By the time you reach the age of 40, you would have ticked off a lot of your financial goals from your checklist. By this time, you are expected to figure out most things about your money, and other priorities.
Since on an average, people these days typically live a little shy of 80 years, it can be safely assumed that a 40-year-old has lived more than half of his/her life. Hence, this is an age which is like a wake-up call for most when a person needs to take stock of his/her financial situation.
And if you have haven’t even managed to save a penny or made any investment till now, there is still time. We will tell you ways to do it here.
It’s Never Too Late: When you are 40, you would have spent at least 15 years working, if you’ve been working consistently, that is. This would mean that by this age, you would be in a fairly senior or mid-level position at your workplace. This also means that you would be drawing a decent salary. With 15-20 years ahead of you for saving and investing properly, you could start doing that with your surplus money. This would give you the time to gain from long-term compounding. You might also be in a situation to close some of your loans, which would give you the extra money for investment.
Also, remember that since you have just 30 more years, do not fall into the trap of equity, which is for youngsters. “Commit to equity for long term, and since you do have the money now, focus on investing in lump sum whenever you can. Don’t fall for guaranteed returns traps, you know better now!” says Shweta Jain, financial planner, CEO and founder of Investography, a financial planning firm.
It would be wise of you not to lock your money in property and loans. You would know by experience of others and yourself how that works. “Avoid this mistake and this will help you to take advantage of your age and wisdom,” says Jain.
Developing A Detailed Financial Plan: It’s never too late or too early to start planning for your personal finances. If you are approaching 40, or, you are in your early 40s, and haven’t saved enough till now, developing a detailed financial plan should ideally be the first step, as that would highlight your personal financial position as on date.
Says Arijit Sen, a Sebi-registered investment advisor and co-founder of Merry Mind, a Kolkata-based financial advisory firm: “It is necessary to thoroughly analyse the cash flows and the net worth. During financial planning, you need to identify and set your short-term, medium-term, and long-term financial commitments in life. Once you get a clear picture of ‘what’ you need to achieve, ‘when’ you need to achieve, you will be set to figure out ‘how’ you can fulfil your time-bound commitments.”
Requirements can be unlimited, but resources (your income and existing assets) are obviously limited. With limited work-life in hand, setting priorities is the way forward.
“The exercise of developing a prioritisation matrix and tagging existing investments with the specific goals involve a lot of discussions. It’s important to know ‘what’ you need to do sequentially to get on track to fulfil your commitments one by one. This exercise will stop you from misusing your investments. A typical example of such misuse can be withdrawing retirement savings for your child’s wedding or higher education abroad,” adds Sen.
Basic Mistakes To Avoid With Limited Work-Life Left: If you get a feeling that you are already 40 and running late compared to others around you, do not make the mistake of chasing high returns from investments – it’s a trap. Looking only for high-return products, without understanding your own risk profile, can prove to be damaging beyond repair due to the constraint of limited time on hand.
“It would be wise to focus on how you can save more and invest towards your prioritised goals. Thus, focusing on your cash flow is the key. Financial planning tools and processes to track your family cash flow and reviewing it with budget will allow you to trace surplus for goal-based investments,” says Sen.
Top Up Your SIPs: Try to increase your systematic investment plans (SIPs) every year. Apart from your regular monthly investments, try to increase it with your bonuses, incentives etc. SIPs for a long-term would eventually help you build a big enough portfolio for your retirement.
Think About Extending Your Career; Start A Side Job: If you have not been able to save by the age of 40, you might want to extend your career by a few years. You could use that time period to not just save money, but to leave your existing corpus intact. Also, be mentally prepared to work long hours so that you do not feel financially stressed. You could also start a side job to help you earn extra money. Above all, remember not to keep all your eggs in one basket. And you must learn to diversify your money into different portfolios.