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Financial planning tips people in their 40s can follow

The internet is full of clichés about turning 40. ‘40 is the new 20’ or ‘I’m not 40, I’m 18 with 22 years of experience’ and so on. It is a fun way to get over (and ignore) the fact that you are getting older. But the truth is 40 isn’t old. It is a mid-point in your life; both personally and professionally. Moreover, it is a good time to look back on your journey and what lies ahead. In this piece, let’s discuss different financial tips that you can follow in your 40s.

1) Eliminate your debt

As you hit your 40s, you need to eliminate all your existing debt. This includes auto loans, personal loans and gold loans. Your home loan (due to its size) may have a longer tenure so it may take more time. But that said, try and close the loan as quickly as possible. As your salary increases over time, you can pre-pay a portion of the loan each year to reduce your liability. This way, you can ensure you are debt-free as you inch closer to your retirement.

2) Increase your savings

The 40s is a critical phase in one’s life because this is when you hit your peak earning years. By now you would have the necessary qualifications, experience and skill to take you to the next level. This means you have the opportunity to maximise your savings for your future. So if you have been saving 10-15% of your savings until now, you can ramp up your savings to at least 25-30%. It is also a good time for women who took a hiatus from work to take care of children can get back into the workforce and streamline their savings.

3) Ensure you have adequate insurance

Even if you jog daily, work out and eat healthily, you need to be aware of the warning signs that could arise as you age. The need for reading glasses, aches and pains, stress and diabetes are a few health problems that many people experience once they reach 40. And with medical costs on the rise, it is necessary to get adequate health insurance coverage for you and your family. In case of a medical emergency that could impair your ability to work for an extended period, you want to ensure you can take care of your personal and medical expenses. You may wish to consult your financial advisor and find out if you need to take on additional life, medical and disability insurance.

4) Invest for your child’s future expenses

Education inflation in India is rising at the rate of 10-12% on an annual basis, according to a report by the Economic Times. But even if you assume a conservative estimate of 7%, an engineering degree that costs Rs. 10 lakh today would cost you around Rs. 19.6 lakh in another ten years. So if you are planning to send your child to a premier college in the country or abroad, you would have to pay a significant amount as fees. This means you need to invest in avenues like stocks or equity mutual funds to get good returns in the long term.

5) Plan for retirement

While it is critical to take care of your current expenses and your child’s future expenses, you also need to think about your own outlays down the line. Retirement planning is a crucial aspect of financial planning. However, many people do not think about it until they are close to retiring. Once you are in your 40s, it is an excellent time to pause and plan for your future. Identify how you wish to spend your retirement years. For example, you may want to take up a new hobby, travel around the world with your spouse or buy a house on a scenic hill station and spend your days peacefully. However, all of this requires money, and by planning, for it from today, you can make your dreams come true.

Conclusion

The 40s are a great decade as you hit new highs in every aspect of your life. And when you have a prudent financial plan for your future goals, your child’s education and your retirement, you can ride through the different experiences that life throws at you without worrying too much about money or finances.