Age 40 is precisely midlife. In most nations, the average life expectancy has touched 80, and this is the midpoint. Is it depressing? Well, 40 is the new 25, so you don’t need to worry as long as you take care of your health.
However, by age 40, you are about 15 years into your career with almost 2 decades left. You have likely already started a family, and you have probably bought a house or are going to buy one soon.
At the same time, your risk profile is slowly starting to change.
At 30, you could pump a lot of cash into equities, since you knew that a market downturn would not affect a young investor. Averaging would see you through.
But by 40, you are getting ready for some significant withdrawals over the next decade, starting with your child’s college expenses, perhaps moving into a larger home, and facing rising medical costs as your parents grow older. At any time, you might have between three and five dependents who need your help to survive.
How can you navigate through this maze? We’ll shed some light on the issue.
Financial Planning in Your Forties: Easier than You Imagine
As an NRI, the job is tougher. Some may want to move back home due to personal reasons. Others may have lost their appetite for living abroad or lost the jobs that brought them here.
There are large changes, and that also means modifying your financial asset structuring.
Review Your Debts
Make a list of all your debts: mortgage, car loans, any outstanding student or personal loans, credit card debt, and so on.
Create a timeline to pay them back. By this time, you know your worth in the job market. Barring any exceptional effort or circumstances, you have a clear idea of the dollar amount that you will be receiving each year.
You are also reasonably certain of how high your career will go. Based on that, you must make a repayment schedule and stick to it. The objective is to be completely debt-free by 50—sooner, if possible.
Plan for Your Child’s Education
You do not want your son or daughter to graduate with hefty student loan debt. As an NRI, you have provided them the platform that you did not possess, and you would like them to take advantage of it and make it into a corner office by 35.
That is why your child’s education is the most significant expense of this decade of your life. If you can pay it upfront, that is best. But at the same time, education costs a significant amount, close to $200,000. You have to plan your investments carefully to have that amount by your mid-40s.
Buy Insurance
You are growing older. Anyone above 40 could become severely ill or worse, no matter how healthy you think you are now.
Buying an insurance coverage is of utmost importance. The minimum coverage should be 10 times your current annual income, and more is always better.
Insurance can be an expensive item, and it hurts because it is a sunk cost—once the year is over, term insurance (the cheapest kind of insurance) has no value. But you have to bite the bullet and think of it as an investment. If anything untoward were to happen to you, there would be no fallback for your family other than insurance.
Be particularly careful when you travel abroad, and always secure yourself against the risks of expensive mishaps with a reliable insurance plan. Compare plans on Insubuy. It takes much less time than you think to find precisely what you need, pay for it, and keep all the information in your secure online account.
Begin to Plan the Second Half
The second half of life begins sometime after 40. One might argue that the benchmark is 42 or 52, but age 40 is a good general benchmark. The second half is marked by inflexibility of different varieties.
You cannot change jobs quickly. You can’t relocate easily. You’re less likely to learn new skills in the workplace and more likely to be supplanted by new workers.
There is the possibility (unless you are in the upper-management league) that you might lose your job in a downturn and have trouble finding another. In other words, retirement might come earlier than you think, and secondary avenues like rent and dividends would be your only source of income.
No one wants this to happen, but it’s best to plan for the eventuality. With the dot-com bust in 2000, the Great Recession in 2008, and the COVID-19 pandemic in 2020, who knows what else is down the line?
Get Retirement-Focused
You have a few decisions to consider regarding retirement planning: the net worth of your pension funds at age 60, the immovable assets you have planned for, and the cost of living increase between ages 60 and 90.
Of course, retirement planning is a whole separate topic. But in your 40s, you should begin to study and understand how the cost of living inflation affects pension, as well as the best types of funds to invest in.
In Closing…
Your 40s can be both the best and worst times of your life. You are at the peak of your life, but in a matter of 70,000 hours, you’ll be well past your peak.
Make them productive, and make them happy. No matter how much you earn, save, and spend, do not forget to enjoy life. That is literally the best investment in your future.
