How Can You Assess & Improve Your Financial Health In Your 40s?

Financial health is of paramount importance, irrespective of one’s age, and is especially so when one is responsible for supporting the family.
Jul 2022
3 mins read

In India, most households still have one primary bread earner, and if you are one among them, it’s a good idea to assess your financial health often and adjust your financial approach when needed.

Here are four primary markers useful for assessing financial health:

1. Your Net Worth:
Net worth = total assets – total liabilities.
The first step in assessing your financial health is to know your net worth. Your net worth is assets in excess of your total liabilities. A positive net worth is a sign of good financial health. The higher your net worth, the more financially sound you are. On the other hand, a negative net worth calls for immediate steps to lower your liabilities.

It is important to keep a tab on your net worth, which should increase as you age. If it doesn’t, try to increase it by increasing your assets.

2. The debt-to-income ratio:
Debt to income ratio = aggregate debt payments/aggregate income.
The debt to income ratio depicts your credit utilisation. It shows the liabilities that you have and measures their adequacy against your income.

Here’s how to calculate the debt to income ratio –

Monthly income Rs.1 lakh
Average credit card bill Rs.12,000
Home loan EMI repayment Rs.18,000
Total debt repayment Rs.12,000 + Rs.18,000
= Rs.30,000

Debt to income ratioRs.30,000 / Rs.1 lakh * 100
= 30%

The above table is for illustration purpose only

A low ratio is a favourable marker while a high ratio should be cause for concern as it shows that you have a heavy debt burden which might lead to a debt trap. When you are in your 40s, it is better to limit this ratio and try to reduce it every year.

3. Expenses vis-à-vis income
When you have a family to support both financially and emotionally, it is sensible to keep a track of every rupee spent. To check how your income is faring against your average monthly expenses, you should calculate your disposable income –
Disposable income = income – expenses.

In your 40s, a high disposable income is a sign of financial health and shows that your income can comfortably accommodate your expenses.

4. Investments vis-a-vis financial goals:
The final marker is to assess if your investments are in line with your financial goals. If they are, you are financially healthy. If, however, there is a deficit, your financial health needs improvement.

Your 40s are a good time to start regularly assessing your financial health. But it is just the first step. If your financial health is in great shape, then congratulations and you should continue what you are doing! If, however, you need to take further steps to improve your financial health, then do read on.

How to improve your financial health in your 40s?

A. Emergency Fund:
According to On the Money: YouGov’s Global Banking and Finance report 2021, 40% Indians save for contingencies1 , a basic tenet of financial planning. Having an emergency fund is important at any age, in your 40s or even when nearing retirement. Create an emergency fund by setting aside 6-12 months’ worth of your income for contingencies2 and then invest it in liquid avenues that allow instant redemptions, like liquid mutual funds or savings account.

B. Invest in equities keeping your risk profile in mind:
Here is a basic thumb rule for age-based allocation in equity –
Suitable equity exposure = 100 – age3

In your 40s, an equity exposure of 60% or lower is considered suitable. With a limited investment tenure before retirement, it is not ideal to take very high equity risks. So, allocate your portfolio keeping your age, investment horizon and risk appetite in mind.

C. Plan your retirement:
The PGIM India Retirement Readiness Survey found that 48% of respondents were not aware of retirement planning, while 69% didn’t even have a retirement plan4!
Retirement planning is a must for financial wellness, and if you haven’t done it until now, it is prudent to fast track your retirement plan. On the other hand, if you have made provisions for retirement, do check adequacy and supplement your corpus so that you can retire comfortably.

D. Pay off all your debts:
When possible, the aim should be to pay off debts and try to become debt-free as soon as possible. This would free up your income and help you save more.

E. Step up savings
During your 40s, many of your financial responsibilities may have been taken care of and you might be earning well. These two factors would give you a higher disposable income which should be used judiciously to increase savings for pending financial goals as well as for retirement. This would, consequently, better your overall financial health.

Smart financial planning can help make your 40s stress-free and financially stable. It is never too late to assess your financial health and take steps to improve it, if needed. So consult a professional financial advisor and work towards a sustainable financial future.


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