For most of us, reaching the age of 40 is like entering a new phase in life as your obligations will almost certainly increase. Here are the seven major financial decisions you should consider before celebrating your 40th birthday.
1. Have an adequate emergency fund: As life can be unpredictable, and preparing for the unexpected with an emergency fund is essential. An emergency fund would help you tide over a health, accident and job loss etc type emergencies.
The sum of money in your emergency fund will depend on your financial obligations. Typically, anywhere between 3-12 months of expenses in an emergency fund is ideal. Also, don’t use this fund for anything other than an emergency. You can keep it in a bank account or a liquid mutual fund for easy accessibility.
2. Make plans for alternative sources of income: Having a high-paying job with a hectic schedule isn’t unusual. Most of us are concerned about our job security. The pandemic has made us realise jobs are not as safe as they seem to be. Hence, it is essential to plan for alternative sources of income instead of depending on one source of income.
3. Buy Health Insurance: A trip to the hospital may wipe your entire savings. In this scenario, health insurance comes to the rescue. Even if your employer provides a health insurance plan, it may not provide adequate coverage. Get health insurance that would cover your and your family’s medical bills.
4. Get a term insurance policy: If you have a dependent spouse or have kids, getting a term life insurance policy should be a priority. A pure term insurance policy will take care of your family members in the event of your untimely demise. Adequate life insurance will help your family members to continue with their dreams.
5. Start investing for future goals if you haven’t already: When you turn 40, there is a high probability that you have been working for a few years. One of the ways to make sure that your income can beat inflation and help you achieve your financial goals is by investing as early as possible. The easiest way to kick start your investment journey is to set up a Systematic Investment Plan (SIP) in mutual funds. SIP allows you to start small at an early age and gradually increase the SIP amount.
6. Diversify your investments: Investing in diverse asset classes that perform differently to the market news and events can help cut down the risk in your investment portfolio. For example, the equity portion of your portfolio will help in wealth generation, while the debt instruments will help to stabilise and protect your portfolio returns.
7. Plan for your retirement:
Retirement may seem like a very distant event. But the years roll quicker than we realise. It is never too early to invest for your retirement. Unlike our parents and grandparents who could depend on government pensions and financial help from their joint families and children, many of us don’t have the luxury in this day and age. So, it has become imperative to take care of our retirement.
As you reach 40, it becomes crucial to take care of one of the most critical aspects of your life, i.e., the financial life. Just earning well isn’t enough.
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