Effective management of salary hikes

By BankBazaar.com | February 21, 2010

Surveys say that India is going to give the biggest salary hike in 2010. Salary increase for 2010 in India is projected to be 10.6 percent, the highest in Asia Pacific and up 60 percent from the actual increase of 6.6 percent in 2009. Indian owned companies are expected to outperform MNCs with a projected average increase of 11.4 percent as against a 10.2 percent by the latter.

Since the year 2008 the salaried class has faced a stiff recession, where one had to cut down on spending, break the savings and faced the fear of getting pink slips from the companies. Companies could not afford giving salary hikes or bonuses and all faced a hard time. Well it’s over now, the time has changed and companies are almost out of the recession mode.

Survey results on expected salary hike

Surveys say that India is going to give the biggest salary hike in 2010. Salary increase for 2010 in India is projected to be 10.6 percent, the highest in Asia Pacific and up 60 percent from the actual increase of 6.6 percent in 2009. Indian owned companies are expected to outperform MNCs with a projected average increase of 11.4 percent as against a 10.2 percent by the latter.

Energy, Telecommunications, Pharmaceutical, EPC (Engineering, Procurement and Construction), IT and Automotive are among the sectors projecting highest increases ranging from 11.6 percent to 12.8 percent. Technology and Outsourcing sectors have shown tremendous recovery over 2009, but are playing cautiously with single digit increases in the range of 8.5 percent to 8.9 percent. These findings were revealed in the 14th annual Salary Increase Survey covering 465 companies across 20 primary industries, conducted by global human resource services firm, Hewitt Associates.

Higher income – What to do?

The recession taught Indians value of money. So how to manage/use the salary hikes in an effective way so that it brings a fruitful return? Is it the time to splurge or go slow? Or is it prudent to continue with the austerity measures that one discovered during the lean time?

Now, is it really worthy to go for durables, at this point of time? Today a laptop model or TV that cost Rs. 35,000/- will be Rs. 30,000/- 6 months later (may be with many offers also). The rate of mobile phone or an IPod decreases by around 30% every quarter. So it’s not really worthy to spent huge amount on consumer durables, but if it’s very necessary then you can go for it but make sure you make a good bargain so that you get the best offers.

Shift to higher EMI on existing loan

If you have any type of loan (home, education, auto, credit card) then with the salary hike you can start making a partial pre-payment of your loan which will be a big relief for you as the loans can be closed much early by pre-payment. (Most personal loans however do not allow partial prepayment.) Every time you make a payment, part of your payment covers the interest on the loan, and the rest is applied to the balance, or principal, of the loan. Normally in the first month, you pay almost all interest, in the last month, you pay almost all principal. By opting for a higher EMI (Equated Monthly Installment) prepaying your loan is easy for example if you are paying Rs. 2000/- per month start paying Rs. 2500/- per month all the extra money you pay will go directly to your loan balance. A 20 years housing loan can be closed off in just 15 years by just paying Rs.110 extra per lakh of the loan amount. So take a step and commit some extra amount towards your loan and save the money which goes waste as interest.

Increase savings & investments

Now if you don’t have loans then you can invest the money in Mutual funds, ULIPs, bonds, shares, etc. Mutual funds are the easiest for the new investors, as there are plenty of options available for you in the market today. We recommend Systematic Investment Plan (SIP) for you, where you can invest a fixed predetermined amount monthly in the funds of your choice. SIP is similar to a Recurring Deposit, every month on a specified date an amount you choose is invested in a mutual fund or share of your choice. Think of each SIP payment as laying a brick. One by one, you’ll see them transform into a building. You’ll see your investments accrue month after month. It’s the perfect solution for increased money in hand on a regular basis (read as higher salary).

An investment of Rs.5000/- per month in a mutual fund SIP will yield Rs.33 lakhs in 15 years at 15% growth. This is a conservative estimate considering that the average Sensex returns since 1979 is over 18%. There are many plans being provided by various companies for you to choose from.

Increase investment for children

With your salary hikes you can also go for the various plans available in the market for your children’s future. Two needs which need maximum attention are higher education and marriage. So you can make use of the ULIPs and various mutual funds available in the market.

Since the austerity measures followed by most companies have adversely affected the salaries, the salaried class has also been forced to restrict their expenses for the past 2 years. With salary hikes expected this year, it is time to make the most of it to increase the savings and close loans that were taken up due to the lean years. Some of the ways to use the salary hikes are discussed in this article. After all it’s your hard earned money, you worked for the money; now let the money work for you.

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3 thoughts on “Effective management of salary hikes

  1. SANDESH YADAV

    comparing to the inflation in india, this hike in salary is not enough

    Reply

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