Here’s the thing about household income. It’s not what you earn but what is left after you have considered all your sources of income and expenditure.
In this article, we cover 4 factors that affect your annual household income and some tidbits to increase your income.
#1: Location matters
Where you stay will impact your annual income considerably.
Every city has a certain demand for skills and if yours is well matched and in high demand, you’ll be able to fetch a higher pay cheque which in turn boosts your annual income.
The other factors that impact your expenses in relation to location are nearby facilities, availability of low cost manpower for domestic work and nannies etc.
Choosing to stay near your place of work can offer cost savings, especially if your company does not provide transportation facility.
If it makes financial sense, you could even consider buying your own house.
#2: Multiple income sources helps
When thinking about income don’t think individually, especially if you are married.
Think about how your spouse can contribute to the overall household income. If she is not working, but wants to explore options from home, help her network with other moms and work-from-home communities.
Use the power of social networks to learn about career and networking events in your area and opportunities to upgrade skills.
Tax is another area, where you can think can invest jointly and save collective taxes. Think of joint loans when applying for home loans. Both husband and wife and individually claim tax exemptions.
In many households older/retired parents can be dependents. In such cases you need to think and plan across multiple entities and analyse how best you can help them manage expenses and their assets.
Help them plan and grow their wealth to support rising costs and inflation. For example, your parents may have savings but they have not invested them wisely or managed taxes properly. You can help them reduce taxes, and plan their short and long term wealth.
They may also have inherited property lying around without paperwork so it cannot be sold or rented. You can hire a lawyer and help them sort out the paperwork and rent out the property, or sell and invest the savings in high growth asset classes like diversified mutual funds.
#4: Impact of health
Health costs are another major source of unexpected increase in expenses that can quickly deplete your savings.
When joining a new company, make sure you understand the group insurance policies. Group policies have larger benefits and simple add-ons that allow you to pay very little but get very high coverage – to the tune of 8 to 10 lakhs across all your dependents.
Good policies allow you to cover your parents as well. This is a huge plus especially if your parents are over 65 and don't have a policy of their own.
Some people make the mistake of choosing a company that gives slightly more in-hand salary compared to other benefits. Even with slightly more cash in-hand, you cannot buy a good group policy that covers spouse, children, and parents.
Consider the non-cash benefit your company offers before taking a call based on the monetary benefits.
The real secret to increasing your annual household income
Typically, when the word annual income is used, most of us tend to think of immediately increasing their income - like getting a better paying job.
But that's not how wealth accumulates.
It needs long term thinking across household dynamics, some planned moves and conversations, prudent saving, and disciplined investing.
Disciplined investing is about understanding where you money can grow safely and beat inflation.
The best thing you can do is to start on this path today.