How to invest in 40s? Chapter 1

In this post, we have tried to?draw a blueprint?for conducting our financial planning if we are in our forties.?

It's a bit detailed and hence long. However, I assure you that you will get some hacks, formulas that are very practical and time-tested to help your financial planning.

In our forties, our earning potential is generally good by now, and our career is almost at its peak. In most cases, we are married, and we have kids too. By now, kids are also slightly grown-up.?

Things that we need to think about in the Forties :?

1. Child Education
2. Child Marriage.?
3. Our retirement plans.?
4. Medical Emergency.?
5. Invest planning.?

Many get into home loans already because of property they purchased in their mid or late-thirties—sometimes, many plans to own a bigger car.?

The first step is to?Define Your Goals??

I will request you now to write down your goals over a paper. I am waiting for that. Have you got the paper sheet in front of you? Believe me. It helps a lot.?

The most important is Career & Health Goals. So what could be a career goal??

As a career goal, you might go with want to earn more money or work in a more fulfilling space. First, however, whatever you choose, you need to have a financial plan. In some way or the other, you need financial freedom; only then can you follow your heart.?

Secondly, you should also own a vision of your health. If we are not concerned about our health, we might incur many costs at this stage, as we may get ill and have different kinds of diseases.?

We will talk about insurance. But we should always try to avoid getting ill as the priority. We must not forget that prevention is better than cure. Moreover, if you can't enjoy the hard-earned money, there is not much game in earning more money.?

Hence Career & Health Goals are to be taken on priority.?

Now let's understand the Financial Goals.?In y

In our forties, you need short-term and long-term goals compared to your twenties and thirties. In the twenties & thirties, it is more long-term goals. In the twenties & thirties, all our goals were in 10 yrs or 20 yrs, whereas in our forties, we have some short term goals that are 2 yrs or 4 yrs, like one of my kids' education expenses amounting to 10 lacs in 3 years.?

Hence we define all goals less than five years as short-term goals. I will request you to list down all the less than five years' goals on a piece of paper. Please don't procrastinate on this. You might undergo an emotional feeling doing this exercise.?You might feel afraid of writing it because you feel you are running short of money.?Hence you feel in mind, why the heck I do write these. Just let me focus on earning more money, and these things will be taken care of by themselves.?

So this is the time I would like you to refer to my post-Rich gets Richer blog post. The remedy to scarcity of money is not only to work harder and try to get a higher income. You can make more money without working as well. Get that mental frame. We all are working for money.?But rich people's mindset is to make money work for them.?

Supposedly if you intend to buy a new house after two years, you will need ten lacs as a downpayment.?

Now how much will you need for child education? For example, if you are in your early forties and got married in your early thirties, having a kid in two years, then means 5 years later you will need about 15 lacs to 20 lacs. Please write it down as a short-term Goal.?

So what will comprise long-term goals??

1. Retirement planning is a long-term goal. It might be that after 15 years or 20 years, you will need 3 Crs or 5 Crs. When you write down these long-term goals, it makes it a lot easier to achieve these goals.?
2. You have another kid, and his higher education expense will be incurred after 7 years.?
3. A kid's wedding will demand 15 lacs to 20 lacs.?

Thanks for writing down your goals. I will request you to take a short break and relax.?

Now we will act on these goals step by step.?

The most priority ones are the short-term or the immediate goals.?

The most immediate need is an Emergency. After that, we might come across a?Medical Emergency.?Insurance helps to cover a certain percentage of the expense. But God forbid, if someone gets affected by a chronic illness, it sucks much money.?

Emergency liquid Fund = 6 X Monthly Income.

This money can be kept as FD/ liquid mutual funds. Because this money should be liquid, facilitating you to withdraw it in a day.?

Medical Emergency preparation = Emergency liquid fund + Medical Insurance.?

As we move to other short-term goals, we will need higher savings. Only savings can fund these short-term goals.?

Rule.?

Income - Expenses = Savings ( is an incorrect way to approach life's financial planning).?

Rather it should be :?

Income - Savings = Expenses.?

Remove the savings part from the income first.?

Rule # 2. 50:20:30

50% will go towards rent, Emi, grocery bills, utility bills school fees.?

20% of the money will go into wants like purchasing an iPhone, car &, etc.?

30% of your income should get routed towards savings & investments.?

If your salary is high enough, this formula can be altered to?40:20:40.

Review Past Mistakes.?

It is now the time to review the mistakes committed in the past.?

1. ?Better loan management?is a critical step here. Do you have loans @ 10% to 11%? Add 6% inflation to that. The first step is clear all your loans. Make it a rule. Take a loan for necessities and not for luxuries. At this stage, I will urge my dear readers to talk to us now if you have home loans.?We can reduce the EMI of your home loan. This reduction will be so considerable that it can fund the child's education expenses in a few years.?Are you facing any challenges in claiming your tax exemptions on the home loan??We can help you.?
2. Your total EMI amount should not cross 33% of your income.?
3. Remove the higher interest loans first, like credit cards (36%), personal loans ( 18%), Car loans. These loans also don't have a tax deduction. If you have an ongoing home loan, you can Top Up that loan to clear these high-interest loans.?
4. Broadly there are two main categories of insurance. The first one is family floater Health Insurance.?What should be the amount of health insurance that you should take??The rule here is that?Insurance cover = The cost of heart surgery in your city.?We are one of the leaders in this space. We have won many awards from LIC over the past five years. Many of you might be getting health insurance from your office. Get the additional cover done if it falls short and is not enough as per the formula mentioned above. Generally, heart surgery costs 10 lacs in Noida.?
5. Life Insurance. The benefit of Term Insurance is that it is only focused on insurance.?What should be the amount of term insurance??The formula here is 20X your annual income. You get tax rebates on both of these investments.?

Now finally, we have entered the stage of Investments. Where should we invest? How much should be investing??

I will take that in my next blog. I will like to know your feedback. Was the LinkedIn post helpful to you? Do you have some questions at this stage??