A good financial plan is a ‘roadmap’ that shows us exactly how the decisions we make today will shape our future. Everyone dreams to have a stable financial life charted out. However, the problem arises when a person is more of a dreamer than a planner.
This problem escalates further as a person moves towards his 40’s and 50’s. Ideally someone who has been working for over 20-25 years and moved towards second innings of their career should have all their finances shipshaped. However, it doesn’t always work that way for all the people. Even those who have it all sorted in their 40’s, still run a risk of being complacent in their approach towards their personal finance.
Taking example of Avinash, who is a 49-year-old man with his service of about 7-8 years more. He commutes long distance every day for his work, always with some or the other stressful thought like the expenses he has to cater for his daughter’s education, the big cost of his father’s treatment, managing household demands with rising inflation, fear of job security, fear of uncertainty with respect to life, health and retirement. Inspite of having worked for over 25 years, he still faces financial dilemmas. So how can Avinash tackle his problems and live hassle-free life?
Considering how your 40’s is a pivotal decade marked by career growth, family commitments, and, often, a critical time for solidifying your financial future, we at RichVik Wealth understand the unique challenges you face. Here, we outline crucial financial steps to help you navigate your 40’s and 50’s with confidence:
– Self-evaluation:
Having seen the larger share of life, a person generally has a clarity with what they really want in life. A person may have conversation with their spouse and see for themselves, what went right for them and what went wrong for them? What are their priorities now in life? What is the kind of lifestyle they want post-retirement?
During these discussions and self-evaluation, a person can learn from their past mistakes and design a plan for their future which suits their needs.
– Listing all your Assets and Liabilities:
This exercise will give you a clear picture regarding your Net Worth status. First you need to categorize your assets based on their liquidity and safety. Your assets can be anything from Money in Bank FD’s, Mutual Funds, PPF, Real Estate, etc. Now, on the other side, you put all the liabilities that you need to clear beyond this point. It could be the cost of education for your children, it could be clearing a car loan, it could be clearing the EMI’s for the house that you have purchased, or you could be having other liabilities in your life.
Now, try to match the assets and liabilities. See whether you have got more liabilities or whether you have got more assets. If you have got a lot more assets, then you are safer and more cushioned.
If your liabilities are more and the assets are less, that means you do not have much of a risk-taking ability beyond this particular point. So, this is a very crucial exercise to evaluate your risk profile now.
– Review your Insurances:
You may have purchased your life insurances in your 20’s and 30’s considering the situation then. Now its time to reevaluate whether those insurances give you right amount of cover you need as per your current lifestyle. You can calculate your Human Life Value and compare with the Insurance cover that you have presently.
This exercise will surely give you a clarity with regards to how your family will be taken care of in case of any mishappening. Having adequate cover will give you a sense of confidence for the future life and peace of mind that even in your absence your family will be taken care of.
You also need to check whether the health insurance covers are as per minimum medical expenditure requirement in the current trends.
Unfortunately, health ailments crop up with increasing age. Chronic conditions call for frequent hospitalization, continuous treatment and medical intervention. These conditions will come to light mostly at 45-50 years of age. Without health insurance, these expenses will burn a hole in your pocket. It is a common knowledge that insurance companies charge heavy premiums or increase them during renewal of the policy for aged person. This premium loading happens based on your pre-existing conditions, age, health issues and claims made. The sooner you buy a health insurance plan, the lesser complications you will face.
– Retirement planning:
Even if you have not done it yet, it’s still not too late for it yet. Planning for retirement in your 40s will ensure a comfortable and stress-free life in your golden years. Set specific and achievable goals for retirement. Consider when you want to retire, the post-retirement lifestyle you hope to enjoy, and healthcare costs. Evaluate the approximate amount you would require to achieve your goals. Allow the target to guide your investment and financial planning decisions. When you have calculated post-retirement expenses then you have to focus on how can you build the retirement corpus which will be sufficient for you. You can opt for government schemes such as Public Provident Fund (PPF) and NPS, or SWP strategy by investing in Mutual Funds or a combination of both.
– Risk Review of Portfolio:
Diversification of assets is very pivotal for risk management. If you put all your money into one asset class, and that class tanks, you have no hedge to protect your capital. Further, as you approach retirement and old age, its always preferable to have a gradual shift towards safer and liquid assets such as Debt.
Practically, many people in the age group of 40-60 have multiple investments in real estate and properties. At this stage you need to have clarity within yourself with regards to the role of those properties in your life post-retirement. Whether they will be used for residence, whether will be used as a weekend home, whether they will be given out for rent to earn a passive income.
Because if they are just there for-capital appreciation, and they take up a chunk of your asset portfolio, then you are taking on a liquidity risk. You will need to run to find a buyer or tenant in case you need urgent funds. Instead, it’s more preferable to have a liquid portfolio at such a stage.
– Get a Financial Planner:
Whoever you are, you could be a person who do not have a financial advisor, you could be a person who could be a do-it-yourself investor. Irrespective of your situation, you must engage a financial advisor at this point of time.
Even if you are a do-it-yourself investor, it’s good to have a fresh perspective on something so critical for your future life. There is a possibility that you could have focused more on returns when managing yourself or ignored optimum return generating options up until now. Also, this phase in life might bring up newer set of challenges which earlier you may have not faced. To prepare yourself for such scenarios, it’s always better to consult an Expert.
By taking these proactive steps, you can empower yourself to achieve financial security and navigate your 40’s and 50’s with a clear vision and live a fulfilling retired life.
So, if you are someone in your 40’s or 50’s, and 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 better to course correct to the extent possible.
We at RichVik Wealth, guide people on their financial journey, wherever they may be to reach to their goal of a happy retired life.
To understand more on the topic as well as to start investments please feel free to contact us:
Phone: +91-9324609115
E-mail: team@richvikwealth.in
The article is authored by Ms. Preksha Chaudhari from Team RichVik.