Financial milestones to reach by age 40

Learning is a good first step – but it has to be understood and applied too!

For representational purposes only. (File | PTI)

A couple of weeks ago I had done an article on Financial milestones by age 32. This is a sequel for the same:

•  You have learnt all the basics about investing and therefore have a six-month expense set aside for an emergency fund. In a combination of liquid funds, savings account and ultra-short bond fund.
•  You are now seriously settled in your career and are earning well enough to live well enough, and provide for your dependents and more importantly, your own old age.

•  You have four times your CTC in your ‘retirement box’, the box which will remain untouched till you actually retire. This is the gross figure. So, if you have a CTC of Rs 40 lakh, you have Rs 1.6 crore in the ‘retirement box’.
•  Your SIPs (Systematic Investment Plan) are all running well and your 11-year-old kid knows about “his money” and what it can do in his life if he keeps it untouched till he is 55 years of age. After all, Rs 1,000 crore is a nice dream to sell internally too! You have taken the trouble to teach him the power of patience and the power of compounding. 
•  You always pay off your credit card dues four days before the due date. This early payment habit is a good one – in case you forget, you at least have a cushion of three days.
•  You have a credit score of 790 or thereabouts.
• You are paying all your EMIs on time and your SIPs are on an annual increasing ‘top-up’ mode.
•  You have a competent IFA/RIA doing a portfolio review on an annual basis. Even if you Do It Yourself, it makes sense to have an audit done on a regular basis; at least annual, if not bi-annual. A review where the reviewer has only his fees at stake is a good exercise.
•  You understand risk, so you have adequate medical and term insurance.
• Your kid’s education fund is gathering steam, but you are aware that you need a part of the money in four years time. So, you have started a Systematic Withdrawal Plan into a debt fund.
•  You have a term insurance, index fund growth option, two credit cards, and maybe, a maximum of three bank accounts.
•  All the nominees and Will are in place of course!
•  You and your spouse (and kid) are tracking expenses and you know what is the inflation applicable to your family.
•  Your spouse and kid know how to pay the electricity bill, society charges, telephone bill — all online of course.
•  You have a budget, a goal sheet, your income and expenditure, of course.

Hey that is a good start. And ha! Read this column regularly, and make sure that all of you keep 
learning, and sharing the knowledge that you are getting by reading, watching, and listening to podcasts. Learning is a good first step – but it has to be understood and applied too!