Home / Opinion / Rich mantra: Expense = income - savings

India’s wealth landscape has changed dramatically in the past decade. The number of wealthy have spiked sharply with estimates that say India will mint millionaires at a pace more brisk than any other country in the world. An Economist Intelligence Unit study in 2015 found that over the next five years, the number of new wealth builders (NWBs), or households with financial assets of $100,000-2 million, is expected to jump 10 fold to 4.9 million in India. NWBs are expected to jump 47.4% by 2020 in India, each with $178,000 in projected average financial assets.

With that number, the definition of the new wealthy has changed too. Till not so long ago, only owners and inheritors of businesses could have hoped to amass fortunes; over the past 8-10 years though, even managers of business and professionals have had a real shot at significant wealth creation. There is a growing recognition of professional talent and its role in building a company. This value for talent has led to transfer and sharing of wealth from owners to managers, through handsome compensations and more importantly, employee stock options schemes. The trend is likely to keep spawning a sizeable number of wealthy professionals across industries, and in subsidiaries of foreign firms as well as large family-run Indian businesses.

“We actually see some professionals create the same quantum of wealth that the promoter of a mid-sized business will," said Yatin Shah, executive director, IIFL Private Wealth, a wealth management company. Interestingly, the professional rich, especially those in corporate jobs such as consulting, information technology, financial services or venture capital-funded start-ups, see themselves as being accidentally rich.

Several I’ve met—mostly in their early to late-40s—almost seem surprised by how much they are worth. Their portfolio certainly isn’t a number or a likelihood they would have envisaged while in engineering colleges or B-schools. Or, even during the early years of their corporate careers.

Since their journey to wealth has not been paved by massive risk-taking, they exhibit a lower tolerance to risk compared with first-generation entrepreneurs, the other large segment of the new rich in India. The professional wealthy also have concerns and aspirations that are classic middle-class; the maths in their head is largely about children’s education, a nicer home and post-retirement. Their indulgences seem to be common as well: an increase in number and quality of vacations, and often a second home in the mountains or a beach town. They don’t usually exhibit several of the negative connotations associated with being nouveau riche, essentially someone perceived to be ostentatious or lacking in good taste.

In fact, they best demonstrate the uniquely Indian model of savings—income minus savings equals expense, not income minus expense equals savings. This safe mode of creating wealth gradually—without taking seemingly huge risks or a sudden episode of an infusion of liquidity—primes them for a more systematic, sustained and realistic approach to managing wealth.

The professional rich are generally savvier, better-informed investors with a preference for financial assets and significantly lesser exposure to physical assets such as real estate (apart from a well-anointed primary residence that almost all of them confess to splurging on) and gold. In this, they differ from the traditionally wealthy who have been disproportionately invested in real estate although preferences are changing there too.

Shah says the professional rich are also more likely to seek help from experts when it comes to managing money, unlike a promoter who has a company chief financial officer or an in-house accounts team. Professionals don’t have the time or resources to manage the wealth on their own and seek organized advice sooner in their investment journey. “As a result, their personal finances are better planned and managed," said Shah.

For most people, beyond a certain expense on lifestyle needs, wealth is really a tool for the future. Unsurprisingly, I’ve found children feature prominently in every conversation with a wealthy individual. Most first-generation rich—entrepreneurs and professionals alike—take great pride in the middle-class environments they grew up in and from where they imbibed the ethos of hard work and discipline that they credit for their success. Several, therefore, worry about how to make their current wealth work as an advantage for their children; especially how to find the right balance between giving their children access to best-in-class education, facilities and experiences but without breeding entitlement and complacency.

Shreyasi Singh is former editor of Inc. India. Her first book, on India’s new wealthy and their wealth mangers, will be published by Bloomsbury next year.

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