November 2002 - I boarded the train from Mumbai to Pune to take up my first job. Net income was Rs 15,000/- We were working in one of the top IT service companies and quite excited. I used to meticulously write my expenses on daily basis. Very soon, I had made some good friends. I was eating out regularly. There was one late night movie every week, parties during the week. I stopped writing my expenses. Every Friday there was a Sumo ready to take us back to Mumbai and every dreadful Monday, there was one to take us back to office. By the time I left my first job and moved to the second one, I had Rs 4000/- in my bank account (2 years of saving).

Income

Investopedia defines income as

Money that an individual receives, usually in exchange for providing a good or service or through investing capital.

If you are an employee, you receive income for the value you create for the organization . As the value you provide increases, so does your income. However, if you note, the sources of your income will generally be limited to 1 or 2.

Sources of Income

1. Your salary
2. Your spouse’s salary
3. Interest Income
4. Rental Income
5. Business Income
6. Capital Gains

Multiple incomes give you a cushion when one of the sources of income dries up. However, if I may digress, you should also invest in yourself . Knowledge is something that can’t be taken away .
With knowledge, you get confidence and confidence shows when you talk. You can see the chain.

Never depend on single income. Make investment to create a second source. - Warren Buffett

Expense

I am sure you are familiar with your expenses. However, more often than not, people fail to create a budget for expenses. When you create a budget,

1. You know the categories where you spend
2. You know how much you spend in each of those categories
3. You know how much less / more you spend than you thought you would spend

However, it is an exercise to track such expenses. Moreover, some expenses are termed as recurring (lifestyle) expenses and some are discretionary expenses . As your income increases, there is a tendency that both these expenses goes up which in turn changes your lifestyle . Your lifestyle expense determines your retirement corpus , as man is a creature of habit .

Conclusion

I would strongly suggest that , if you haven’t already done, try to

1. Identify your sources of income
2. Identify your expense categories
3. Create a budget
4. Identify your recurring and discretionary
5. Track your income and expenses on a periodical basis (preferrably monthly)
6. Make plans for additional source of income

This should help you

1. Understand your lifestyle
2. Identify monthly surplus / deficit
3. Make corrections wherever necessary and
4. Understand money you would require for your retirement etc…

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