This article was contributed to us by Syfe, an MAS-licensed digital wealth manager.
Your 40s can be said to be a golden decade for most people. You have the double benefit of a formal education combined with actual working experience; you’ve had time to clear your student loans and are now at the peak of your earning potential; and yet you still have enough energy to pursue your goals.
Indeed, there’s much to look forward to. And by making the right financial choices for this crucial period, you’ll be setting yourself up for success and security in your 40s and beyond. Here are 5 key decisions you need to make regarding your money.
#1 Focus On Your Retirement
Here are some pretty astonishing statistics. According to a Syfe poll, 60% of Singaporeans are not adequately prepared for retirement and 69% don’t believe they can retire comfortably.
Far from being too late, your 40s are a critical time for growing your retirement nest egg. Your income is likely to be peaking, and you still have a good 20 years or so for your funds to compound.
Just to illustrate, a 40-year old who invests just $800 a month and receives a return of 7% per annum would have grown their retirement nest egg to a respectable $626,434 by the time they retire at 65. If they had invested a little more at $1,180 a month (which is 20% of the median monthly salary of $5,900), they would have ended up with nearly a million dollars ($923,989) in the bank.
Prioritising your retirement in your 40s can mean the difference between retiring comfortably and having to rely on your children or the government for financial support. Whatever your retirement goal, it pays to work towards that by saving and investing.
#2 Live Within Your Means
As your income grows, so too will your spending – if you’re not careful. Even if your co-worker moved into a swanky condo or upgraded to a sportcar, resist the pressure of keeping up with Joneses – especially if doing so will set you back from your retirement goals.
To prevent lifestyle creep and to give you the cashflow you need to invest towards your retirement goals, you need to set and commit to a budget. A popular rule-of-thumb would be to save or invest 20% of your income, leaving 50% for necessities and 30% for non-essential spending like shopping trips and dining out.
If you think you lack the discipline to stash cash away, you can automate your savings and investments to steadily your wealth month after month.
#3 Maximise Your Income-Earning Potential
As you know, are three aspects when it comes to building wealth: savings, income, and expenses. To fast-track your financial journey, you can increase your income even as you save more and spend less. Doing so would allow you to invest more, which then accelerates the compounding effect of your money.
Apart from asking for a raise or negotiating a better salary package, starting a side hustle like a small online business or doing freelance work can increase your earnings significantly, though you need to ensure you still have enough time for activities and people you care about.
Another way to boost your income is to create passive income streams. Investing in real estate investment trusts (REITs) and dividend stocks is a popular option among Singapore investors, since you only need to make an initial investment, after which you will start receiving regular dividend payouts without much work thereafter on your part.
#4: Marie Kondo Your Portfolio
In your 20s and 30s, you could have invested your money across a variety of investment types and accounts.
With money in different investment accounts, it makes it hard to know exactly what’s in your portfolios and to keep tabs on your asset allocation. Some of these investments may no longer serve your purposes, or there could be scope for optimising costs or performance.
Thus, doing decluttering and streamlining of your investments can be very powerful. For example, having more of your funds in one place can qualify you for lower fees, which means you get to keep more of your investment returns. For instance, Syfe charges just 0.4% per annum for investments over $100,000.
#5 Protect Your Family
Unexpected situations can derail the best-laid plans. Ensure you have adequate health and life insurance policies in place to protect your family financially.
Part of protecting your family financially is to write a will. Who will inherit your home and other assets? Who will take guardianship of your children, should you pass on while they are still minors? Secure the commitment of legal guardians who you trust to fulfil this responsibility when you are no longer around.
As the saying goes, prevention is better than cure. Taking care of your health is the best way you can protect your family. Eat a balanced diet, exercise more and go for regular health check-ups, no matter how much you dread going.
Sticking To The Plan
Building wealth and securing your family’s future is a marathon, not a sprint. These financial moves may not be fun, but getting them right sets the course for the next 40 or even 50 years of your life.
If you feel you need additional advice as you navigate this important decade of your life, consider speaking to Syfe’s financial advisors for a free review of your current financial situation. They’re platform-agnostic and can help you map out a financial plan that’s right for you.
If you are interested to get started on investing with Syfe, DollarsAndSense has an exclusive partnership with Syfe – enjoy 0% management fee for the first $30,000 during the first 6 months after you sign up. Apply here to enjoy the promotion.