Turning 40 is a big deal for most people. This is the time when you are married, have children and well settled in your job. This is when financial responsibilities also increase. It is therefore very important that you have taken care of certain critical financial responsibilities before turning 40. Here are the top 5 money moves you should make before you are 40:
Insurance is one of the most essential aspects of your money matters. However, most people do not give this the importance it deserves. We are talking of both life insurance as well as health insurance. With increasing risk of lifestyle related diseases, it is not uncommon that people face unfortunate incidents very early in life. Should something untoward happen to you, your family should be well protected to compensate the loss of income. You may have already taken a life cover in your 30s. But as you grow older and responsibilities increase, the amount of cover needed may also increase. So you should re-check the level of insurance cover you have and ensure that this adequately covers your goals and liabilities. Health insurance is another critical factor. When your family size increases or when your parents become dependent on you, there becomes a need to have sufficient health cover to protect everyone in the family. Again, this needs to be re-checked. Check if the existing cover is sufficient. If not, purchase a fresh policy or buy a top-up cover to have adequate health protection.
Make a Will
A Will is another ignored aspect. Most people think of drafting a Will when they are in their 50s. If you do not have a registered Will in place, your family can face several legal hassles on your death. Making a Will is inexpensive. This should be in place even before you turn 40.
Purchase a House
Real estate is an important asset for most Indians as it signifies a sense of security. Nowadays, many young people are buying a house early on in their career. However, if you have missed the bus and do not own a house when you are 40, it is advisable to buy this asset. You can save on the monthly rentals you pay, and use this to pay your EMIs instead. Another reason why it is important to buy a house before you turn 40 is because banks will not give you a home loan with a tenure extending beyond your retirement age. Most home loans are of 20 years tenure. If you take a home loan when you are 45, you will not be eligible to get a loan for this maximum tenure. As a result, you may have to pay higher EMIs, such that the loan is repaid before retirement.
This money move may sound contrary to the previous point. We mean you should reduce your debt other than home loan - such as personal loans, education loans, etc. Having a huge personal loan or credit card loan can eat your finances, as these are high cost liabilities. You should also explore if the home loan you have is competitive vis-à-vis market rates. If you are paying a very high interest on your loan, it is advisable to port your home loan to another bank. Again, before you do this, try to negotiate with your existing lender if he can reduce the interest rate. Many a time, you can get a better interest rate with your existing lender by paying a nominal conversion fee. But if the differential is too high, it is advisable to move your loan to another bank. This can reduce your monthly outflows, which can be used for investments.
Have a Contingency Fund
A contingency fund is something which should have been in place when you are in your 30s. However, if you do not have this in place even when you are 40, it is recommended to immediately constitute one. An emergency fund should ideally be equal to atleast 6 months of your expenses. When you calculate expenses, remember to include your existing EMI payments as well. You need not keep your contingency fund idle in an avenue which does not earn income. You can save this in the form of a liquid fund or any other debt fund, which can be withdrawn on short notice. As you approach 40, your commitments are high and therefore this should not be neglected.
Reducing expenses, being financially prudent and maximising investments should be the philosophy behind managing your finances when you approach your 40s.