Seven financial habits of highly effective 40 year olds...

(The author is the Founder and CEO of Money Avenues, a Wealth Management firm based in Chennai. Feedback can be sent to reachyourviews@gmail.com)

Age group of 40s is the crucial stage in one's life in terms of  income generation and income distribution. A properly planned 40s will lay a strong financial foundation for the future which includes retirement and other financial goals. The following are the seven financial habits of highly effective 40 year olds...

1.Follow "Financial Parenting**" diligently:


 

Kids of today grow with unlimited ambitions which sometimes may be reasonable and sometimes unreasonable. They may ask for the sky and the moon. It is the duty of the parents to regulate the flow of ambitions as they come up with huge costs in the present scenario. Hence the importance of "financial parenting". Let's look at it very briefly:

a. Teach the kids, the value of saving.

b. Help them understand the difference between "I need" and " I want".

c. Manage their expectations, particularly when it involves borrowing.

d. Openly communicate the family's financial situation.

e. Teach them manage their regular expenses.

**As financial parenting is a very lengthy subject, will handle it separately.  

2. Moderate the debt levels:

40s is the time to ease out debt out of the books gradually; should ideally reach zero or near zero debt levels.

3. Investment decisions based on a Financial Plan:

Well laid financial plan should guide the investment decisions during this phase. The asset allocation pattern for investments (equity, fixed deposits, real estate, gold etc) should dictate the decisions and not impulsive decision making. The level of risk taking in investments should gradually decline during this phase.

4. Well planned retirement:

Though everyone's wish is to retire early and pursue our other interests, it's not the case with our incomes. We always wish our incomes not to retire. This is the phase to consolidate the retirement fund for which the plan should start in the 30's and be ready for payouts at a future date.

5. Planned other financial goals in a SMART way:

Our goals do not end only with our retirement; there are other goals as well which would involve our children, spouse and parents. This is the phase to consolidate those goals as well.

These goals should be Specific, Measurable, Attainable, Relevant and Time bound. In short the goals should be SMART.

 























6. Up to date Insurance cover:

This is a critical need during this stage, as 30s would have given phenomenal growth in incomes and careers. Its ideal and necessary to have life insurance up to date. For eg., If one is aged 45, earning 50 Las PA, the family's expectation from the person is to bring home 50 lacs every year till the next change in income. So the person in the present date should atleast have a life cover of 50 lacs * 10 times = 5 Crores to leave  to his family in his absence.

Earlier is not better, it's the best...

7. Creation of an Emergency fund:

With corporate careers getting more dynamic and uncertain, there may be several factors which can lead to early retirement, entrepreneurial ventures, geographical relocations etc. Such situations can come at a short notice and they need a special fund to take care of the sustenance to a reasonable extent without regular income. Plan for such a fund which can be handy during the rainy days.

- Gopalakrishnan V

(The author is the Founder and CEO of Money Avenues, a Wealth Management firm based in Chennai. Feedback can be sent to reachyourviews@gmail.com)

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