Monday, January 19, 2009

Moving Ahead – Income, The First Step in our Journey

In my last post on Financial Literacy, I had talked about the whole game having three sides to it.

Let us, in this post, examine the first i.e., the income side.

All our efforts in life are to earn adequate income and more. Many of us opt for a job and work out a career plan thereon. Others with a family business would probably take this opportunity that already exists. There are many others who have been bitten by entrepreneurial bug and want to strike out on their own – the first generation entrepreneur.

It is also possible that later in life some would cross over from the comforts of a job to the wild thrills of striking out on their own and at the same time many will want to switch to a job after a few years of doing their own thing.

Whatever the choice made, it is the result of various influences in a person’s life, the past and current circumstances existing in that person’s life, upbringing, family background and such other intangibles.

Depending on the choice made and, how the person shapes up later in life will determine the level and flow of income. It logically follows that this will vary from person to person and keeps changing at different points of time in a person’s life.

At this stage it will be useful to examine “Income” in the light of the following factors:

  • Age of the income earner,
  • Quantum of total income in a period – say a year,
  • Quantum of income at shorter intervals – say every month – whether fixed or fluctuating amounts,
  • Regularity of income – Whether at regular intervals or are they random inflows,
  • Possibility of increase in Income in future or decrease (in bad times) or what happens if it stops (due to death, disablement or retirement) or whether it remains flattish,
  • Vulnerability of income to changing circumstances – These may be economic or from obsolescence of one’s skills or it could be for any personal reasons - health. E.g., Due to growth of supermarkets, smaller grocery shops could face squeeze in profit margins and incomes of that businessman may be threatened by competition. (There will be many similar or different live examples).

Everyday, we see differences between people. Incomes vary, levels of wealth vary, capabilities of earning are different, attitudes are different and a host of other things.

Let me now go back to my earlier post and highlight a point made then, which is very relevant here.

“Under each of these heads lie all the complex variables that interplay with each other and make each person’s financial situation as unique as it can be.”

I have attempted to list just a few variables that impact a person’s life in general and its effect on the monetary situation. In the next post, I will attempt to study “Income” from another perspective.


Vinod_Sharma said...

"Depending upon the choice made and how the person shapes up later in life will determine the flow of income"...there is an Irrfan Khan ad these about finding out how much one would need after retirement...applies to the salaried lot, of course.

Looking forward to some insightful guidance on how to begin making the right choices, no matter where in the matrix one is at any given point of time.

Gopinath's "Artickles" said...

Nice post, Mavin. I can see you gettting into the subject deeper, systematically as you usually do. Keep these posts coming thick and fast!

L. Venkata Subramaniam said...

There seems to be a parallel between this and the way a country should run its finances. Even our so called 'good' finance ministers do not seem to follow these tenets.

Smitha said...

Mavin, I love the way you have approached the topic - makes it very easy to comprehend - for not so finance savvy people like me :) Looking forward to the next post on this.

manju said...

Nice explanation of the factors that determine a person's income.

As you have shown, it's true that every person's financial situation is unique.

Nita said...

Interesting. These things are so personal, I mean it depends on people's lifestyles and what they are willing to compromise on. Also I have seen that many people take certain things for granted, like housing provided by the company etc and don't include it while comparing incomes during their job and their business.

Mavin said...


I have not even come to discussing retirement. That will be in due course. This post just attempts to give a perspective on Income.

This is applicable to both salaried as well as business persons. It is equally important for business people to analyse their flow of incomes and constantly evaluate risks that they see in their fields.

I have seen many cases where the earlier generation continues in business but due to fading prospects the next generation tries to get in to a profession or start another line of business.

Mavin said...

Gopi - Smitha and Manju

My attempt will be to discuss all the variables that impact a person's financial situation.

Only then are we ready to make a financial plan and choose between investment alternatives.

Let us see how this unfolds.

Mavin said...


There is a concept of zero based budgeting. This examines every assumption of budgeting de-novo and adds up the numbers afresh every year.

We have an incremental approach in our public finance. Our budget exercise is based on last years expense level + a suitable %age increase.

You will see a mad rush to utilise budgets in the Jan - March period and in the bargain achieve a lot of wasteful expenditure - the very thing that we set out to avoid in the first place.

National finances are managed in a more cavalier fashion with an added privilege. When you run a deficit - print more currency.

Mavin said...


You are absolutely right.

A family with a rule of eating out evey week end will have different level of retained surplus at the end from a family which is more moderate in their habits, presuming same income levels.

Similarly like you mention - provision of company accomodation gives an illusion of cash surplus, when in reality it may be EMIs not paid towards a place of residence that could / should have been purchased.

Krishnan said...

Mavin - incisive post, waiting eagerly for the next installment.

Solilo said...

"Whatever the choice made, it is the result of various influences in a person’s life, the past and current circumstances existing in that person’s life, upbringing, family background and such other intangibles."

I agree with that. Also the past experiences and upbringing play a major role in how someone learns to save.

Will look forward to more posts on this.

Smitha said...

Mavin - I have something for you in my blog -pls do come and pick it up!

Mavin said...


Welcome to My Voice

Yes sure. I will try and expand on this subject.