40 marks a crucial point in any person’s financial journey, and it comes with its own set of challenges and opportunities. Being at this stage also limits your scope of making mistakes and rectifying them. Hence, this comes as a crucial age for an individual to secure their finances, boost financial health, and pave the way to a better future. There will be many people who will give you advice on facial planning, but it is critical to avoid these mistakes to have a foolproof financial plan for your 40s.
Not Investing In the Right Manner
If you are investing only in safe schemes, it probably isn’t the best deal for your portfolio. As you enter a high-income and better-savings phase, you need to have a portfolio that reflects diversity. If your investments and savings aren’t providing significant returns, the amount that will be accumulated in the long run will reduce, ultimately impacting your long-term goals.
A good strategy is to start investing in your 30s while your financial stability is increasing. Start by allocating your funds in growth assets to build a strong foundation for your 40s. According to Deepali Sen, a certified financial planner and founder partner of Srujan Financial Advisers LLP:
“If the goals have at least six to seven years to go then equity is an important part of asset allocation in the early 40s,”
A common portfolio error is having too many funds locked in real estate. One needs to remember that investing in real estate won’t help you with long-term goals as it is a form of a non-liquid asset. Money tied up in real asset might also end up in borrowing for money later on to meet your real estate goals.
Not Having Enough Insurance
According to a report by the Centers For Disease Control And Prevention, the chances of a life-threatening injury is highest between the age of 34 to 54.
Don’t consider life or disability insurance as something redundant as these policies have become a necessity in the 40s for a better future. In case of any adverse situation, these policies will ensure covering your family member for a long time.
Not having a sufficient fund for an emergency situation – be it medical or otherwise, can lead to serious challenges as you may end up using your long-term investment. Hence, it is important to get a life and health coverage.
People who rely too much on credit cards and have high consumer loans can face a setback in their 40s. These regular repayments can heavily drain your savings, which otherwise could be used for investments. Before taking a loan, have a robust plan to repay these debts as quickly as possible. Opt for debts which provide tax benefits like debts on mortgages.
As per Sen “Most people in their 40s will be servicing mortgages and it is important to bring debt down quickly so that the savings can be channelised towards goals.” Hence, people should come with tight budgets which give equal weightage to debt, savings, and investments. It is also important to remember that by this age, a person should have a clear retirement plan in their mind and strategise their finances according to it.
An individual should have a definite plan in this stage to achieve financial stability. Apart from the above-mentioned pointers, seek assistance from financial advisors or people you trust. Doing this will help you to get the best out of your income be it savings or investments.