The Top 9 “Money Things” to do before you’re 40
Turning 40 is considered an important milestone in our lives. Your 30’s are a tumultuous decade, filled with significant life changes ranging from marriage and parenthood to possible transitions from corporate work to entrepreneurship. This week, we present a list of seemingly simple but vitally important “money things” you should take care of before you hit your 40th birthday….…and hey, don’t worry – 40 really is the new 30 J
Create a solid emergency fund
Warren Buffett once famously said: "Only when the tide goes out do you discover who's been swimming naked!" The fact is that “lack of savings” and “debt” go hand in hand. If you don’t have a sizeable emergency fund in place, it’s likely that you’ll rely on expensive personal loans or credit card loans to finance “out of turn” expenditures (that will only escalate in your 40’s as familial responsibilities increase). Now that’s a vicious cycle that’ll ensure you’ll not attain Financial Freedom easily!
Put your retirement savings on auto-pilot
There’s a good chance you’ll retire around the age of 60 and live off your savings for the remainder of your life – so unless you’re planning to retire to the Himalayas and undertake a yogic life post retirement, now would be a fantastic time to automate your retirement savings! Inflation may moderate but will never go on hold, so assuming you’re 40 today, a corpus of 5 Crores will probably only suffice for an inflation adjusted monthly expense of Rs. 60,000 from age 60 to 85 (which is now standard urban life expectancy)! The earlier you put your retirement savings on auto-pilot, the higher your chances of accumulating this 5 Cr – or more. The key is to save systematically and unemotionally in aggressive return long term asset classes.
Get a Financial Plan prepared and revised annually
Today, we get medical check-ups done at regular intervals. Most of us also get our personal assets serviced at least once in a year in order to keep them running like new. But what we tend to forget is that the same principle applies to our Financial Plans as well! Without a timely review of your financial plan, you may be lowering your odds of achieving your Financial Goals. The years leading up to 40 tend to be especially dynamic with dramatic changes in your family structure, income, aspirations etc. Consulting a professional Financial Planner such as a CFP and regularly re-assessing your financial situation will keep you in full financial control as you cruise into your forties. Sitting down with a financial advisor can help you understand where your expenses are and what is discretionary versus essential, and then you can create the right kind of budgeting and savings plan for yourself.
Ctrl +Alt +Del your debt
Maintaining excellent credit is important as you progress through your 30s, particularly because your credit report can play a big role when it comes to determining how much you will pay to borrow money for big expenses like a mortgage. Slowly but surely repay all your debts (including pending accumulated student loans, credit card debts or personal loans) in the decade leading up to 40. Starting your 5th decade with a “clean financial bill of health” is definitely reason to celebrate! Not only will you be in better control of your expenses (including unexpected ones), you’ll also be avoiding the high levels of stress (and subsequent health problems) that accompany personal debt.
Insure your family adequately
According to a program developed at Carnegie Mellon University, the odds of dying in your 40’s are thrice as high as the odds of dying in your 20’s. As grim as it sounds, this is a reality that must nevertheless be faced. Insurance is always that thing that we don’t think about that we should! Remember to have adequate life cover to protect three things: your financial goals, at least ten years income for your dependents, and your liabilities (such as home loans). In addition, take out adequate health insurance so health related emergencies don’t impact your emergency fund.
Start to save for your child’s education
With interest rates ranging from 12-15% on education loans (and education costs rising at the speed of knots), it would be wise to start making monthly provisions towards your child’s higher studies. Chances are your child will be 8-12 years away from his/her higher studies at the time you hit 40. This is a really good time to start accumulating a corpus for this important goal. Not doing so may lead to wasteful interest costs for you or your child – or worse, you may end up liquidating your nest egg to finance this goal – never a good idea!
Become a tax expert
You may be frittering away a few thousand rupees annually by not utilizing the multitude of tax saving options that are available to you. These amounts can add up over a lifetime! More importantly, the money saved (even if it’s Rs. 5,000 to Rs. 10,000 per month) can be saved away systematically towards your own retirement or your child’s education. It’s recommended to stay up to date with changes in taxation norms, especially those that affect your tax savings. Don’t rely on anyone; make yourself an expert in all matters that are income tax/ tax saving related by the time you’re 40.
Buy a house – ditch the rent
Rent is a wasteful expenditure – period! The rent you are paying could be better utilized somewhere else. You must ideally aim to purchase your own home by the time you’re forty years old. Regardless of trends in the property market, you should aim to buy a house as an “end user” rather than as a “speculator”. It lends an air of solidity and comfort to your finances to know that the roof over your head is indeed your own. Over time, the property investment should grow in any case.
Write a will
One of the most important financial moves you can make in your 30’s if you have minor children is to put the time, effort and money necessary into drafting solid estate planning documents! It’s far better to make a will at a younger age – and as and when events or changes in the family necessitate changes, the will can be changed. One of the advantages of making a will in your 30’s is that unscrupulous relatives could contest the legality of the will made by a very old person on the basis that the person was not of sound mind when the will was made. The last thing you’d want is for your loved ones to not be able to rightfully claim what you worked long and hard to put away for their future.