Monday, July 18, 2016

Be home loan Prepared - It is very easy

What suits their image.. The LION’s Den or The LOVE Nest- the fight doesn’t end between the newly married Rima and Manas. The search on websites, apps, newspaper ads and site visits was almost done. The discussions over coffee and drinks gradually took them to a more important topic- The budget, loan requirement and repayment processes. They knew they would need to take some bank loan but the mathematics seemed very difficult when they realised they would require 70% financing and which would take about 15 years to repay. They also realised as their monthly budget would leave them with less money in hand, a plan seemed necessary to tackle the issue of choosing the bank/ housing finance offers and monitor the repayment process carefully.

Rather than getting into the whole subject together in one go, I have decided to make three simple posts on the subject. 1. Preparation (Home Work), 2. Processes 3. Managing the repayment for smart benefits.

Prepare to get loan – Home Work

1. Keep at least last two years’ Form 16. (Tax return details)
2. Keep bank statement for last 1 year (minimum 6 months)
3. You may refer to #CIBIL website to check your credit score (higher the score, your negotiation power will be higher)
4. You have to fetch all your loan history and repayment record.
5. Once you decide your budget, remember bank will finance maximum upto 80-90% of the total amount. So, you have to be ready with the minimum down payment (10 – 20%)
6. If you are close to finalising the property, you may also apply for pre-approved loans. This come with various conditions as well as one need to closely look at.
7. Check for good offers in various websites and other websites for various offers on loan
8. Age – your current age is a factor for bank to consider interest rate negotiation, the preference is 24 -45. Higher the age risk factor for banks increase
9. Income – Bank/ institution not only finance upto 80-90% of the actual price, they also consider your present salary.  For, eg. Certain bank can offer 20 times your monthly salary or 4 years of your annual income.  
10. co-applicant – An earning co-applicant like wife/ father/ son can reduce the risk for the bank, also can give better tax benefits.  

In the next post we will discuss about the processes

Sunday, July 17, 2016

Financial planning simplified

#Personal finance is a very wide subject. Here I just want to simplify the basics, why we need to take care of our money, why the inflow and outflow of funds need to me managed.  
Every person has their own perspective about life, income and expenses. However, we can start with the 5 constants of personal finance apart from the regular aspirations of education for your children, marriage and buying a home.

1. You are going to grow old
2. Prices will go up
3. Value of money will decrease
4. Financial markets will remain volatile
5. There will be unplanned emergencies

Now, what do we do? Start stacking up cash/ gold? Putting in Fixed Deposit? Buy stocks? Mutual funds? Insurance? What?

We need to simply the relation between the goals and financial needs. We need to come in terms with the purpose of the investment so that we allocate funds and plan in a right manner.  

How to go about it?

Start as soon as you feel it is important; don’t wait for emergencies to teach you harsh lessons.
Chalk out your financial goals based on the event and the expected timeline. For eg
Own marriage/ buying property/ vacations/ children’s education and marrage/ second home/ retirement planning etc.


Keep in mind


1. Keep goals clear
2. Time in hand
3. Risk taking ability
4. Avoid mixing asset classes

Based on your age, current financial situation, priority and timeline you can plan your finance. 

First, prepare an Emergency fund, ideally the most liquid investment like savings account/ Fixed deposit/liquid fund.
Your financial liabilities and dependants should determine the life insurance cover. Chose term plan, stay away from endowment and ulips. See Post to know more.
Health insurance is also a significant part of financial planning. A medical emergency can erode a significant portion of your wealth if not planned for emergencies.

Few goals which are 5 – 10 years away and more, a significant kitty can be built with a monthly investing a small amount into equity mutual fund. See post on wealth creation

Younger the age, risk taking capacity is more. Equity based mutual fund investment can yield maximum return in long term.  Thumb rule of equity investment is (100-age)% of total savings can be kept in equity. With increasing age/ nearing the goal gradually shift the investment into debts or fixed instruments like Fixed deposits.

Retirement planning is one more aspect one need to start early. As, the value of money decreases with passing time, maintaining the same lifestyle as today will cost you much higher 20 years later. Hence, investing for retire is important. See post

In other posts will go into details