[Chetan_Rao]

My parents introduced me to financial planning at an early age. They would take me along on their bank visits, and once i got older (late teens), encouraged me to help them with the procedures.

My father is a meticulous financial planner, and has just retired from full-time work a year ago, and now consults as an SME at his leisure. His prudence over the years has enabled him to now have a liability-free life in a comfortable home with a steady assured income from his accumulated assets during his golden years.

The first financial lesson he taught me in life: "Never spend money you don't have, or money you expect to earn at a later point in time. Wait till you've actually earned it".

Now that I see people drowning in Credit Card or other forms of debt on a daily basis, I thank him every day for imparting sound financial sense early in my life.

I started working 5 years ago, and have since invested a good chunk of my earnings in PPF, Life Insurance, a retirement plan and some liquid funds (about 6 months of living expenses).

It's easy to be a spendthrift, especially in today's world with the barrage of enticement thrown at us through all possible media. Wants are endless, but money isn't. So anybody who earns a paycheck (however large), if you don't plan your finances, you'll surely be sorry someday you didn't do it.

[supremeBaleno]

Originally Posted by supremeBaleno

BTW, from FY2012, you can invest 1lakh annually in PPF (till now it is 70K). Think of it as a nest-egg for the future and squirrel away whatever you can annually into it, enabling savings, tax-breaks and ofcourse the power of compounding will ensure good returns.

Just to mention that from FY 2014-2015 the subscription amount was increased from 1lakh to 1.5lakh.

[satan's_valet]

Have a quick question here guys. I have an outstanding personal loan of 1 lakh set to complete by next year. I have the said amount in cash right now. Does it make sense in paying off the loan or let the EMI run through its course till next year?

1. If I pay off the loan, I can put the same amount in RD which will get me some savings next year.

2. If I decide to keep the EMI, I can put the cash in hand in a FD or some other scheme which will again give me some savings next year.

Which is the better way to save? Need your help..

[NetfreakBombay]

This depends on how much interest is outstanding on the loan. What was the total tenure of the loan? Interest component depends on duration of loan.

If the interest from FD / RD is higher than then loan interest component, then it makes sense to invest instead of closing the loan.

[hellmet]

If it's on your mind, it means you need to get rid of it. I feel burdened if there's even a minor EMI amount hanging on my head, so I pay everything off as soon as I can.

I'd prefer being loan-less and at a loss (of interest amount) than have an EMI.

[satan's_valet]

Originally Posted by NetfreakBombay

This depends on how much interest is outstanding on the loan. What was the total tenure of the loan? Interest component depends on duration of loan.

If the interest from FD / RD is higher than then loan interest component, then it makes sense to invest instead of closing the loan.

The total tenure of the loan was 2 years and I still have an year on it. Do we get any advantage on pre closing a personal loan?

Originally Posted by hellmet

If it's on your mind, it means you need to get rid of it. I feel burdened if there's even a minor EMI amount hanging on my head, so I pay everything off as soon as I can.

I'd prefer being loan-less and at a loss (of interest amount) than have an EMI.

Same here as well. I don't like my bills to be outstanding. But if there aren't going to be any advantages in pre closing the loan, I want to at least make some profit out of an existing saving. Assuming an 8.5 or 8.75 ROI in a FD/RD, I guess I should be able to get somewhere around 9k by next year.

It doesn't seem much, but it's a start.

[rohan_iitr]

Originally Posted by satan's_valet

The total tenure of the loan was 2 years and I still have an year on it. Do we get any advantage on pre closing a personal loan?

Quite the opposite, actually. Some banks may actually charge you a pre-payment penalty. You need to check with your bank regarding the same.

You can also consider partial pre-payment in case you want to reduce the interest burden but still wish to have some amount to yourself.

Rohan

[ramki067]

Hi Guys,

I'm in a dilemma on the following:
I'm married and now have a little angel/baby in my life recently. My wife is non-working and i don't have any debt as of now. I plan to construct a house in around a year time for that i have to start savings from now on till 1 year for 6 lakhs savings. I already have a 5 lakh FD. So, this comes to around 20% of the total home construction cost, which is 50 lakhs. Rest i have to take a home loan.

After construction, due to unknown job surety, is it better to first clear the home loan debt completely without any savings or with home loan debt repaying, I need to save into some SIPs also? Which is the best option for me?

Thanks,
Ramki

[satan's_valet]

Originally Posted by rohan_iitr

Quite the opposite, actually. Some banks may actually charge you a pre-payment penalty. You need to check with your bank regarding the same.

You can also consider partial pre-payment in case you want to reduce the interest burden but still wish to have some amount to yourself.

Rohan

Yeah they do. But I checked and I can pay it in full after next month without any penalty charges.

[aargee]

Originally Posted by ramki067

Hi Guys,

I'm in a dilemma on the following...SIPs also? Which is the best option for me?

Thanks,
Ramki

20% of 50 Lakhs home loan is 10 Lakhs. Since you already have 5 Lakhs in hand already, you'll only need 5 Lakhs more. Inorder to get 5 Lakhs in next 12 months, you've to set aside an average of Rs 40000 every month (exclude the interest it accumulates for now).

Start from the above calculation & work out on the number of months you need to accumulate that wealth or the budget of the house or if you can pool in some more additional money from elsewhere.

And the old Indian tradition says...lesser the loan more the peace of mind

[mpksuhas]

Originally Posted by ramki067

After construction, due to unknown job surety, is it better to first clear the home loan debt completely without any savings or with home loan debt repaying, I need to save into some SIPs also? Which is the best option for me?

As per my view, each person will have different priority and savings pattern. Hence asking about a savings plan may not be useful. It would be like asking which car to buy with a budget of say 10 lakh.

Anyways, regarding the SIP's. I would divide the money and invest in 3 or 4 large cap MF's since I would not be needing that money for short term.

Also, in around 4 years or so, you will have to budget money for child education. Any extra money saved after SIP + monthly expense + EMI's will be used for pre-payment. I would not give pre-payment much priority if the same is happening after couple of years of taking loan.

Pre-payment, especially few years after taking loan is a loss making proposition since you would have already paid huge part of interest already to bank.

Also, do take a term insurance of a bigger amount in case you have not. Do note that it works cheaper to get a normal term insurance instead of going for any money back schemes.

[Jeep]

Pay it off please! Personal loans generally come at a much higher rate than car loan (and even home loan) rates. You won't earn anywhere close in FD interest (that too after TDS).

Originally Posted by satan's_valet

Yeah they do. But I checked and I can pay it in full after next month without any penalty charges.

[ramki067]

Originally Posted by aargee

20% of 50 Lakhs home loan is 10 Lakhs. Since you already have 5 Lakhs in hand already, you'll only need 5 Lakhs more. Inorder to get 5 Lakhs in next 12 months, you've to set aside an average of Rs 40000 every month (exclude the interest it accumulates for now).

Start from the above calculation & work out on the number of months you need to accumulate that wealth or the budget of the house or if you can pool in some more additional money from elsewhere.

And the old Indian tradition says...lesser the loan more the peace of mind

Thanks aargee. I've already planned it to get that 5 lakhs that i need in a years time.

Originally Posted by mpksuhas

As per my view, each person will have different priority and savings pattern. Hence asking about a savings plan may not be useful. It would be like asking which car to buy with a budget of say 10 lakh.

Anyways, regarding the SIP's. I would divide the money and invest in 3 or 4 large cap MF's since I would not be needing that money for short term.

Also, in around 4 years or so, you will have to budget money for child education. Any extra money saved after SIP + monthly expense + EMI's will be used for pre-payment. I would not give pre-payment much priority if the same is happening after couple of years of taking loan.

Pre-payment, especially few years after taking loan is a loss making proposition since you would have already paid huge part of interest already to bank.

Also, do take a term insurance of a bigger amount in case you have not. Do note that it works cheaper to get a normal term insurance instead of going for any money back schemes.

Thanks Suhas. I want to pay the whole home loan in 5-6 years time after taking loan. So after i clear the loan, is it better to start the SIPs? I'll be 36 this Aug.
Also, i do have a term insurance from Aegon for 50 Lakhs and have started one PPF account 2 years ago.

Thanks,
Ramki

[Gannu_1]

Pre-closing home loans may be a bad idea since you won’t be able to claim income tax benefits thereafter. Unless you have sufficient other sources to claim IT benefits.

Best to pre-close a car loan ASAP.

[mpksuhas]

Originally Posted by ramki067

Thanks Suhas. I want to pay the whole home loan in 5-6 years time after taking loan. So after i clear the loan, is it better to start the SIPs? I'll be 36 this Aug.

It is mostly a matter of preference. Even I would like to close a loan as soon as possible. However, you will be ending up loosing money that way.
Since you will be paying up maximum interest component in first couple of years, you would have already paid up interest for most of the pre-paid amount.

Yes, there will be difference in total amount and tenure based on your pre-payment. However you will have to take make a decision based on the time you are having surplus money.

Do note that you can claim IT benefit from loan component, if you invest the surplus in a good fund you will be easily able to get more returns than the interest you already paying (paid) to the bank.

I would not suggest on waiting till closure of loan for investment, since with a 3 year period to get capital gains tax exemption you are looking at a period of 5-6 years (loan closure target) + 3 years (tax free ) = 10 years for your investments to mature.

My approach would be -

Put maximum possible cash now and decrease loan amount.
Pre-pay if possible in initial months.
Start investments (SIP?).
Corpus for child education, emergency.
Pre-pay with any amount which is left after above.

Also, I would suggest to get another term insurance too, provided you are not taking another insurance along with loan.

Since your loan amount will be around 40 lac, after closing the loan only 10 lac will be left with your dependents.

For checking the pre-payment part you can try this loan calculator.