What is your earning potential?

Let’s face it. We all work to earn money. That is the main reason anyway. It’s a way to support the lifestyle you choose to live. It’s about providing the comfort you need and want. It’s about fulfilling desires.

Credit: Karolina Grabowska

But if you are earning enough to do all of this and a bit more besides, then work is no longer about money alone. The question is how much is enough? And more importantly, can you earn enough to sustain the lifestyle you choose for yourself and your family in the long term? In short, what is your earning potential?

What is Earning Potential?

Earning potential has been described as the potential gains from all sources of income including your income, Returns On Investment (ROI), and possible future growth. What you earn today is not necessarily what you will be earning all your life. You’ll get raises and your ROI will increase – or decrease. Your desires will change over time, and you might find yourself saying – enough! But you still need that monthly check for sustenance. So here we discuss that monthly check – how much you need and how much it can be.


Why is Earning Potential Important?

In life you have certain obligations. Apart from maintaining a chosen lifestyle for yourself and your family, you have to provide for certain periodic expenses such as education of your children, medical expenses, unexpected expenses, emergencies, purchasing a home, start in life for your children, marriages, and a few luxuries.

If you know your earning potential, you can plan for these events well in advance. Indeed, you can choose the lifestyle best suited to you based on your needs and your earning potential. So if you know how much you will be earning over the next 5 or 10 years, you can plan not only your own career and life trajectory but the future of your children too.

Factors Affecting Earning Potential

There are many factors that affect your initial salary and raises. Some of these are within your control and some – like inflation and pandemics – are not. Here’s a list of factors that can affect your career path and earning potential. While the list is not exhaustive, we’ve covered most of the important factors.

  1. Location – Pay scales in some regions are higher than those in other regions.
  2. Sector – Public sector jobs pay less than private sector jobs.
  3. Education – This still matters. Those with a degree earn more than diploma holders. In turn diploma holders earn more than those with skill but no or insufficient qualification. This applies to growth too.
  4. Experience – the more hands-on you have the more you’ll be in demand and the more you’ll earn.
  5. Superiors and Performance Reports – These matter in organizations where pay scales are based on hierarchy and promotions are based on performance reports.
  6. Type of work – Business/ Freelance/ or Employment – the former two are uncertain while the last is certain as far as monthly income is concerned.
  7. Other factors like working conditions – Some shifts – such as night shifts – pay more. Similarly, additional payment is possible for certain hazardous working conditions.
  8. Deductions – Most organizations deduct insurance or PPF from your salary. These are in fact a part of your earnings that are invested on your behalf by your employer.
  9. Other Sources of Income such as returns on investment, rent from property, or a side hustle.

Apart from these factors, the age at which you start earning is also a significant factor as it can impact your growth trajectory. Those who start early may work longer.


It is also possible that they burnout faster then their peers. These contingencies must be factored into your earning potential.

How to compute your earning potential

Your earning potential for life will depend upon the working life expectancy and your current age. So if the working life expectancy in your region is say 65 and your current age is 45, your earning potential is roughly 20 times your current earnings increased by the inflation rate. Inflation rate is of course fluctuating so an exact or accurate computation may not be possible. If your organization has a predetermined pay-scale, you could use this to estimate increase in income. Either way, you can get a good estimate of how much you can expect to earn say 5 or 10 years from now.

Your current earnings include your income from all sources. So apart from your regular job, if you also run a side hustle, are earning interest or dividend on your investment, or receiving rent on a property, all this will form a part of your earnings.

While most people only escalate the current earnings by the inflation rate, the Covid-19 pandemic has taught us that there may be big dips too. So reducing a small percentage to account for for such emergencies or calamities is wise. That way, you’ll plan to spend less – and end up saving more than you planned – if the calamity does not occur. Besides, the inflation may be more or less than that projected. You should also factor in a small legacy to leave behind for your heirs.

Planning Your Future Finances

The best advice we can give you in this regard, is to plan your current expenses and lifestyle based on your earning potential. You could for instance use one of the free online earning potential calculators to get an estimate – as we said, because of the many variable factors an exact figure may not be possible – of what you would be earning say 5 or 10 years from now or at retirement.

Then reduce 5 or 10% from this figure to set aside as “legacy.” Simultaneously estimate your future expenditure – your milestones – both expected such as college fees and unexpected such as medical emergencies. Plan to save up enough to be able to meet these needs. Remember you’ll have to project the value of these milestones too as well as factor in any ROI on money invested. So there’s some wiggle room here – but err on the side of caution. So too, plan for setbacks – such as a takeover or merger that causes a loss of job or an accident that requires extensive hospitalization and long leave. Plan to set aside a small portion of your income for such times. Then determine how much you have left over to spend each month on necessities, comforts, and luxuries.

Earning potential is more about how you spend what you earn rather than how you earn what you spend. Do you agree?

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