Now or Never-40s


Financial planning at 40s is the toughest.

Here people usually have high-income with the highest expenses: paying EMIs, lifestyle expenses, saving for Kids College, retirement, probably buying a house. ..there is so much to take care!

With so many expenses around Income seems insufficient. Sometimes people with high incomes have very little capacity to save because their expenditure level is too high.

A good Financial Plan can help you take off this pressure. Differentiating between needs and wants can make a big difference. The next step is the defining of financial goals and then do investments to achieve those goals (most common are corpus for retirement and for kids higher education)

A good financial plan at 40s something should have the following components

  1. Build up an Emergency Fund
  2. Reduce/Finish-off the Loans as soon as possible.
  3. Take up a Life Insurance Policy (if you haven’t taken it yet)
  4. Increase your Savings with every raise- Ideally, at 40s every individual should save 40% of its monthly income and spend the rest for day to day living.
  5. Try to pay off all your loans by the time you reach 45.
  6. If there are two earning members in the family, save salary of one and do all the spending from the other.
  7. Choose Diversified Equity Funds to invest rather than Fixed Income options-Investing in PPF, FDs and other insurance policies which are poorly formed will not create wealth. These Fixed-Income Options will only take care of inflation (which means your purchasing power remains the same, it doesn’t increase). Investment in equities or Mutual Fund with good 15-20 stocks will help in meeting your financial goals. It is the most promising way to create wealth, when you still have a good 15-20 years for compounding.

Let’s look at this from an example,

Fixed Deposit
Initial Investment Rs.1,00,000/-
Period of investment
Assumed Rate of Interest on FD 7% per annum
Amount At Maturity RS.1,40,300/-
Current Rate of Inflation 5.80%
Inflation Adjusted Amount Rs.1,06,000/-
Assumed Investor Tax Slab 20%
Inflation and Tax Adjusted Amount Rs.1,04,000/-
Net Real Growth after Inflation and Taxes Rs.4,000/-
Real Growth in Percentage 4% per annum

8. Invest more through Lumpsum- Lumpsum investment gives more returns than SIP. In the past 17 years, despite all the ups and down Equity on an average delivered 15% CAGR.

SIP Lumpsum
Initial Invesment Rs.30,000/- per month Rs.54,00,000/-
Assumed Period of Investment 15 years 15 years
Total Investment Rs.54,00,000/- Rs.54,00,000/-
Assumed Return on Investment 15% CAGR 15% CAGR
Amount At Maturity Rs.1,85,00,000/- Rs.4,40,00,000/-

Investing 20-30 lacs seems very difficult today, but it will create a lot of difference on your wealth.

Having said all that with proper financial planning we can really meet all our Financial Goals in the time to come. It will give you mental peace and freedom to enjoy your current life.