000 |
4.3 Lakh |
4.7 Lakh |
5.1 Lakh |
| Per month |
15,000 |
6.5 Lakh |
7.0 Lakh |
7.6 Lakh |
| (Rs) |
20,000 |
8.6 Lakh |
9.3 lakh |
10.1 Lakh |
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| Cap your EMI |
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The other thing people planning a career break need to watch for is loans, which have the potential to disrupt your financial planning for a mid-career break. If you are clear that at some stage the second income will stop, ensure you are not banking on it when taking loans. Easy access to loans tempts you to stretch your budget. Given two salaries, banks will be happy to fund a penthouse, but will you be able to service the EMI if one salary stops? “It’s a concern, which is why we have climbed down from buying a villa to a two-bedroom house,” says Bidisha.
Lastly, thanks to the telecom revolution, there are many work alternatives available today. You can stay at home and be connected to work through a computer and the Internet. This way, you can earn some money through part-time work while balancing your domestic demands and staying in touch with your professional side.
The writer is CEO, Cornerstone Wealth Management
rattan.chugh@cstone.in
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