5 financial decisions 40-year-olds should make for a better future

Here’s how a person in their 40s can make their financial life better.

Padmaja Choudhury, MintGenie Team
Published31 May 2022, 07:32 AM IST
5 financial decisions 40-year-olds should make for a better future
5 financial decisions 40-year-olds should make for a better future(Photo by Sasun Bughdaryan on Unsplash )

In the first part of this series on Financial planning, MintGenie gave you a simple guide on the things that you can do in your 20s to help with your financial savings and investments.

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If you are in your 40s, you must have realised how every part of your life is different and how it brings a different set of priorities.

In your 40s, you are most likely to be less stressed than in your 30s, as you might have already taken care of your career, marriage and kids. It is also highly likely that your earning potential is also at its peak.

But, like every other age, the 40s come with their money problems. So, if you are in your 40s, here are some of the steps that you can follow to be better with your finances.

Plan for financial responsibilities

You probably have fewer financial responsibilities when you are younger such as in your 30s and 20s. But in your 40s, your financial obligations might exponentially increase. You might have to start saving for your kid's higher education, and their marriage and your parent's medical expenses might increase as well. In addition, you also need to focus on your and your spouse’s healthcare as well.

These things must be taken into account when planning your finances at 40.

Children’s education and marriage of children

In the current scenario, going to college, whether within India or abroad, can be a significant expense that can put anyone under a lot of stress. To meet these requirements without much trouble, you need to plan and think about your resources.

One of the bigger decisions to make is when and how to invest so that you save enough money to cover the minimum cost of your child's education. You might also want your children to have a grand wedding. You have to plan and save for these things ahead of time.

Stay away from lifestyle inflation

The 40s is a time when your career is at its peak. You are earning more money than you did in your 20s and 30s. It is easy to become a victim of lifestyle inflation as you make more money in your 40s. Lifestyle inflation is when your spending slowly goes up because you want to live a more luxurious life.

You can pay for your basic needs and many other things you want. But if you're going to fulfil your primary financial goals, you should try to avoid lifestyle inflation. You can still enjoy things, like a trip with your family. But it won’t be right to spend all of your money improving your lifestyle or keeping up with the Joneses. Lifestyle inflation keeps you from saving as much as you can, which is the last thing you want in your 40s.

Try to pay off debt

In your 40s, you may look at paying off all your loans. Paying off debt will help you to save more money. You can restrict the use of credit cards for emergencies and start cutting back on how much you spend.

Invest in the right investments

An investment made at age 40 should be in line with keeping the money invested in investment options that will help money grow in the future.

There is no universal right investment option. The suitable investment will be based on your risk profile and investment horizon. Equity is an asset class for individuals who plan to keep their money for a long time.

Due to their wide range, debt is also one asset class you can look to include in your investment portfolio. It is best to build a portfolio with a mix of debt and equity that suits your risk profile and helps to fulfil your financial goals.

Increase contribution to retirement

You may have reached some of your financial goals with the help of a loan, like a home loan or a personal loan. However, it would help if you kept in mind that you can't get a loan to get you through retirement.

It is an integral part of investing in your 40s to ensure a smooth and comfortable retirement.

In your 40s, you might want to take stock of what you have, like an employer-sponsored retirement plan or any other savings you have started on your own to help you become financially independent. If you haven't thought about retirement yet, you still have time to build up a good retirement fund. You could still think about investing in stocks and mutual funds that could help you build wealth over time.

Before making these investment decisions, it's a good idea to do as much research and look into as many options as possible.

Conclusion

Financial planning is a long term process, and people in different stages of their lives may need financial planning for other things. The above article has looked at some of the critical issues facing people in their 40s and what they can do about them.

Padmaja Choudhury is a freelance financial content writer. With around six years of total experience, mutual funds and personal finance are her focus areas.

Follow the entire series on Financial planning here.

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First Published:31 May 2022, 07:32 AM IST
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