Managing Your Finances in Your 40s

You might be about 20 years away from your retirement, and may already have been prudent enough to start saving towards this goal years ago – but as you enter your 40s, it’s the right time to up your financial game.
Aug 2022
3 mins read

Here’s what you should consider while realigning your finances in your 40s.

1. Take financial responsibility:
There is limited time to set things right, gain control over your investments and align them to your goals. It’s important to be more financially responsible, through actions such as:

a. Paying off your high-interest/ credit card debt
b. Consolidating your portfolio
c. Adding nominees for your financial assets and informing them about the same
d. Updating contact information in your financial assets
e. Avoiding unnecessary extravagances and spending prudently

2. Optimise company benefits:
As you achieve seniority and enter a golden period of your career, you must try to make the most of benefits from your employer. Many employers provide a chunk of the salary in the form of perquisites or reimbursements, such as tuition reimbursements, dine-out bills, transportation benefits, company-leased accommodation, phone bill reimbursements, and a company-leased vehicle. Try to use these options to save on your own expenses.

3. Reassess your risk profile:
You may have had the appetite to put a lot of money in growth-oriented assets earlier. Now, it’s time to step back and assess if you can still stomach the risk. It is prudent to align your portfolio as per your revised risk profile, in consultation with a financial advisor, based on a holistic assessment of objectives like your retirement goals, children’s education funding etc.

4. Be mindful of impending financial milestones:
Your long-term financial goals may be closer than you think – some, like college funding or buying a new home, could well be round the corner. You should consider moving the investments earmarked for these impending needs into debt instruments, to ensure that the corpus does not get depleted due to adverse market events. You can do this in phases to ensure that they are redeemable when the need arises. This evaluation should happen at least 12-24 months before the actual need appears on the horizon.

5. Increase allocation towards retirement:
While you should ideally start saving up for retirement early in your working life, once you attain 40 years, it’s imperative to move your retirement planning into higher gear.

6. Reduce debt with a high interest rate:
If you have borrowed to fulfil any of your lifestyle needs, it’s time to slowly reduce your debts. Debt management is integral to financial planning, especially when you enter your 40s, and it’s important to approach retirement debt-free.

7. Invest in physical and mental health:
The 40s are a decade when you might first experience some health issues. While investing to create wealth is important, it’s also important to invest in activities that promote good mental and physical fitness.

8. Increase your health cover and term cover:
The probability of falling sick gets higher as you age. Given this trend, it’s important to reassess your health and term cover to align them with your current requirement.

9. Create an emergency fund:
Despite having health cover, there could be other emergencies requiring money at short notice. Create an emergency fund for such needs. Remember to update your family members about the emergency corpus and ways to access it in case of an emergency.

10. Start estate planning:
It’s imperative to put together an estate plan and will, if you haven’t already. In the event of your death or incapacitation, a will could help avoid disputes and confusion by clarifying who gets your assets. It also enables you to nominate a guardian for your children.

You’ve had a strong financial journey so far, and the focus should now be on building wealth by investing in areas that provide high returns and lower risk. Consult your financial advisor to help you move your financial planning to the next level.

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