In this article, I will be giving a detailed analysis of how one should invest in one ’40s. I will be answering a simple question, i.e., How to Invest in your 40’s?
Our potential earnings increase significantly in the Forties. Our career is almost at its peak, In most cases, we are married, have children too, and now, our children are grown-ups.
We have to think about their marriage; we have to think about their education. And we have a lot more concerns. We also have to think about our Retirement.
We may also have a Medical Emergency; we have to consider all these expenses and plan Investments.
We have to think about our house too; we have to buy a big car; many people also go through a midlife crisis in the early Forties, whether my career is going in the right direction.
Some people try to change their careers. Some people focus on realigning their jobs and try to focus on learning new skills.
How to Invest in your 40’s?
There is a big concern in the middle of all this: planning our financial goals; we need money for everything. This means we need money for the coming time too, and it means we need planning, how to do that planning, will be talked about in detail in this article.
And friends if you want to learn better about, Investment or the Stock Market. We are writing these articles primarily for people in their Forties. But those who are also in their 30s must also read these articles.
If you know someone in their Thirties or Forties, definitely share these articles.
In my opinion, this is the complete blueprint; that is how we can do our financial planning.
Now let us go straight into the subject. If in our forties we have to do our financial planning.
Defining Our Goals
So the first step is to define our goals; in fact, I would like you to write all the plans on paper, it helps a lot.
What can be our first goal? The most important goals are for Career and Health?
What could be our career goal? If one’s goal is to make money, that can certainly be a goal.
One can have a goal of fulfillment where they feel better; If you want to work within your interest area, then you can do it, But in every case, you will still have to do financial planning, you need financial freedom in some way or the other, only then you will be able to do what you want.
So that’s why financial planning will be done there too.
Second, we should also keep a vision of our health. Now that’s why this is not our health channel, but everything is linked to money somewhere.
That’s why it is essential to keep a vision of this too. Because if we do not take care of our health, then obviously, our expenses can increase there.
We may have different types of diseases, and avoiding them is a matter of course; we will also talk about Insurance.
If we get any illness, then we will talk about what we can do in that case.
The first step is Prevention is Better than Cure. And making a vision of health is so important, even if you earn money and you will not be able to enjoy it.
So it will not be beneficial to earn it, so in my opinion, first of all, you must make your career and health goal.
Now comes the matter of financial goals; see how we should make financial goals, now we are in our forties, I think we should make short term and long term goals, when we talked about the 20s and 30s you must have noticed, we mostly talked about long-term goals.
Because then all our goals were coming by ten years or 20 years.
Short Term Goals
But now that we are in our forties, Our goals could be short-term for like 2 or 3 years. We might have some immediate needs too, Like if we want to buy a house if I have to make a down payment after two years, then it becomes my very short-term goal.
If one of my child’s education expenses is after three years or after four years and I need 10 lakh rupees, that too becomes my short-term goal.
Less than five years old, whatever your goals are. Write them under your short term goals, along with all your short term goals, you write the amount against them, how much money you need; for example, If you want to buy a house after two years, then you will probably need 10 lakh rupees for a down payment.
Could you write it down? If you want to buy a car after three years, you need 10 lakh rupees to write it down.
And if you won’t have ten lakhs in total, you write how much down payment will need; if you need a down payment of 3 lakh rupees, After three years, write it down too; after that, how much money do you need for the education of the child, let’s say after four years you need 15 lakh rupees.
Long Term Goals
Now it comes to the long-term goals, whatever goals come under your long-term goals after five years.
And I will tell you further why I am taking these five years. I am taking this period to what kind of investments we will make.
I will talk about all those investments with you soon. What are the types of Long Term Goals?
Retirement is a long-term goal.
After 15 years, for example, your Retirement, you also write how much money you need at 15 years. If you think that three crores are sufficient, or five crores are fine, whatever your amount is, write it down.
When you have a final amount in mind, we will do back calculations on achieving that amount?
Which other long-term goals can be? Children’s marriages: If you have another child, suppose that your child is going for higher education after six years.
For that, you probably need 10 lakh rupees which can be a long-term goal, 15 lakhs or 20 lakhs any amount you need for kids’ weddings, whatever your goal is, write it down.
So once you have written all the goals, we will go through the goals step by step. What should be our first goal?
Understanding The Needs
The first goal should be our immediate needs.
What is an immediate need?
An emergency is the most immediate need.
We can have any kind of medical emergency, and Insurance covers some of our money, But if someone has any chronic illness terminal illness, it costs a lot; that’s why you need to build an emergency fund.
Whatever is your Income for six months, make an emergency fund of your monthly Income. And where to put money for this emergency fund.
This money should be liquid which you can withdraw within one day. You can put cash in FDs; there are liquid mutual funds, you can put money in it.
General Rule for Saving
The third step is to move on to the rest of our short-term goals. But to meet those short-term goals, we need savings; this means the third step will be our higher savings.
How our savings will increase Income – Expense = Savings
This is the general rule.
But I believe that you take out the savings from the Income first; after that, you use the money left as expenses.
First, we can follow this Rule. Another general rule is, We call it the 50:30:20 Rule, and you can spend 50% of your money on your Needs.
As you have any rent your EMI. You have your grocery bills, you have utility bills, for this, you use your needs money, i.e., 50% of your monthly income can be spent on it.
30% of the money we can spend on our Wants. Whatever our wants are, If we want to buy a gadget or buy a nice car, make your budget out of this 30% bracket.
20% of your money must go to savings and investments. Although there is a General Rule.
But I suggest that your earning potential has increased slightly in the forties. You reverse it a bit, and you make it the 50:20:30 Rule.
50% for needs, 20% for wants, and 30% for savings and investments.
And possibly, if your earnings are a little more, then you can make it the 40:20:40 Rule.
40% for needs, 20% for wants, and 40% for Savings.
Now comes the fourth step, Review Past Actions. That is, if we have made some mistakes in the past, then we can review them.
Better Loan Management
The first point most crucial point is Better Loan Management.
I see that many people take loans; they have taken loans and keep investing elsewhere.
Now see, you are paying 10 – 11 % interest for the loan, and it is tough to beat it with any investment.
Here you can earn risk-free returns; first of all, pay off your loans.
If you have any credit card dues, pay them off first. So the first thing you should try to clear is your loans.
And here, we must make 1-2 rules. We have to take a loan for necessities; we should take very few loans for luxury.
Even if you have to take it, you should take it concisely.
So our Rule should be that if there is a need, then only we should take a loan.
The second Rule should be that we should not take too many loans.
We should not pay EMI more than 33% of our monthly income, i.e., one-third.
And how do we get all the loans off? As we talked about earlier. First, we will take off the loan with higher interest.
If we have any credit card dues, Where the interest of 36-40% is charged, we will pay them off first.
Secondly, if we have any personal loans, we will pay them off, and interest of 17-18% is charged there.
And you are also not getting any tax deduction on these, on which tax deduction is not available.
We will pay off all those loans first.
We get tax deductions like home loans or education loans on some loans.
We can pay off these later, Here I also give you a bonus tip, if you have a personal loan or credit card loan, along with a home loan, you can take another top-up loan on top of that home loan.
Its interest rate is meager, generally 0.25% or 0.5% more than a home loan.
Because the house you have here has been kept as a mortgage, you can take a top-up loan if you have the capacity.
And take off your loan or credit card loan from that loan.
Here your interest rate will be meager.
People make one more mistake: they think of Insurance as an investment. So Insurance is also critical to us, But we should not mix it with Investment.
It’s a bottom rule. See, whenever you mix Investment and Insurance, Whatever the endorsement plans are, whole life insurance has significantly fewer returns.
You get returns of 5%, 5.5%, or 6%, And on average, it is almost equal to inflation.
You can’t find any specific returns here. It is better that we take Insurance separately, And the money we have to grow, So we put the rest of our money in investments or Mutual funds or Stocks or Bonds, here we will get better returns.
And which Insurance should we take? There is only two leading Insurance that we should take; The first is Health insurance?
After all, how much do we have to take for all health insurance? There is a general thumb rule, Cost of a Heart Surgery in your City.
Whatever the cost of heart surgery in your city, we should take Health insurance similar to that amount.
Take Health Insurance, the one in which all your family gets covered.
That is, your spouse gets covered, and your children get covered.
And if your parents do not have health insurance separately, definitely cover them too.
So if we talk about the Forties specifically here, many people work in corporate, there they get health insurance, but if your cover is not sufficient, then whatever your balance cover is left.
Suppose heart surgery cost’s maybe eight lakhs in your city.
And from your company, you are getting Insurance of only four lakhs.
So you can take Insurance of an additional 4 lakh from the market.
One more thing we should take care of in special forties.
Whatever our pre-existing conditions are, get that cover as soon as possible; whenever you take health insurance, it should be minimum whatever the waiting period is.
So if you have any pre-existing condition, then it should be covered.
Now comes our life insurance. In life insurance, we have to take term insurance, In which there is no investment mixed; it is plain, vanilla, Insurance.
And how much should we take this term insurance? It has a formula, 20 times your Annual Income. that much Term Insurance you can take.
Or ten times your annual Income + Loans and Liabilities. For example, if your yearly Income is 20 Lakh rupees, if we do ten times it, that’s two crore rupees.
And if you have a loan of 50 lakh rupees, if we add 50 lakhs to it, we should take the sum insured of 2.5 crores. And the premium of Insurance we pay, we also get tax benefits, Health insurance is covered by us (Section 80 D), And our term insurance premium gets covered under section 80C.
Now come to the Investments section. Where should we invest, and how much should we invest?
First, we should take tax-saving Investment because our tax is directly saved here.
Suppose if we invest in a 30% bracket somewhere, we get 7-8 % returns.
So we will not get any tax on it, while there is some investment where we have to pay tax, which gives Returns of 8 percent and is directly reduced by 30%.
That becomes our return of 5.5 %, So here we have to consider tax-saving Investment first.
Under section 80c, income tax, we get a tax rebate on up to 1.5 lakhs investment.
So firstly, we should invest this 1.5 lakh rupee. What investments can we make here?
In case you have some doubts, you can go through my other article on EPF and PPF
EMPLOYEE PROVIDENT FUND
We can put money in EPF, which is Employee Provident Fund. Wherever you work, some of your PF is deducted there, and we do not have to pay any tax on its interest.
PUBLIC PROVIDENT FUND
If you do not have an EPF account, you can open a PPF account by visiting any bank.
The Public Provident Fund also gives outstanding interest, and there is no tax on it.
NATIONAL PENSION SCHEME
The third is NPS (National Pension Scheme). We can put money in that too. In fact, in NPS, we get a tax rebate even on an additional amount of 50 thousand.
Then there is another perfect scheme, Which we call Sukanya Samriddhi Yojana. If you have a daughter, you can put money in this scheme for her, which can be of great use to her for marriage or studies in the future. But all these investments have a more extended lock-in period.
That is, here you get the return of InvestmentInvestment after 10 15, or 20 years. On the one hand, if we want a high-interest rate and tax-free interest, we have to wait for a long time.
On the other hand, if we go through from the short-term horizon, we get less interest rate. And the tax-saving FD, We have to pay tax on its interest.
EQUITY-LINKED SAVING SCHEME
So both these problems are solved inside one product, which is ELSS. ELSS stands for Equity Linked Savings Scheme. These are the types of mutual funds, In which our minimum lock-in period is three years.
Suppose we don’t withdraw our money before three years. So we also get a tax benefit and returns of mutual funds, and we can expect a return of 10 to 12 % here.
Which is much better than other investments. So here we have to take care of one thing, The overall limit of section 80c is 1.5 lakhs.
Whatever total product we talked about, you will get a tax rebate only for total InvestmentInvestment up to 1.5 lakhs.
You will not get a tax rebate on whatever additional amount you invest in it.
And here, a home loan is an essential product.
Whatever interest you are paying for the house you are buying; you also get a tax rebate on the home loan.
And here too I would like to give you a bonus tip, whenever you take a home loan.
If you have bought a big house, what can you do now? Can take a joint home loan, If your husband or wife is also working.
Then you can take a joint loan. And you can separately avail of the tax rebate on the principal and interest of the home loan.
So once we have made our tax-saving investments, now comes the next step of short-term and long-term investments.
Like we have set our short-term and long-term goals earlier, Let us talk about investing in them.
LONG TERM AND SHORT TERMS GOALS
See the twenties and thirties in this; I did not distinguish between short- and long-term.
But in the Forties, we need to make this short term and long term.
Because our goals are very near here, we need money in 3 years, For some purposes, we need money in 2 years, and for some, we need money in 7 years.
Short-term goals that if we talk about, less than five years now, we have to invest money in whatever our goals are, So the basic Rule here is that we should not invest in high-risk investments in the short term.
That is, we should not invest much money in the stock market. What Rule can we follow here? Whatever our securities with fixed returns or investments, we can invest money there.
You here we can invest 70% of our money in fixed-income investments. And what are these fixed-income investments, debt mutual funds, and bonds where we get 10 to 11 % fixed returns?
And the rest we can put 30% of our money in equity investments.
Equity means you can invest money in the stock market. And now, I will talk about fixed income and equity investment in a little more detail.
LONG TERM INVESTMENT
Let us first talk about long-term investments. Our goals of more than five years, how do we invest money there?
So with long-term goals, we can take a little more risk to increase equity investments a little bit.
We can invest 60% of our money in stock or in-stock products.
We can invest 30% of the money in debt investments, i.e., fixed-income investments. And the remaining 10% of the money left, we can also invest in gold.
Because our hedging is done with gold, at any time, if the stock market goes down, then gold acts as a hedge.
When the stock market goes down, gold goes up. So gold is very useful for such times.
Some money must be in gold under long-term InvestmentInvestment. Now let’s talk about how to invest in Equity Debt or Gold.
Or what kind of products are these? How can we make an Equity Investment?
There is a way we can buy stocks directly and invest directly in the stock market.
We have talked about it earlier that we need a Demat account. Nowadays, there are discount brokers, where if you invest, your brokerage is charged zero.
But the question arises how do we invest in the stock market?
Look, here you need a little skill and a little time, which means you have to build some of your financial skills.
Have to learn how we can analyze the stock market. And here, it is essential that we diversify our risk and never invest in one or two stocks; we have to invest in at least 10 to 15 stocks.
So if we can support our time and efforts in stocks research, we can identify these 10-15 stocks and then follow them up.
Then only should we do immediately start investing? But if we don’t have this time and skills, then the second option is we have mutual funds and ETFs.
ETF stands for Exchange Traded Funds. So here are ETFs and these index funds, and it follows an index. Like senses, Nifty 50, Nifty next 50.
So these are low-cost funds; there are very few changes here compared to mutual funds. The data here suggest that this big company which mutual funds track.
Those mutual funds are generally unable to beat the index. So here, we can invest in ETF or index funds. But if there is any mutual fund investing in small-cap or mid-cap or different kinds of stocks.
Which is consistently beating the index; we can invest in such mutual funds.
And in equity, we have a third option that is also a good option.
Small case option. It can be considered a route between the mutual fund and the stocks. Here you have control over which stock you own.
When to Buy or Sell these stocks. You are also getting Expertise; An expert guides you on which stocks to buy or sell.
So it became a matter of stock investment, i.e., equity investments. Now it comes to fixed-income investments, Which we also call debt investments. So what option do we have here? One is an option to put money in debt mutual funds. Like some mutual funds invest money in stocks.
And Debt mutual funds invest money in bonds. You can put cash in PSU or government bonds or RBI bonds. Or you can put money in corporate bonds.
Then the second option that we have already talked about can put money in PPF and EPF, also fixed-income securities.
The third option is we can also invest directly in bonds. We can also invest directly if we want to avoid debt mutual funds and avoid their fees.
Here we have two excellent options; GoldenPi is the number one platform. You can sign up there if you want to invest in bonds to consider that too.
The second option is we have Wint Wealth of Wint Wealth create our birds. And here the minimum InvestmentInvestment starts from 10000. So you can consider both of these also.
Now comes the third InvestmentInvestment; how should we invest in gold after all? Look, jewelry, I do not recommend at all that you should consider agent investment.
By definition, if you buy a piece of jewelry, you can show it the intent to use. But do not consider it an investment because you incur a lot of making and design charges.
If you buy physical gold, then there we come to the issue of security. So, in my opinion, the number one way to invest in gold is Sovereign Gold Bonds Which RBI issues.
As the price of gold rises, That’s how you get returns. Number two, you also get an additional interest rate of 2.5 percent here.
Such an excellent product. Second, we have a Gold ETF product, and that is, these funds invest in gold. So as the price of gold increases here, too, we get readers accordingly.
A third way we can also invest here in a small case like all-weather investing is a slight case of yesterday. If we invest in it, some money also goes inside our gold.
So this type of small mixed bag is also available for us. So this is what we talked about investing in goals and achieving our goals, but here we have a vast circle of real estate.
Especially when we talk about our house, many people say that we should live on rent.
There are many advantages to living on rent inside most cities by definition.
Living on Rent Financially Makes More Sense, But still, I believe that we must have a house Because a home gives us security. Even if it doesn’t make financial sense, the economic logic is made Because due to the peace of mind, our productivity is also better.
So if we have to buy a house And suppose if we work inside a city, we cannot accept a home. The house is out of budget.
So it’s not that we shouldn’t buy a house. We Can Buy In Outskirts Can Buy In Our Hometown, Where the price can be pretty reasonable.
Here comes another big question How big should we buy a house after all? First of all, you should see How much EMI you can pay?
As we discussed in our thumb rule, your monthly income is only 33%, and you can pay the maximum EMI.
So if none of your low is running and your monthly Income of one lakh comes, you cannot pay more than 33% in the home loan.
Now you can not pay more than 33%as EMI. If your salary is 1 lac, your EMI will be Rs 33 thousand.
So if you get a loan of 35 to 40 lakhs, you can buy a house of a maximum of 50 lakhs, So you need ₹ 1000000 for a down payment.
So how long will it take you to collect the down payment of ₹1000000 that you make a goal of your own?
If you collect money, you can put money into the rest of the investments. Suppose you want this ₹ 1000000 after four years.
So all the investments we talked about By putting money in those investments, you can collect your money by growing here.
So this is what we do when it comes to real estate when we buy our homes. But apart from this, many people also put money in real estate as an investment.
So if we want to consider real estate as an investment, where should we put the money? We can’t get better returns on general speaking residency properties. See, now we were saying that living on rent is more beneficial.
If we are the landlord, we are getting fewer rental returns, So why would we want such returns.
So we should invest where we get better rental returns, or better capital appreciation is good inside plots. Mental returns are good inside the commercial property so we can consider these two properties.
So here we can consider both these properties as an investment. If we are doing retirement planning, then rental details can come to excellent use as retirement income.
So this is what we talked about all the investments, But one of our critical topics is left here, which is also our final point. We must include the family and walk in every financial decision; your spouse, i.e., husband, and wife, tells you all the financial details.
Insert they should also tell all their account details. Where do you want to invest now? What are your financial goals? Planning for children’s weddings is also preparing for their education?
Also, if your kids have got one to understand financial decisions, can they know financial goals?
So discuss with your kids too.
Because many times it happens that you are planning your goals accordingly, the rest of your family, your husband or wife, or your children are planning something else.
You may be planning to buy a car worth 6 to 7 lakhs. Maybe people in your family say that we need a car worth 15 lakhs.
You might be planning a road trip where you probably won’t spend a lot.
Your family may expect a foreign vacation, And this mismatch usually happens because we don’t discuss our financial goals with our family.
So I understand that if we make all our financial decisions with our family.
So the first thing they will feel very inclusive and second, they will understand that you are probably collecting money for children’s marriage or raising money for their education.
Retirement is also significant.
Not our current life but future life is also significant.
It is also essential to make the financial discipline of children according to me, so in childhood, like we give pocket money to children.
We can ask them how much money they will save what they will do with this money.
Investment in Gold
Now comes the third InvestmentInvestment is gold.
How should we invest in gold? Look, jewelry, I do not recommend at all that you should never consider as an investment.
If you are buying a piece of jewelry, you can buy it to use. But do not consider it an investment because there are many making and design charges.
If you buy physical gold, then there is the issue of security. So, in my opinion, the number one way to invest in gold is through Sovereign Gold Bonds.
Which is issued by RBI. As the price of gold rises, According to that, you get returns.
You also get an additional interest rate of 2.5 percent here. Such an excellent product.
Second, we have a Gold ETF product. That is, these funds invest in gold.
So as the price of gold increases here, too, we get returns accordingly.
There is a third way to invest here in minor cases.
Like all-weather investing is a small case investment.
If we invest in it then our some money goes gold also.
So this type of small mixed bag is also available for us.
So this is what we talked about investing in goals.
how we will achieve our goals, But here we have a massive plan for Real estate.
Investment in Real Estate
Especially when we talk about our house, many people say that we should live on rent; there are many advantages to living on rent. In most cities residing on rent financially Makes More Sense.
But still, I believe that we must have at least one house of our own because the home gives us security.
Even if it doesn’t make financial sense, it makes Economically sense.
Because due to the peace of mind, our productivity is also better.
So if we have to buy a house, and suppose if we work inside a city, we cannot accept a home, and the place is out of budget.
So it’s not that we shouldn’t buy a house, We Can Buy In the Outskirts, Can Buy In Our Hometown, Where the price can be pretty reasonable, Now here comes another big question, How big should we buy a house?
Here, first of all, you should see that, How much EMI can you pay?
Like we talked about the thumb rule. Whatever your monthly Income is, Only 33% of you can pay the maximum EMI.
So if you don’t have a loan and your monthly Income is one lakh rupees.
So you cannot pay an EMI of more than 33 thousand in the home loan.
According to the EMI of 33 thousand, how much will you get the maximum loan? In my opinion, you will get a loan of 35 to 40 lakhs for 20 to 22 years.
So if you get a loan of 35 to 40 lakhs, you can buy a house for a maximum of 50 lakhs.
So you need ₹ ten lakhs for a down payment.
So how long will it take you to collect the down payment of ₹ ten lakhs? You make a goal for that.
If you want to collect money for that, you can put money into the rest of the investments.
Suppose you want this ₹ ten lakhs after four years.
So all the investments we talked about, you can collect your money by growing here by putting money in those investments.
So this is what we do when it comes to real estate when we buy our homes.
But apart from this, many people also put money in real estate as an investment.
So if we want to consider real estate as an investment, where should we invest the money?
We do not get better returns on residency properties. See, now we were saying that living on rent is more beneficial.
If we are the landlord, we are getting fewer rental returns.
So why would we want such returns?
So we should invest where we get better rental returns or better capital appreciation.
Capital Appreciation is good in Plots, and rental returns are good in commercial properties. So here we can consider both these properties as an investment.
And here definitely, if we are doing retirement planning, rental returns can be an excellent source to use as retirement income.
So this is what we talked about all the investments, But one of our critical topics is left here, which is also our final point.
We must include our family in every financial decision; your spouse, i.e., your husband or wife, just tell them all the financial details.
You should also tell all your account details. Where do you want to invest now?
Whatever your financial goals are, planning for children’s weddings is also preparing for their education.
Also, if your kids are grown enough to understand financial decisions, they can realize financial goals.
So discuss with your kids too. Because many times it happens that you are planning your goals accordingly, the rest of your family, your husband or wife, or your children are planning something else.
You may be planning to buy a car worth 6 to 7 lakhs. Maybe people in your family say that we need a car worth 15 lakhs. You might be planning a road trip, where you probably won’t spend a lot.
Your family may expect a foreign vacation. And this mismatch usually happens because we don’t discuss our financial goals with our family.
So I understand that if we make all our financial decisions with our family. So first thing they will feel very inclusive. And second, they will know that you are probably collecting money for children’s marriage or raising money for their education.
Retirement is also significant. Not only our current life but future life is also meaningful.
Along with this, it is also essential to make the financial discipline of children.
So in childhood, we give pocket money to children.
We can ask them how much money are going to save, what will you do with this money?
So, you can teach your kids financial discipline at a young age.
So including family in financial decisions was our last topic, but I think it is the most crucial topic.
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