All of life’s developments entail some modifications to your financial circumstance. Although such developments take place gradually, your 40th birthday is a good reminder to review how much your financial situation may have changed and what adjustments you need to make to adapt.
1.Maintain a healthy emergency fund
Keep or maintain a three to 12-month emergency fund, depending on your family situation.
A report by Bank Negara Malaysia shows that about 75% of Malaysians cannot deal with an emergency of RM1,000.
An independent 40-year-old with no dependents should ideally have saved living costs for three to six months to be used to cover needs in the event of work loss, vehicle failure, or home repairs. This emergency fund is essential to your welfare.
2. Set up a savings plan for retirement
An average retirement fund more than doubles between the 35–44 age category and the 45–54 age category. What this means is, you need to increase your retirement savings.
If you’re behind, here’s what you can do:
3. Keep up-to-date with your credit score
A higher score places you in a better position for a loan with a reduced interest rate. A 40-year-old average credit score is 685. Verify your credit score with CTOS. This service is free.
4. Eliminate high-interest debt
Stop paying just the minimum dues on your credit cards balances. Debt with high interest will only drain your earnings.
To plug this leak, plan a debt repayment scheme over a specified period to at least clear off the debt with the highest interest, and when it makes sense, move on towards clearing all other debt.
Don’t start new debts unnecessarily. Not all debt is bad, but be wise in identifying which are which, especially high-interest debt.
5. Funds for your children’s higher education
By the time you’re nearing 40, your children are likely approaching the age for college. This requires customisation on your part to a particular programme to reach the funds needed for their education.
6. Get organised
In your 20s, it is likely you gave little thought to your finances aside from coping with expenses. Back then, you likely dumped all your financial documents into a drawer as your “filing” system.
But by your 40s, your financial affairs are more complex – you have various types of insurance for you and your family, loans (house, car, credit cards), more income to invest, and more expenses to pay.
Have all your financial documents neatly filed away so you can access them quickly when you need to reference any of them.
7. Establish a budget
At 40, what you spend and save every month should be documented somewhere quickly accessible. Use a paper system, spreadsheets, or the many useful apps available.
Whichever you choose, ensure it’s something you find convenient to update and maintain regularly. Have the discipline to key in your money movements.
8. Read widely about personal finances
Choose a topic you’d like to know more about – shares, savings, international markets – and begin reading. Many books on personal finances will increase your knowledge so you can take charge of your finances.
Setting your financial goals is commendable. But so is developing actionable action plans and carrying them out consistently.
You may be on your way to achieving financial freedom with the right book.
9. Review your life insurance needs
The purpose of life insurance is to assist your family members to replace your income if you are suddenly incapable of providing for them.
You may need to review the sum insured (to a higher amount) if the policy was effected years ago when your income was low.
The new sum should take into account the standard of living they would be comfortable with.
10. Ensure your skill sets are still relevant
Consider getting fresh training if your skill sets are outdated. Or, take a refresher course to keep yourself relevant.
If you already possess in-demand skills, consider optimising those skills in your career.
11. Save on your housing loan
Is there a possibility to garner some savings from your existing housing loan?
Refinancing is an option if the existing market interest rate is lower than what you’re currently paying. Another option is to reduce your interest payment by either reducing your loan period (paying more), or by paying the entire loan off if you can afford it.
Whichever way you choose, it all depends on your personal finances plans and where you want to prioritise “parking” your money.
12. Invest in the stock market
If you haven’t invested by the time you’re 40, let it go. Rather than let your money idle in a low-interest generating asset or wait till you master share investing, it’s more sensible to let a professional financial adviser handle your equity investing.
If you’ve invested but the investments haven’t brought you wealth, seek professional help. Time is running out.
13. Stop keeping up with the Joneses
Everybody has their own path, priorities, and choices to make. At 40, you’re definitely your own person.
You already have sufficient accomplishments, your own thoughts about world issues, enough knowledge to know what works and what doesn’t, and ability to decide what matters most to you.
A lifetime of constant rivalry and competition with everyone will not bring wealth and happiness. Contentment will.
This article first appeared in https://mypf.my
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Life is unpredictable but planning for your family’s lifelong protection doesn’t have to be.