In your 40s and 50s: reaching investment peak
October 14, 2006
So you’ve made a mark in the world. The 40s usher in midlife. But there are two ways to look at these years: as a period of crisis (thus the term midlife crisis), or as a period of exciting possibilities. After all, the 40s and 50s are the years when most men and women are at the peak of their careers.
This is also ideally the peak of your earning power. Secure your financial future by looking at your 40s and 50s as an exciting time.
At this point, your children may already be in college, or are done with it and are now working. You may still be giving them money, but if you have saved diligently over the past years, this may not be such a burden.
Since you have obtained a wealth of experience in your chosen field by this time, you may be more confident and successful in your career. Business opportunities may come up, or further advancement is possible up the corporate ladder. What should you do with more income?
The answer: Build wealth so you can continue the good life in the future and ensure that you do not outlive your money. Retirement, after all, may just be 10 years away.
Here are some ways to build up your personal wealth in your 40s and 50s.
1. Be adequately insured. Premiums for life and health insurance may be more expensive now as compared to when you were younger, but it’s a must that you get insurance. An illness or accident may instantly make you unable to work and earn money, or it may wipe out all your lifetime savings. Your dependents must also have enough cash to work with during the first few years after your death so they can get back on their feet and in turn, build their own wealth. There are many insurance products out in the market, each with their own unique points. When buying insurance, the insurer’s corporate and financial strength is a paramount consideration. Even more than outliving your money, you do not want to outlive your insurer!
2. Transform much of your earnings into investment capital. With more funds available as a result of more income you may be earning now, it makes sense to make sure that money work and earn rather than spent on things you don’t need. For example, if you already have two cars, you might want to rethink a plan to buy another. A car will depreciate over time, but the same amount of money, when placed as investment in a high-yielding account, will earn you more money.
3. Continue saving, or if you haven’t done so, start saving. You can begin by allotting a certain portion of your net pay, say 10 to 15 percent, as savings, even before you spend a single peso. This is what financial experts mean when they say, “Pay yourself first.” Build up savings that would at least be equal to six months of your salary. Let this be your emergency fund. Keep this easily accessible in a time deposit or money market fund. If your company has a provident retirement fund wherein they will match your contributions, take advantage and join this fund.
4. Allocate your assets wisely. You may want to be more active in your investments since you just have a few more years before retirement. There are a number of choices: currency trading through premium accounts (this will possibly give you higher returns in foreign currency than a bank deposit would), bonds, money market instruments, and stocks or equities. With more funds, one can look into commodities and gold. If you don’t have an appetite for risk, though, and want to play it safe and simply, then aim to achieve a target retirement income and consider investing more in bonds. It would be good if you reinvest the income you would get periodically from your investments, rather than getting them all now for spending.
5. Prepare for your death. It sounds morbid, but preparing for your financial future includes preparing for the expenses the family will incur on your death. It would be wise to get a memorial park lot, or columbarium space, or a memorial plan that covers the cost of casket, urn, cremation, wake services, and interment. These expenses may run up to the hundreds of thousands, and if you don’t prepare for it, may put a heavy burden on your loved ones.
6. Live simply. Sure, you may be earning more than ever, but don’t regard it as a license to spend like there’s no tomorrow. The rule stays the same: Live below your means. The remaining amount from your net pay after expenses may be used for further investment.
If you want to retire at 40 or 50…
Some people want to quit working at the age of 40 or 50, especially if they have already made their target amount, like a few million pesos. If you are still physically able, find work that rewards you not only financially but more so emotionally. A fulfilling job won’t seem like work, and it will help you gain financial security in the long run. Besides, what is a million pesos now if you will live to be 80? It may not be enough to sustain you for another 30 or 40 years. Build your personal wealth with a vision of a long happy life ahead.
- From the "Take Charge of Your Money" series published on http://business.inq7.net/money/.
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