FINANCIAL TIPS BEFORE TURNING 40
· Life begins at 40, because by that age you should be settled into your long term career.
· By then, you should ideally have enough financial security to take care of your family’s goals.
· However, you must take steps well in advance to ensure this for your 40s.
1. Open a Public Provident Fund account if you don’t have one
· It enjoys the coveted Exempt-Exempt-Exempt tax status where your investment is tax deductible (the first ‘exempt’), interest earned is tax-free (the second ‘exempt’), and the maturity value is also tax-free (the third ‘exempt’).
· With a 15-year maturity, extendable indefinitely by 5 years at a time, and with market-linked, tax-free rates of interest, it is a solid, long-term retirement-oriented investment avenue.
· You can even make additional voluntary contributions, through monthly salary deductions, into your Employee Provident Fund plan.
2. Create a Contingency Fund and top it up every year
· The logic behind having an emergency fund is for tiding over
o Loss of your job if employed
o Inability to work all of a sudden for whatever reason
o A sudden medical emergency on your hands not covered by insurance
· You should have enough money in the bank (for immediate access) and in liquid funds to help your life continue on its normal course until the exigency subsides.
· You need to have a contingency fund equivalent of 6-24 months of regular cash outflows.
· Your contingency fund should also be topped up every year by at least 7-8%, to take care of inflation.
3. Distinguish between your good and bad debt
· The good debt helps you to buy appreciating assets, such as a home.
· The bad debt helps you buy depreciating assets, like your car, or no assets, like credit card debt.
· Control your bad debt, and don’t run up credit card debt, as its high interest rate will scorch you.
· If you have a home loan, make efforts to prepay it to the best of your ability.
· Don’t fall for ‘predatory lending’ tactics of banks and sellers for unnecessary purchases.
· Don’t saddle yourself with a heavy home loan, and let all your other goals suffer.
4. Buy insurance when young
· The premiums of life insurance as well as medical insurance are decided on age.
· Therefore, the earlier you take insurance, the cheaper it will be to maintain.
· Ensure that you have the right Term insurance and Health insurance policies.
· You should ideally also have Personal Accident insurance and Critical Illness cover.
· All of this is in addition to any insurance provided for you by your employer, if any.
· Renew insurance policies on time, every time.
5. Know Your Magic Number
· Everybody has a magic number which will set you financially free.
· It is the amount that you need to retire and continue your accustomed lifestyle for the rest of your life.
· So, know your number and start working towards it.
· Save and invest for achieving this number right now, so you can spend once you retire.
· By the time you are in your mid 40s, you should be well on your way to achieving this figure.
· Your Retirement Corpus is what will enable you to live your golden years without worry.