5 Financial Skills Everyone Should Learn Before 40 To Retire Comfortably

By Viplav Majumdar

In India, since childhood, everyone learns how to save money for a better future. The clear objective of saving money is to secure the future and retire comfortably with sufficient funds. Saving money is the first step toward wealth creation. When it comes to wealth creation and a comfortable retirement, it requires the skills of money management.

In 2003, when I thought of starting to invest, I consulted many advisors. Surprisingly, I found that I didn’t have any method to judge the quality of advice. The only thing I had was to rely on the advice unwillingly. Most people take advice from parents, friends, and advisors. In the last 20+ years, I have found that you need to have these 5 financial skills before turning 40. Is there any person who is interested in making you rich? Learning these skills can make you wealthy and help you retire comfortably.

Emergency & Insurance Planning

Normally, people save some money for an emergency. You must calculate the risk and the amount you may need for a period of 6 months to 1 year or more, depending on your occupation, family structure, health conditions, and your situation in your career. Along with this, one must also learn to protect one’s family with the proper amount of risk cover. General rules are not enough.

When it comes to taking advice, normally, term plans are not sold — they are bought. One must learn how to take proper risk cover for the family. One must also buy the plans through the right process so that the family doesn’t suffer during claim settlement if they ever need it.

Budgeting & Loans

You can invest only your savings. Budgeting skills are required to forecast your savings for the entire year in advance. If you have a monthly recurring investment of Rs 5,000 and Rs 20,000 remains idle in your bank account, it means you have not planned your budget.

This skill makes you wealthy fast, as it ensures you save a lot, and all your savings work hard for you. The next thing that one must know is Emergency and Insurance Planning.

Investment Planning & Tax

This skill is a must. If you feel there is no one who is interested in making you rich, you need to know the rules of wealth creation and wealth protection.

In my experience, I have found that most people use wealth protection investments for wealth creation. Learning about mutual funds, property investments, small savings, etc., should be on everyone’s list. Evaluating any investment proposal is important, and tax knowledge is very important.

If you have knowledge of taxation, there are many ways to increase your returns without taking more risk on investment.

Golden Rule for Wealth Creation

At 40, you are at the peak of your career, and money management rules should be known to all. Most of us feel FDs are safe for investments of 5–10 years, and we keep renewing them forever.

Actually, if you don’t earn a return higher than inflation, after paying taxes and adjusting for inflation, you lose wealth. Rs 1 lakh in FD will give Rs 1,07,000 after a year. After 30% tax, you get Rs 1,04,900. As per purchasing power, you need at least Rs 1,07,000 just to maintain its value after a year. You can create wealth only if you get more than Rs 1,07,000 post-tax.

Most people have not been trained in money management. So, everyone should learn money management before investing. Most of the financial opinions we have are based on myths — learn them logically.

Retirement Planning

Most people in India rely on pension plans, F.I.R.E., or SWP for retirement. Retirement corpus is the only thing everyone wants. Everyone needs to have his/her exact number as per lifestyle and responsibilities after retirement.

In reality, pension plans and other investment instruments are too complex. One must know how to create a sufficient monthly pension — a pension that grows yearly with the rising cost of living, forever.

Commonly, people think they will retire with a corpus — they will use the interest, and the corpus will remain there forever. This is just a myth. If you are 40 today with monthly expenses of Rs 50,000, you need to have Rs 8 Crores in fixed deposits. This deposit will last up to the age of 90.

So, everyone must know all the income options after retirement, as the need for funds changes with the returns.

The easiest way to use your savings for your comfortable retirement is to learn financial skills, as good financial advisors are available only to the wealthy.

(The author is a CFP and the Founder of Planyourworld.com)

Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs, and views of ABP Network Pvt. Ltd.

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