Life, they say, begins at 40, but there are many who lose their footing in their middle years—perhaps the most remunerative period in one’s working life. At a time when one should be getting financially stronger, some sleepwalk into a money tangle after years of overspending on debt or indulging in exotic investments.
Many individuals start investing much later in life, assuming time is on their side. Putting off investing for later can be harmful. At times, income growth may not materialize to the extent you expect. At the same time, inflation would be at work to pull down the worth of your savings every year. Over-dependence on conservative, tax-inefficient investment avenues like bank fixed deposits will not allow your savings to survive inflation.
We have outlined some remedies for those mid-lifers who are stuck in a financial quagmire.
1. Rebuild Emergency Corpus:
If you are fire-fighting a mid-life financial crisis, chances are you have drained your emergency savings as well—if you had any in the first place. Your first task should be to rebuild the contingency fund. Without this buffer, you will dip into your retirement savings or take on additional debt to tackle the next crisis. Ensure that you keep aside at least three-four months’ worth of expenses as a contingency. You can rebuild this buffer gradually, over a span of 6-12 months. This amount can be kept aside in a mix of sweep-in FD and liquid funds. Ensure it covers all Essential expenses such as food, rent, loan EMI, tuition fees, electricity, and gas, etc.
2. Rework the Household Budget:
If you are stuck in a financial quagmire, your immediate priority should be to trim the household budget. Cut the discretionary(Non-Essential) spends that purely serve to maintain a lifestyle. Movie nights, dining out and weekend getaways will have to be cut back. If you are shelling out hefty premiums on traditional policies, weed them out. A pure term plan is the only form of insurance individuals should consider as risk cover.
3. Get a handle on Debt:
If you have borrowed beyond what your income supports, chances are that loan EMIs are eating away a chunk of your savings. Target expensive, high-interest loans. Pay the maximum you can afford towards the high-cost loan ty.
4. Identify and Priorities Goals:
Before beginning the investment process, outline the purpose behind each rupee outgo. Without this, you may lose your way again. Identifying investments is secondary. First, define clear goals and quantify them. It is prudent to prioritize certain non-negotiable goals like children’s education and own retirement.
5. Start from Scratch:
Starting savings afresh may seem like a daunting task at this age. But it is critical that you regain control to give yourself the platform to achieve financial stability. This is critical as you have a limited amount of time in which to get in shape. If you are in your 50s, you should be less adventurous with your money, and not take extra risks. But in the middle years, you still have plenty of time on hand to have some aggression in your portfolio, you can still take equity exposure in moderation through mutual funds to allow for building a meaningful corpus.
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