When you enter your mid-to-late-30s phase of life, i.e., around the age 35-40, things change a lot. You aren’t too old. But you aren’t young either. So, you get sandwiched between the two phases.
But if you get a few basics right, then this phase can help you build a solid foundation on which to build your future financial life. Many of the decisions you make now will have repercussions much later in life. So, no matter how young you are at heart, you still need to act like an adult when it comes to managing finances.
Here is how you should go about reviewing your finances and then making adjustments for a better future -
Purchase/increase life insurance
If you still don’t have life insurance (a term plan and not endowment plan), then get yourself one. Don’t just buy any random policy with random coverage. While a ₹1 crore term plan is a good starting point, first assess what is the right insurance amount and get yourself a plain-term plan. If your spouse is working, then get him/her one as well.
Don’t depend only on employer health insurance
You might already be covered under your employer’s group health insurance. But most employer coverages are quite small – just a few lakhs which may not be enough when you consider the rising cost of medical expenses these days. For a family of 2 adults and 1-2 kids, you should at least have a coverage of ₹15-20 lakh. If your corporate cover is less, get yourself one on your own.
Build an emergency fund
Always have some money set aside for emergencies. This is what elders have told us too. They were right. Try to maintain at least 3-6 months’ worth of expenses as an emergency fund. A bit more if your job is not stable or if you are the sole earner of the family. You might not be able to put this fund in place quickly. But that is fine. Start saving some money and gradually scale up this fund. Something is better than nothing. So, start. Even if it’s a small start.
Have a budget if you spend a lot
When you were younger, you didn’t have too many responsibilities and could have spent as much as you wanted. But when you are in the late 30s, you have goals and responsibilities. If you are finding it tough to control your expenses, then track them for a few months. Then set a budget for each expense category and try to live within your budget. This will not be easy at first. But this is what is needed. And when you are able to control your expenditure, then you will have more money left over to save and invest for your goals.
Manage loans better
If you need to take a loan to buy a house, then that is perfectly fine. That is a goal that needs external funding for most people. But in my view, don’t take a disproportionately large loan in comparison to your EMI servicing capability. Also, try not to borrow for discretionary expenses. Once in a while is still acceptable. But you should not get into a habit of this
Crystalize goals and begin goal-based investing
The time for random investing is over. You can no longer invest based on what your friends or colleagues are doing. And just worrying about tax-saving is not enough. Take some time out (or sit with an investment advisor) to find out your major life goals and how to invest for each of them correctly.
Let’s say your goals are your son’s higher education in 10 years, your daughter’s higher education in 6 years, and buying a house in the next 2-3 years. Now you need to calculate (or take help from an advisor to do so) how much you need to invest regularly for each of these goals. Being clear about your goals gives laser-focus to your money and as a result, increases the chances of your financial success.
No. you are not too young to begin saving for retirement
You may feel that you still have a lot of time before retirement and as a result, it’s too early to worry and invest for it. But that is not true. The earlier you start the better it is. Also, just your EPF and NPS will no longer be sufficient for your retirement. To ensure you have adequate money in retirement savings, you need to invest via SIP in equity funds too.
Just reading through this list might overwhelm you if you haven’t given any thought to all these. But don’t delay things any further. Get going. Begin tackling one thing at a time and in just a year or two, you will be surprised to see how much progress you are making on each of these points.
Dev Ashish is a SEBI-Registered Investment Advisor and Founder (Stable Investor). He provides fee-only financial planning and investment advisory services to small and HNI clients across India.