Supplementary Income Planning is an important but often ignored area of Financial Planning. For most of us even the thought of such planning does not cross our mind.

While it is absolutely warranted that we may be concerned about inflation, investments, asset allocation etc, it is quite easy to overlook the fact, what if the income does not come by or what if the income that comes in becomes inadequate over time? The immediate knee-jerk reaction is to cut expenses. But is that the only solution? Perhaps yes; for some immediate relief in the short terms but obviously not viable over time.

Think; In addition to primary income which may be via salary or business is there a possibility of a reasonably steady inflow of passive or say supplementary income. We need to stop and think about how many heads of income do we have when we file our income tax return? Over time many of us have a rental income or income from house property. But it ends there. A quick list of basic sources of income may be salary, business or profession, capital gains, dividend income, interest income and rental income. In addition to these sources income may also be generated by writing something, sharing something, honing a creative skill, web-based income, advertising income, referral income, private investment income or any other form of residual income.

The point to consider is while expenses may keep rising as a result of inflation, increasing bank rates, global issues, local issues beyond a certain point it is practically not feasible to cut expenses all the time. How much can one compromise?

Sound Financial Planning then automatically becomes more of a focus to think about the ways and means by which the income moves up or that the inflow of money increases much more than it already does, alongside other things. Knowledge, skill & work profile up-gradation are some obvious methods but how about buying a blue chip stock and holding it for about 8-10 years whereby the dividend earned then might be like 8-10% of the original investment you made in addition to the capital gain. Residual income from writing blogs or an e-book, property rentals are a great favourite. Buy a piece of land in your home town with lots of trees, flora and fauna that may yield fruits and vegetables which you may then sell year after year. Buy a small stake in a friend’s business venture or any other venture; this need not be like a huge private equity investment. There are lots of people wanting to do some little business but do not have the funds. If you can take chance with a little of your funds it might turn out to be a great idea. There can be many more examples which may emerge if one really applies some thought.

Another very interesting thing to do is to create a sinking fund. Consider this: Say you would like to have an additional income of Rs. 10,000 per month for 20 years. Most people would infer that if they invested about 15 lacs today at 8% they would get such additional income. But then would 8% be available all across the 20 year planning period? Perhaps not, hence we need to use some smart Financial Planning techniques of creating a sinking fund. Here are some steps:

1. Give yourself 5 years to set up this arrangement. Invest about Rs. 7.25 lacs right now or Rs. 16000 per month for the next 5 years with an expectation of 12% returns p.a. This is achievable.
2. Enough corpus would then be generated to give you an inflow of Rs. 10,000 per month i.e. Rs. 1.2 lacs per year or Rs. 24 lacs over the 20 year period. Here by using the sinking fund technique you may be using both your principal and profits to create this monthly inflow.
3. At the end of 25 years you are most likely to get not only your initial investment back but inclusive of profits you may expect an amount of approximately Rs. 13 lacs.
4. In summary by investing about 7.25 lacs or 16,000 per month for 5 years you get an amount of Rs. 37 lacs over 25 years, using conservative estimates having high probability of success.

Opportunities are everywhere and many of these opportunities are such that only you can identify without the help of any planner or banker or advisor. Certain possibilities might emerge through your financial planners. There is no short cut though in any route you take; every thing takes some time to materialise. But when it does materialise the rewards are sweetest. It is not wonderful to be able to plan festival expenses each year from bulk of share dividends received during July to September.

So the next time you think about Financial Planning, give a shot to thinking about income planning, supplementary income planning, income projection, having income come from multiple sources. Next time you see an increase in outflow, I reckon you start thinking about how to increase the inflow.