Turning 40? Here Are Five Financial Planning Considerations

Turning 40 is considered a significant milestone in our lives! Here are five seemingly simple but vitally important “money things” you should take care of before you hit your 40th birthday.

Accelerate your Retirement Savings

There’s a good chance you’ll retire around the age of 60 and live off your savings for the remainder of your life – so unless you’re planning to retire to the Himalayas and undertake a yogic life post retirement, now would be a fantastic time to automate your retirement savings! Inflation may moderate but will never go on hold, so assuming you’re 40 today, a corpus of 5 crore will probably only suffice for an inflation adjusted monthly expense of Rs. 60,000 from age 60 to 85 (which is now standard urban life expectancy)! The earlier you put your retirement savings on auto-pilot, the higher your chances of accumulating this 5 crore or more. The key is to save systematically and unemotionally in aggressive return long term asset classes.

Cover your bases

Warren Buffett once famously said: "Only when the tide goes out do you discover who's been swimming naked!" The fact is that “lack of savings” and “debt” go hand in hand.  If you don’t have a sizeable emergency fund in place, it’s likely that you’ll rely on expensive personal loans or credit card loans to finance “out of turn” expenditures (that will only escalate in your 40’s as familial responsibilities increase). Now that’s a vicious cycle that’ll ensure you’ll not attain Financial Freedom easily!

Reduce Debt

Maintaining excellent credit is important as you progress through your 30s, particularly because your credit report can play a big role when it comes to determining how much you will pay to borrow money for big expenses like a mortgage. Slowly but surely repay all your debts (including pending accumulated student loans, credit card debts or personal loans) in the decade leading up to 40. Starting your 5th decade with a “clean financial bill of health” is definitely reason to celebrate! Not only will you be in better control of your expenses (including unexpected ones), you’ll also be avoiding the high levels of stress (and subsequent health problems) that accompany personal debt. 

Bump up your Term Cover

According to a program developed at Carnegie Mellon University, the odds of dying in your 40’s are thrice as high as the odds of dying in your 20’s. As grim as it sounds, this is a reality that must nevertheless be faced. Insurance is always that thing that we don’t think about that we should! Remember to have adequate life cover to protect three things: your financial goals, at least ten years income for your dependents, and your liabilities (such as home loans). In addition, take out adequate health insurance so health related emergencies don’t impact your emergency fund. 

Save for your Kid’s Education

With interest rates ranging from 12-15% on education loans (and education costs rising at the speed of knots), it would be wise to start making monthly provisions towards your child’s higher studies. Chances are your child will be 8-12 years away from his/her higher studies at the time you hit 40. This is a really good time to start accumulating a corpus for this important goal. Not doing so may lead to wasteful interest costs for you or your child – or worse, you may end up liquidating your nest egg to finance this goal – never a good idea!