It takes all kinds to make the world, and this applies to how we plan our future as well. While some of us are investment-smart, and financially savvy right from an early age, others wake up to the need to save and secure their future a little late in life. Generally, by the time you reach your forties, even the happy-go-lucky ones become more prudent and pragmatic. This is the age when the importance of securing your future really dawns on you. One fine day, you wake up and start worrying about the fact that you haven’t given your finances the attention it deserves.
But you need not panic. Forty is not too late to get your financial life in order. You just need to get started. And for that, it might be best to work with a financial advisor who can help you look at all your income sources, your expenses, and your present investments, before developing a plan that meets your goals and makes your future financially secure. Here are a few considerations if you are 40 and just starting to invest:
Remember, savings need to go into investments — they are not meant to be blown away.
Take stock of your income and expenses
The very first thing you need to do is take a good, hard look at your sources of income, and your current and future expenses. How do you go through a month? Do you just drift from day to day, or do you have a budget? If it is the former, it is time to get serious. Make a monthly budget, and stick to it. Very soon, you will get an idea of where your money is going, which expenses you can cut down on, and how you can save more. Remember, savings need to go into investments — they are not meant to be blown away.
Start an emergency fund
An emergency fund is not the same as your regular savings. It is a corpus of money you need to stash away. It is often over and above your regular savings. As the name implies, it is for an emergency — an accident, job loss, health issues, etc. An ideal emergency fund should have at least three to six months of routine expenses so that you can live off it in the event of a crisis.
Debt is a trap that will keep weighing you down. Get rid of it as soon as possible.
Pay off your debts
The forties is that time of your life when you need to be debt-free, so that all your income can go to meet your current needs, into your savings, and retirement plans. It is time to pay off your credit card debt, clear your car loan, and other high-interest or non-mortgage debt. Remember, debt is a trap that will keep weighing you down. Get rid of it as soon as possible.
Plan for your children’s education
Ideally, you should start your child care plan even before you have a child. But since we are talking about late bloomers — those who are late to investing and planning for the future — the process must be expedited. So, at 40, you may have a child who has career-defining academic pursuits ahead. If you want to ensure that you do not compromise on their education, you have some financial planning to do. Take into account the child/children’s potential, their abilities, and figure out how much it will take to get them admitted to the college or university of their choice. You might have to cut down on some expenses, or you might even have to look for additional sources of income. The time for action is now.
Go for low-risk investment options
Do you have a high-risk appetite? Do you like taking chances? While it is totally understandable if you do, at forty years of age, you cannot stomach risks as you could in your twenties. So, choose low-risk options for investment — such as bonds, mutual funds, and different kinds of insurance policies. What you should be looking for is stable, assured returns; not win-all-or-lose-all options that may seem enticing. Insurance policies are among the safest instruments to invest in — and adequate insurance will always stand you in good stead.
Check whether you have adequate insurance
People tend to downplay comprehensive insurance when they are young, although it is not advisable. But when you touch 40, the need to re-evaluate your insurance needs is mission-critical. Depending on your medical history, check what kind of an insurance plan will be best suited for your needs — maybe you need a top-up insurance plan, or a family floater, or, perhaps, you need to expand the scope of your existing, basic insurance. If the family members do not have adequate coverage, it might be a good idea to consider a group insurance plan.
All this might come off as a bit overwhelming at first. But it need not be and, oftentimes, the ends will justify the means. Once you accept that financial discipline is essential, you will find a way to secure your future and that of your family. If you do not have an investment philosophy by the time you are 40, and the need to secure your financial future is not lost on you, then it is advisable to talk to a financial advisor. Have a detailed and frank talk with your financial advisors and then let them do the heavy lifting and figure out what is best for you. Please write to us at Clientservice@cfsgroup.com for an extensive, free consultation.