Over the last 6 months, a few of my friends were laid off. They are in late 30s and early 40s. They are well educated and have worked at some of the best firms in the world. However, despite their best effort over the last 7-8 months, they have not been able to find suitable jobs. The story is same in many places (read here). Clearly, job market is getting tighter and this is also reflected in slower pace of career growth and has implication for our financial health. While hoping for the best, it is better to be aware of emerging challenges and keep our eyes on key financial goals.
Right now, we are witnessing some big changes taking place around us. These are:
- Job security is gradually vanishing. Technological changes, regulatory changes and pressure on top management to reduce headcount to boost profit has taken its toll on job security. Furthermore, the more senior you are, the more difficult it is to get new job.
- Life expectancy is increasing. As economy grows, healthcare facilities improve, it is natural for life expectancy to increase. Furthermore, innovations in medial field is making lot of treatments affordable. People now in their 30s and 40s should expect a life expectancy of 80 to 90 years.
- Financial security is declining. Lower saving, higher inflation amid vanishing job security is leading to reduced financial security. Higher life expectancy means more saving is needed for retirement planning. While official inflation figure indicates low inflation, effective inflation for middle class is higher and this has resulted in lower savings. Despite recent slowdown in real estate, many people are stuck with real estate, paying high EMIs. Given the sticky nature of large part of our monthly expenses (rent, education, EMIs, medical expenses), there is high sense of financial insecurity.
As a result, importance of financial planning and prudent investments is even more. People need to save for:
- Retirement: While this should be the top priority for most people, it rarely is! In the absence of defined benefit retirement plan, it is essential that we make alternative arrangements for steady income during our retired life. Furthermore, we should not underestimate expenses during our retirement phase. For most people in 30s and early 40s, retirement is a distant worry. My advise will be to start preparing for longer and potentially expensive retirement.
- Kid’s education and marriage: A great education is the best gift parents can give to their kids. However, this comes at a great cost. Furthermore, due to inelastic demand for quality education, education inflation is quite high. This again requires careful planning and optimal selection of appropriate instruments to meet the goals.
- Home: Finally, it is essential that we own a place where we can stay no matter what. It is needed for having a sense of security in our lives.. However, I always favour owned home as emotional investment and not as a financial investment. Hence, it is essential that we take time and then choose a city and area where we will be reasonably sure that we would like to live. Furthermore, buying a home requires striking a fine balance between current purchasing capacity and future space requirement.
We all need to do careful planning and choose the right financial investments to meet our financial goals. Clearly, we are passing through challenging times but conservative living, prudent investments and periodic evaluation of our investments should help us in meeting all our financial goals.
The above content is just for information and should not be construed as an offer to buy or sell or recommendation. Contact your financial advisor for guidance on any investment related query.
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