There are 6 financial planning tips meant to help 40-somethings find balance in their hectic lives of spending and debt. Let us start with:
1.BUILD YOUR CASH RESERVES
The first step in any financial planning is to establish an emergency fund. You should have three to six months of your normal income in an account that’s safe and liquid. You should also have in that account savings for planned expenses. For instance, if you know you need to replace your furnace in a few years, you should be setting aside money for that in your savings account.Two-income households may be safe enough with three months of expenses saved, while a single person might need six months of reserves. There’s no right or wrong answer about how much cash to have, but you need to be prepared in case your roof needs replacing or if you lose your job.
2.REDUCE YOUR DEBT
If you have credit card debt, student loan debt or medical bills, your next priority should be to reduce and eventually eliminate that debt so that your income can be channelled into saving and investing for the future. If you have credit card debt, you need to work on reducing the debtas quickly as you can. If you have student loan debt, then you should first look to see if it is tax deductible based on your tax bracket. If not, then you should pay that off as soon as possible too. You should also check the interest rates on your credit cards and student loans to see if you can find lower rates.If you have a lot of debt, you should be using all available funds to pay it off. If you have a little bit of debt and you have, for example, R2000, 00 per month for savings, you should use one-third to reduce your debt.
3.MAX OUT YOUR EMPLOYEE BENEFITS
In your 40s, you should at least be saving as much as your employer matches. Even if you aren’t making any profit on that investment, your money doubles just because of the employer match. Corey says since every employer has a different retirement plan, you should find out how much you can contribute, and maximize your contributions up to that limit. Find out how your pre-tax contribution will impact your cash flow because you may be able to contribute more than you think. Hopefully, the employer-sponsored retirement plan has someone who can explain the investment options within the plan. In particular, people need to understand why it may be better to be a little more aggressive with their investments at 42 than at 62.
4.MAKE YOUR OWN RETIREMENT PLANS
At 40, retirement seems very far away, but it is so important to contribute the maximum you can to retirement savings. If you will be living on R180 000, 00 per year when you retire, you’ll need R2 million in assets. So provide for your retirement and put as much money into these options as possible.
5.SAVE FOR UNIVERSITY COSTS
If you’re in your 40s and have kids, you may have already started saving for their university tuition, depending on their age. The best advice from financial advisers is to start saving as early as possible after your kids are born, even if you can only save a small amount. Hopefully, you can increase the amount you save for university as your income rises.You can begin an education savings plan to reduce the amount you or your kids may have to borrow to attend university. Many universities also offer a prepaid tuition plan that allows you to lock in tuition at current rates.Families need to have a rational conversation about ways to minimise university expenses, such as choosing a state school over a private college, doing military service or spending the first two years at a community college followed by two years at a four-year university. One of the best things to do is to start saving as early as possible for university. If you’re in your 40s and your kids are near university age and you haven’t saved much for retirement, it’s not necessarily wise or appropriate to pay for all of their college expenses. One option is to have your kids pay some of their own costs by working during their university years.
6.INSURE YOUR FAMILY
It’s important for people in their 40s to do an insurance needs analysis. Often, people in this age group need a lot of life insurance because they have young kids and day care costs that could be higher if one spouse passed away. Without Life Insurance it’s hard for a lot of people to have saved enough to take care of their family if someone passes away. Life Insurance, especially for a healthy person in his or her 40s, is relatively inexpensive.Most people think they are appropriately covered with their insurance policies, but they will find out after a disaster that they’re not. You should check your health insurance, your home insurance, your auto insurance and your life insurance policies to make sure you have the right coverage. An umbrella insurance policy that adds a layer of protection over your auto and home insurance is also a good idea, particularly if you have assets over R1 million.40-somethings also should check on their disability insurance to be sure they have coverage and to estimate whether they need additional insurance. Most companies only provide up to 60 percent of your income if you are disabled.