“A good financial plan is a ‘roadmap’ that shows us exactly how the choices we make today will affect our future.” – Alexa Von Tobel
Everyone dreams to have a stable financial life charted out. The problem arises when the dreamers are more than the planners.
Most of us would have splurged a lot in our 20s or wouldn’t have felt the need to save.
It’s when our late 30’s or early 40’s seem to be nearing. We start worrying about saving for our future.
If you fall anywhere between this category. No need to worry, you still have the time to catch up.
Before starting the process of Financial Planning, it’s important to review the last 10 years of your life.
Let’s do a simple exercise:
- How will you rate the last 10 years of your financial life?
- Do you think you could’ve saved enough over the years?
- What healthy money habits do you wish you had cultivated over the years?
- Do you think you should’ve started investing early?
- What percentage of your portfolio has beaten inflation?
- What mistake do you think you could’ve handled better while dealing with your finances?
- Have you started planning financially for your retirement?
- What do you think you could’ve avoided in your financial planning?
- What do you think has worked best so far in your personal finance?
The question, “How to become financially stable in your late 30s and early 40s?” might even make you anxious thinking about your Financial Future.
It’s definitely overwhelming to sit down and plan for your financially secure future.
As there are a plethora of resources available on the Internet, it’s normal to get confused.
But let us go through a simplified process of your financial planning especially when you start to financially plan in your 30s & 40s.
Financial planning is very much like taking a road trip
Let’s understand how both could be similar:
Now, to help you navigate this path full of ups and downs. You will need a road map.
If you feel you started your financial journey without a road map and got lost…
No need to worry!!!
Because no matter how far you are into the journey, it’s always possible to course correct.
Table of Contents:
1.Handling your Savings Efficiently in your 30s – 40s.
2.Build an Emergency Fund in your 30s – 40s.
3.Planning for your Children’s Education in your 30s – 40s.
4.Risks of Property Investment in your 30s – 40s.
5.Seek the help of a Financial Planner.
6. Select the Right Investment Avenues in your 30s-40s:
7.Planning your Retirement in your 30s – 40s.
1.) Handling your Savings Efficiently in your 30s – 40s:
A trip is something that would constantly bombard you with unexpected expenses such as sudden hunger pangs even if you just finished lunch or one of your tires might get punctured. It may not always be under your control.
Just like how in life, you might have to deal with sudden job loss, accidents, natural disasters, etc…. and leave you with expenses you never anticipated in the first place.
As much as it’s hard to think about certain situations, we still need to assess if your family would be able to sustain itself financially if you as the breadwinner of the house died. This is why it’s more than important to have a savings fund you can rely on.
First, you need to create a cash flow table to analyse your expenses from your income. The next step is to start saving immediately.
Initially, you could invest your savings in fixed-income securities to have assured liquid able investments as a way to keep your life rolling even under emergencies.
To ease with you the process, you can download our “Investible Surplus Calculator” in which you can analyse your expenses and income to figure out your surplus. You can use this calculation to invest when starting your investment journey in your late 30s or your early 40s.
Make a Budget
This helps you to narrow down on your expenses, see where your expenditure is high. This way you can streamline your expenses and can reduce them in the long run.
Example: Paying bills on time, using public transport, shopping during sale period, budgeting your grocery needs
What sort of an investor are you?
You need to answer this question before we move ahead – What sort of an investor are you?
Investing = Income – Expenses
Income – Investing = Expenses
If you are investing after spending, then you are not a disciplined investor. Most probably, you have not decided your goal. You need to sit, prioritise your goals and start investing.
If you are investing before spending, you seem to be a disciplined investor. There are chances that you may also not have prioritised your goals.
2.) Building an Emergency Fund in your 30s – 40s:
With the rise of the Internet, so has the rise of Internet banking. Even for a cup of chai, we tend to transfer money through the Internet.
Imagine being somewhere on a road trip without an internet connection? or eating somewhere where they only accept liquid cash?
For emergencies like this, we tend to keep a few loose changes in our pockets. Your emergency fund requires the same function but it needs to be worth more than a few loose changes.
Ideally, your emergency fund needs to consist of cash that could cover at least 6 months’ worth of expenses.
You should regularly distribute your income under expenses and savings. Your savings need to be categorized into various financial goals you see fit. But your emergency fund should not be touched under any circumstance except in an emergency.
3.) Planning for your Children’s Education in your 30s – 40s:
Our children are growing up in a world where expectations different from yours are placed on them. It’s no longer adequate to be a degree holder.
Our children need to have double degrees and various skills to display on their resumes. Even that seems to fall short at times.
So, saving up for their education which might be more expensive in the future than in the present is crucial. Growing up, they might also develop an interest in different niches and express a desire to study abroad.
So, it’s more than necessary that you chart a financial plan that includes saving for your children’s future higher education and making sure you have made wise investments to back up their choices.
Just like when you go on a trip along with your kids, you will definitely plan something additional to accommodate their needs.
In the same way, you also need to additionally plan for your kid’s financial future and you need to put extra care while planning especially when you are starting to plan your children’s education in your late 30s or your early 40s
4.) Risks of Property Investment in your 30s – 40s:
Many people initially buy out a property somewhere that’s worth a huge amount of corpus. It’s a wise decision if they are going to be living there.
But due to what their career demands, they might be living someplace far away. The property might be sitting somewhere idle and even if it gave out rental income, it still isn’t a sustainable investment in the long run.
Think about how much money would be spent on maintenance of the property, and taxes all for a small rental yield.
Instead, if the money was deposited in equity funds, the amount of surplus would’ve doubled in the long run.
A property might seem like a lucrative investment but mostly it springs up expenses you would not even have expected in the first place.
You can watch our video on “Is real estate a good investment?” To better understand its risks.
5.) Seek the help of a Financial Planner:
While planning for a trip, we sought the help of a travel consultant. Especially if we are going somewhere we’ve never been before.
To help us book the cheapest flights at the ideal time and also to book hotels where they provide complimentary breakfast along with other customer service benefits which we could utilize to our utmost benefit, a travel consultant is the best choice to seek help from.
In the same way, an experienced financial planner with expertise in the field of finance will not only help you save money.
But will also help you take appropriate decisions concerning the financial goals you want to achieve in your late 30s and early 40s which will help you in the long run.
A road trip is not about how fast you reach your destination instead it’s about how memorable your trip was. In the same way, a financial Planner will help your financial journey to become easier and to go smoothly.
Hiring a Financial Planner to plan and manage your Investment Portfolio in your late 30s or your early 40s will help you take off the stress of Financial Planning from your shoulders and help you relax about your Financial Future.
6) Select the Right Investment Avenues in your 30s-40s:
what are the investment avenues for you also depends upon whether you are a:
- High-risk taker
- Moderate risk taker
- Low-risk taker
It also depends on the time period for which you want to invest.
- For short-term goals (up to 1 year) like paying off a personal loan, sending kids to school and so on – Auto Sweep Facility, Fixed Deposits etc. are better avenues.
- Medium-term goals (up to 5 years) like buying a car, down payment for your home, going for a vacation etc. – the investment avenues are Recurring Deposits, Debt Mutual Funds etc.
- For long-term goals (10-15 years) like children’s education, marriage, retirement etc., Mutual Funds, PPF, and other debt avenues are better choices.
For tax savings purpose, you can also invest in ELSS Mutual Funds.
How much amount is required for your short, medium and long-term goals is a big question? You need to calculate each goal in their current value and then add inflation rate to it.
7) Planning your Retirement in your 30s – 40s:
Retirement planning should also come under your overall financial planning. Imagine coming home after a trip with no resources or a plan to set your life forward.
Your retirement planning is to decide what to do after the trip ends.
When you start accumulating money for your long-term financial goals in your late 30s or your early 40s such as for your retirement, you can start to keep a higher equity exposure to achieve your ideal retirement.
You might be worried about the certain risks involved in investing a significant portion of your money in stocks but you will still be able to get a higher return than what you would’ve probably got by investing in fixed-income securities.
Equity in Your Retirement Portolio:
Equity investments are perfect for long-term financial goals as Warren Buffet rightly said,
“If you aren’t willing to own a stock for 10 years,
Don’t even think about owning it for 10 minutes.”
In your sunset years, having a well-diversified portfolio yielding you better returns helps you completely enjoy and relax.
As you near your retirement age, it would be a wise move to transfer at least 70% of your portfolio to fixed-income securities by reducing your equity exposure to 30%. As this will help in rolling out a steady income which will also be able to provide you with inflation-beating returns.
At the end of the journey, a financially secure future would become a reality.
Being disciplined while sticking to your financial plan along with patiently moving forward with it would yield better results than you can imagine.
Retirement Example Calculation for Your 30s-40s:
With most of the people working in private sectors, there are no pension benefits available. Our EPFs also get consumed in most of the cases when we switch jobs.
How should we save for our retirement so that we are able to lead a decent lifestyle without being dependent on our children?
Let us assume my current age is 35, I want to retire at 55 and my life expectancy is 75 years and investment returns after retirement is 2%.
Expenses after retirement per month = Rs. 30,000 (according to current value)
Value of Rs. 30,000 after 20 years (assuming 6% inflation) = Rs. 96,000
You will require Rs. 1.9 Cr. at the time of retirement to ensure the same standard of living.
To accumulate this amount, you need to start investing Rs. 20,000 per month if your investment returns are 12% CAGR.
Now your asset allocation at the age of 35 can be 70% equity but it needs to be changed over a period of time and at the time of retirement, ideally, 70% allocation should be towards the debt instruments.
Re-assess your financial plan in Your 30s-40s
Now, take some time to re-assess your financial plan?
- How do you plan to implement your financial goals into becoming a reality?
- Do you have debts? How are you planning to become debt-free?
- How are you planning to save to reach your financial goals?
- How do you want the next 10 years of your financial life to be?
- What is your plan to have an inflation-beating return?
- What is your ideal retirement lifestyle? How do you plan to achieve that?
- How are you planning to go about your financial planning moving forward?
This Comprehensive Financial Planning Guide designed for 35 to 45 years old will help you customize and structure your Investment strategies best suited to execute in your late 30s to early 40s.
To help you ease your process of financial planning in your late 30s or your early 40s, we are happy to provide you with our “Net worth calculator”.
You can easily calculate your assets along with adjusting your liabilities to determine your net worth. This will help you periodically review your net worth which in turn helps you plan your finances accordingly.
For tailor-made outcomes, it’s a wise decision to seek the help of a financial planner who can customize a financial plan according to your financial goals.
If you are wondering where to approach a financial planner? Holistic has got you covered. Reach out to us if you think using professional strategies would help you yield great results.
Register on the below link to avail our 30 minutes complimentary financial consultation and get your doubts cleared by experienced professionals.
Leave a Reply