5 financial goals you must achieve before your 40s

Adhil Shetty
financial goal, financial planning, financial goals to achieve by 40, retirement planning, home, Emergency Fund, Life insurance, Health Insurance, Children's Education, retirement planning, PPF, EPF, NPS, mutual funds,

Financial goals are monetary targets that one strives to achieve with their hard-earned money. Each stage of life is different and so are its financial goals. For instance, retirement planning may not be a priority in your 20s, but when you near your 40s, you want to invest to secure your golden years.

Just like other life stages, your 40s is a critical phase in your life. This is normally the time by which people are nearing the peak of their careers, have a family to support, and need to balance complex obligations like funding their children's education and paying off a home loan. While you may have taken your finances casually through your 20s and 30s, you have little time to lose when you hit 40. You're closer to retirement; your responsibilities are large. Therefore, you should get to work on your finances by your 30s so that your 40s pass comfortably.

By the time you reach the milestone, you're comfortably on your way to achieving your money goals.

Here are a few financial goals that you must achieve before you turn 40.

1. Securing A Home For Yourself

Despite the hot debate about renting versus owning a house, owning a home remains India's top aspiration. According to the 2019 Aspiration Index survey, homeownership was the biggest life goal for Indians. A home not only secures a roof over one's head, but also provides an appreciating asset. Buying a home using a loan before you turn 40 will give you a longer timeframe in which to pay off your dues before retirement without burdening your finances. In recent years, we've seen great preference among Indians for budget-sized homes which are easy on the wallet and are easier to finance through loans, too. You will also be eligible for tax benefits on your home loan under Sections 80C, 24b and 80EEA. The BankBazaar Moneymood 2020 report said that 72% of all home loans applied for in 2019 were for loans under Rs 30 lakh. Therefore, if you're in your 30s now, the time is ripe for you to consider buying a home.

2. Build An Emergency Fund

You need an emergency fund at every stage of life. You may struggle to achieve this goal in your 20s, but you have little time to lose in your 30s. An emergency fund should be at least three to six times your current monthly income. It's to help you tackle unexpected events such as job loss, a health emergency, urgent travel and so on. This fund is vital for your mental, physical and financial well-being since it fortifies you against the vagaries of life. If you haven't started creating this fund, start off with a recurring deposit and contribute to it every month. Your target should be to get to 3x your current take-home pay. Once there, keep adding to the fund till you reach 6x.

3. Get Yourself Life And Health Insurance

In your 40s, your familial and financial obligations multiply manifold. You strive hard to give your family a comfortable life. You must also fortify them against death and disease. Therefore, pay attention to your insurance needs. Health and life insurance policies will provide you and your family much-needed financial protection in an emergency. A term insurance plan will keep your family going financially even if you were to meet an untimely end. And a health insurance is to help you deal with steep medical inflation that makes hospitalisations and treatment of critical illnesses challenging. Also, getting these insurance covers before 40 means you can get them at comparatively lower costs while you're still young. Your insurance premium is linked to your age and health. Therefore, get your coverage while the going is good. If you have already purchased these covers, you should periodically take stock of your sum assured to ensure it conforms to your most recent lifestyle and income needs.

4. Retirement Planning

You normally don't think of retirement planning in your 20s and 30s. However, you can't afford to delay it any further as you approach your 40s. Time is of the essence in long-term investing. The more you delay a long-term investment, the harder it becomes to achieve your goal. Therefore, to avoid financial anxiety in your 40s and 50s, give yourself a strong start in your 30s. The retirement corpus you'll need in your 60s needs to factor in the costs of your current lifestyle adjusted for inflation. By your 30s, you should already have some money locked in long-term investments such as PPF, EPF, NPS, equity mutual funds, etc. so that it continues to grow quickly in your later years, providing you the financial relief you'll need in your golden years. If you haven't done, so you have little time to lose. Speak to an investment advisor on how much you need to save and how.

5. Plan For Your Children's Education

Higher education isn't cheap. Therefore, you must be prepared to fund you children's long-term needs. As you will approach your 40s, your children get nearer to starting college and you get closer to retirement. You have to find a way to balance these complex financial goals and the borrowings you'll need to achieve them. One of the best ways to invest for your children's education needs is through mutual fund SIPs. You may also consider investing in appreciating assets such as land.

Besides the above crucial goals, the age of 40 is also the age by which you should have created the appropriate investment portfolio for yourself as per your investment capability, risk appetite and financial goals. Your investment portfolio should have a mix of both debt and equity instruments. You should also consider accelerating your debt payments in your 40s so that you can later free up more of your income for investment and wealth creation.

At a mature stage in your financial life, there is little score for making errors, because the effects of those errors will magnify greatly when you turn 60. To ensure you achieve financial security, speak to an investment advisor to help you chalk out the perfect money management plan.

(The writer is CEO, BankBazaar.com)