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How to Start Financial Planning in Your 40s?

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“Life begins at the 40s”

The 40s is a critical phase of life, by this age, you will be at the peak of your career. You’ll have more earnings, and more responsibilities like funding for a child’s higher education, planning for your retirement, planning to buy a house/car, etc. Also, it is a crucial decade of your financial life.

Financial planning in the 40s is quite important as it can help get you in tip-top fiscal shape well before you reach those long-awaited golden years. In this blog, we will round off some major financial goals that every 40s needs to accomplish to progress to your next life stages swiftly.

How to start financial planning in your 40s?

The 40s is considered the age of the sandwich generation, as you are in the middle of either taking care of your kids or your parents. Begin with building a solid financial foundation. Prioritizing important financial decisions matters the most at this age.

Establish an Emergency Fund

Emergency funds should be the start of building a financial foundation. No one can abstain from unexpected expenses, they could be of any type, be it job loss, medical emergency, etc. For such scenarios, one should be prepared enough to face them. Enough money there to at least cover 3-6 months of essential expenses for paying off high-interest debt. This will put you in a good position to save for your biggest financial goal, which would be, Retirement.

Minimize risks in your 40s

Keep an eye on the mix of investments you have, i.e., your portfolio. One needs to make sure that one is not tied up in a single investment. Diversification is important as it can help you reduce the total risk in your portfolio if a stock you invest in loses its value.

Now in your 20s and say even in your 30s, you could drive your major investment in equities and less in debt instruments. But in your 40s more stress is put towards keeping your money in a secure investment portfolio. You could have a ratio of 70%-30%, the former being invested in equities and the latter in debt. This solely depends on your risk tolerance.

Equities have a track record of outperforming bonds, but then again, the potential of higher returns comes with a high risk of loss. In your 40s you have less time to recover from the event of a market down, whereas shifting to a safer investment zone will reduce risk.

Build your Retirement Corpus

If you have a retirement plan then you are on the right track. But if you have crossed the age of 40 and still don’t have a retirement plan, Well, it’s still not that late. To begin with, draw a conclusive plan. Determine how many years you have left for retirement, and calculate your monthly expenditures and other necessary expenses. Retirement should be given apt importance. Now considering, if you procrastinate and start retirement planning at age 40 and you wish to retire when you’ll be in your 60s now, evaluating your monthly expenditure of Rs 50,000 per month in 10 years, factoring inflation of 6% will now be Rs. 89,542 per month.

To fund the retirement corpus of Rs 6.88 Crores, you will need a monthly investment of Rs 74,875 per month; thereby an investment of almost Rs 1.80 Crores, in 20 years.

Be Sure to Have a Child Education Plan Intact

One should have a Child Education plan too. Catering to the needs for the future of your child’s higher education is a right of parents. It’s the biggest gift a parent can give their child to. Parents need to plan for their children’s education well in advance.

Also Read: Things to Know About Child Education Planning

Bottom Line:

Build a solid financial foundation, keep an emergency fund, pay your debts, follow diversification, plan retirement, and then you can easily relax for your upcoming golden days.

If you need assistance then take professional help. Financial experts, regardless of your situation, create a financial roadmap and can make sense of your finances. These advisors navigate specific financial goals like buying a house or paying for a child’s education, tax planning, and retirement planning.