Salary Increased? What Next?

Festivals, bonuses, and pay raises often bring smiles, family celebrations, and a sense of achievement. But look closely at how most professionals react to an annual increment or promotion - the celebrations usually take the form of a new phone, a bigger car, or signing up for another EMI. The financial “upgrade” is often about expenses and liabilities, not investments.

This is where many people miss the real opportunity. Every jump in salary is not just a chance to spend more today, but also a chance to secure tomorrow. If your income keeps rising but your investments don’t, your future standard of living may not match your present one. Inflation, rising lifestyle expectations, and bigger financial responsibilities can easily outpace the wealth you have built if your Systematic Investment Plans (SIPs) remain stagnant.

Lifestyle inflation trap

When income rises, people naturally feel entitled to improve their lifestyle. While that is only fair, the danger lies in allocating the entire increment to consumption. Yes, a balance between spending, new liabilities, and increasing investments is important after a new job, promotion, or annual increment. A bigger car EMI, a fancier holiday, or a premium gadget gives instant gratification, but does nothing to strengthen long-term wealth. Over time, this leads to a mismatch: expenses grow with each increment, but wealth doesn’t compound at the same pace.

SIP increment rule

A simple discipline can change this trajectory: every promotion, job change, or salary hike should trigger an increase in your systematic investments. Whether in mutual funds, stocks, or gold, your SIPs must keep pace with your career. A thumb rule worth following - anchor your monthly savings to at least 30% of in-hand monthly income. This ensures that your future wealth grows faster than your present lifestyle.

Take a simple example. Consider someone who starts a ₹10,000 SIP and keeps it flat (constant) for 20 years. At a 12% return, this will grow to around ₹92 lakh. Now, if the same person increases the SIP by just ₹1,000 every year (linked to increments), the corpus after 20 years jumps to nearly ₹1.5 crore. That’s the power of aligning investments with income growth. A simple 10% increase in SIPs can enhance your wealth by as much as 50% in 20 years.

Wealth is real promotion

Think of it this way - your job role gets upgraded, your salary gets upgraded, your lifestyle gets upgraded… shouldn’t your financial future also get upgraded? By consciously directing a part of every raise towards investments, you are not just rewarding yourself today but also ensuring that tomorrow’s standard of living remains secure.

(The author is a Chartered Accountant and CFA (USA). Financial Advisor.Views personal. He could be reached on 9833133605.)