Freshers' Salary Hikes Aren’t Keeping Pace With Inflation
The solution is simple. Start with a systematic investment plan as early as you can.
Freshers today earn a lot more, but they also end up spending more.
Picture these situations: The red circle marking the rent due date on the calendar is nearing. Basic grocery bills resemble a frantic shopping spree. Going to work is the only daily commute, but every fortnightly petrol bill leaves one gasping for air. The rent amount makes it look like a whole house is bought every month. After countless UPI payments, checking the account balance is a much-dreaded task. The electricity bill is sitting on the table, yet to be paid.
After all those expenses, the starting salary that once looked lavish suddenly does not have enough zeroes in it.
Salaries At Entry-Level Have Jumped
In the last five years, entry-level salaries have increased significantly. Foundit reports that the average salary has risen to Rs 3 to 6 lakh per year over this period.
"There has been a significant jump of 25-33% in the salary of workforce in the age bracket of 21-30," said Chitra Sumbrui, senior vice president of business intelligence at Brijj.
This jump has been spread across multiple white collar entry-level jobs, locations and sectors.
“Over the last three years, there was a steady increase in both the average minimum and maximum salaries for freshers,” said Sekhar Garisa, chief executive officer, Foundit.
This holistic rise in salary and growth is likely fuelled by high-growth sectors, such as technology, digital marketing and e-commerce, according to Garisa.
Cost Of Living
Cities across the nation and especially metro cities have seen a rapid increase in cost of living. Freshers across sectors may be affected differently.
“Base-level salaries have increased, but inflation adjustment is only limited to certain industries,” said Suchita Dutta, executive director of the Indian Staffing Federation.
Essentially, the rising inflation is not necessarily covered by this increase in income.
In 2024, the basic rent in metro cities like Delhi, Mumbai, Bengaluru and Chennai have gone up to Rs 15,000 to 20,000 per month.
There is usually a percentage of the salary that goes toward House Rent Allowance. But the HRA in many cities is lower than the actual rent that one will need to pay. This gap between allowance and rent has increased by 12% in cities like Chennai, according to Sumbrui.
Rent is only one of the many monthly expenses that need to be paid. There are other expenses like water, electricity, transport and much more that need to be taken care of.
The Consumer Price Index, which is inclusive of food and fuel, has also gone up from 147.2 in October 2019 to 187.6 in May 2024. Expenses continue to rise rapidly as household expenditure in metro cities are estimated to be at least Rs 3,000 to Rs 10,000 in 2024.
The Solution
Start with a systematic investment plan as early as you can. The amount you invest does not matter as long as you stick to an SIP and stay invested.
Here's an illustration to show how this works:
Take the case of a fresher who took a job in 2019, with a Rs 4.5 lakh salary per annum. They also start an SIP of Rs 7,500, which is 20% of their salary, in a direct Nifty 50 index fund the same year.
This person would have invested Rs 4,50,000 over the course of five years and earned returns worth Rs 7,60,000 by 2024.
Further, if they had managed to increase their investments, according to the surge in income, the returns would have reflected the same.
The same SIP with a 10% step-up would have brought returns worth Rs 9,35,000 by 2024.
No matter how small the investment was at the start, it does build over time.
Starting Now Is Key
To address the uncertainties in investments, there are three variables when it comes to investments—time, amount and returns.
The variable of returns is beyond the control of an investor. Time and amount, on the other hand, can be controlled by the investor.
"By starting early, you are making the variables of time and amount work for you," said Santosh Joseph, founder of Germinate Investment Services.
Worrying about how much you have to invest should not hold you back from starting right away. You will be much better off than someone who waited to invest a larger amount or did not invest at all fearing the risk.
An early start paired with disciplined and intentional step-ups has the power to accumulate significant returns, according to Joseph.
