Double your income every 10 years

BUDGET 2010 was a watershed proclamation of intent by the government to aim its resources at boosting productivity and innovation to transform the economy. The focus of the financial rewards was on employers and corporations as conduits delivering the state's investment to the workforce.

How many of us have paused to consider what it means at a personal level to be proactive in being part of this national transformation strategy without being beholden to our employers or existing skill sets?

Productivity defined

The first issue to contend with is: What does productivity mean at the individual level? And how can it be measured?

Putting aside economic jargon, productivity simply means how you can earn more to achieve your full potential income earning capacity.

Of course, this means taking into consideration the number of hours of labour you put in to earn your pay cheque.

There will be a price to pay if you need to work 12 hours a day instead of eight to earn 50 per cent more in compensation.

Similarly, there is a cost to the individual and the family if the income earner has to suffer the inconveniences of doing shift duty, relocating to another country or performing dangerous work.

Using a standard eight-hour workday as a benchmark, how can you earn more from your present professional or technical skills? If you make no change to your career plan, what is the most likely projection of future earnings in the industry that you are currently in?

Excluding annual inflationary adjustments, what is your expected annual wage growth rate till retirement?

Is this projection a fair reflection of what you are worth as a contributor to the gross domestic product (GDP) and more importantly, to yourself and your family? Doubling your income

Before we proceed any further, let's design a hypothetical outcome of this visioning exercise.

If you are a young graduate or diploma holder between the age of 25 and 35, set a goal of 'double your income every 10 years'. To achieve this goal, the time-honoured heuristic Rule of 72 predicts that your target average annual pay hike should be about 7 per cent (72 divided by 10 years).

To have a sense of what long-term historical average annual growth in salaries have been, consider two back-of-the envelope estimations. A rough check of starting salaries for graduates in public accounting between 1980 ($1,000) and 2010 ($2,800) over a 30-year period suggests that actual annual adjustment of just under 4 per cent.

Looking at this slightly differently, a secondary school teacher who earned $1,000 per month in 1980 may be earning about $5,000 per month today (with no administrative roles or promotions). For someone with this profile, the actual average annual increment over 30 years was about 6 per cent.

Baby boomers in Singapore did very well to earn 4-6 per cent per annum increase in wages as a result of strong economic growth in the 80s and 90s when salary growth was impressive.

For those who joined the workforce in recession years, the starting pay was low, making broad generalisations messy.

Going forward, the way to beat these estimated long-term historical averages as part of personal productivity goal-setting may include the following career strategies:
1) Change employer every six years or so if it means a substantial pay increase

2) Change industry within the same functional role

3) Achieve managerial roles and career development opportunities with the same employer

4) Go into self-employment successfully

5) Change profession through academic study and training

It is the last two options that may hold the key for applying the principle of lifetime productivity in a matured economy like ours. Very few people in the workforce are doing exactly same thing they did 10 years ago.

We (accountants and teachers from the earlier examples) have all changed voluntarily or otherwise because of technology, higher value-added deliverables or advancements in the demand for goods and services.

Naturally, many older workers, including PMETs, are now struggling because they have not kept up with changes in the economic landscape since 2000.

Government intervention to boost productivity and innovation is appreciated. So are generous and enlightened employers who initiate training and development for staff.

But the message of Budget 2010 to me is that we as individuals should take the lead in planning our careers in the new New Economy.

The New Economy was the tagline of the mid-90s based on simply being part of the technology revolution. But if the global financial crisis and the most recent recession in this country has taught us anything, it is that financial security can vaporise if we do not have a relevant and marketable set of skills

Invest in yourself, pay yourself first

As we read about financial investments in the pages of this paper and the media in general, we should not forget a basic truth: Invest in yourself first. The second basic truth is: Pay yourself first. The life insurance industry does an excellent job in educating the public that protecting your future income earning capacity is critical to financial freedom for dependants.

The call to action today goes beyond that - we need to take stock of our current situation to explore how we can attain maximum career satisfaction through strategic financial planning.

How can you invest in yourself to be part of an exciting future? The status quo can only take you so far. If you are between 25 and 45 years, you should take on board the mantra 'double your income every 10 years'. See where your skills, aptitude and interest lead you so that you can stay on top of your game and enjoy the journey.

For those between 45 and 55 years, it will be a challenge to literally double your income. This is the time to stock up your employability tool kit for the pre- and post-retirement years. At this stage, family obligations such as retiring the mortgage and funding children's tertiary education will be of utmost concern. But this is also the time to structure a stream of active income once you have hit the peak of your employment earnings.

The industry sectors of the future will revolve around delivering goods and services in health care, geriatric care, childcare, education and training, consulting, media and entertainment, tourism, travel and hospitality among others.

Our financial planning model shows that working at a reduced pay between ages 55 to 65 will add six years to your retirement capital. Baby boomers will earn more in the aggregate by extending their years of economic activity, drawing from a new deck of cards. If you get your financial planning right by age 50, there is less pressure to work to just to make ends meet.

So, if you have never done this exercise before, there is no time like the present. Create a spreadsheet and plot your earnings history. Assume that you will be staying in the same role and industry for the next 10 years.

Now, take a fresh look how you can attempt a career in something dramatically beyond your comfort zone. What will it take to make the leap if this career aspiration aligns with your personal goals?

Invest in yourself. Reap the rewards and pay yourself first. And yes, you may wish to engage a financial coach who has experienced the various stages of life to integrate your career plan in your comprehensive financial plan.

Conclusion - yes, an interesting idea esp for those who are just starting to start their working life!