Got a question about your money? What you should or should not do with it?
Our expert Uma Shashikant has the answers.
I
I built a home for my parents only to realise that it was put in the name of my father's younger brother.
Last year, I lost my job but managed to get another one quickly. Unfortunately, I have no savings. Moreover, I am servicing a car loan at Rs 11,800 per month.
I got married last year and now my relationship with my wife has begun to get strained. She comes from an affluent family and the prospect of us not having any savings has totally baffled her. I don't blame her.
My parents don't seem to understand the value of money. They live for today. Left to their own, they would spend Rs 30,000 in five days. Yet I know it is my duty to take care of them.
I would like to know how to make a fresh start. I earn a gross of Rs 72,000 per month.
Should I take a loan and buy a house? Should I just put away the money in the bank? Should I invest in equity?
- Naveen A
Dealing with your parents
I admire your sense of duty towards your parents. But, for any relationship to thrive, it is important to be have matching value systems. Perhaps they think and view money differently from the way you do.
Make a beginning by being in charge of your money yourself, rather than handing it over to them. Tell them politely that you and your wife are in-charge of your own lives. Assure tham that you will take care of them to the best of your abilities but will not allow them to lead your life.
Do not waste energy on changing your parents. Let them be. Your sense of duty should extend to taking care of their basic needs, identify what is superfluous and stand up for your rights.
Learn to separate money and emotion a good son is not necessarily one who lets his parents run his home and money for him.
Let your fair judgment override everything else.
Dealing with your wife
While we cannot alter the past, we can always build the future. You and your wife can make a new beginning today. It is important that you both understand that nothing is lost as long as confidence is not lost. Do not let your relationship deteriorate.
Get your wife to see that she is in-charge of the household, but she will have to accept your parents as well. Rather than defending your actions or your parents' behaviour, confess to her that you would like to change things.Dealing with your finances
Begin to save every month and start right away. You have a decent salary and you are young. Put aside some portion of it even before it is available for spending.
Save some money first, before you take a loan to buy anything else.
Give yourself some time, before taking drastic decisions of any kind.
In an earlier piece, I had advised a reader to view his investments like a pyramid.
At the bottom of the pyramid are the absolute essential, safe options: bank fixed deposits, Public Provident Fund account, RBI relief bonds, post office schemes.
You then build the next block of the pyramid, where you move into some amount of risk cover for yourself (insurance), and accumulation of some assets (like property and gold). Make sure you have your income generating capability assessed.
Move to the next block, where you are ready to look at mutual funds. Choose from the top performing, well managed fund houses with reputation. Allocate some money into balanced funds (funds that invest in shares and fixed-return instruments), and some into diversified equity funds. About 20% can be in specific aggressive funds. Build a portfolio of mutual funds, either by allocating money or through monthly investments in a Systematic Investment Plan.
To understand SIPs in greater detail, read How to invest in a mutual fund.
The top layer of your pyramid is for direct equity. Keep it minimal and only after you have build a sturdy base.
It is important to create a cushion of other investments before you invest in shares. The risks in equity are big enough to wipe off your savings. Without a buffer, you could be in a bad shape.
Draw this picture on a piece of paper, see what you will be able to allocate where.
Over the years, you should have a portfolio that is almost completely allocated. Then you only have to increase its size by adding to the components.
Saving and investing is more about patience and discipline than about adventure and thrill.
I am 26, earning Rs 24,000 per month. My monthly expenses are Rs 3,000 per month, an Equated Monthly Installment of Rs 5,000 towards a car loan and a Systematic Investment Plan of Rs 1,000 per month.
Last year, I managed to invest Rs 93,000 and have started contributing every year towards my Public Provident Fund (Rs 20,000), National Savings Certificate (Rs 20,000), life insurance (Rs 21,000), tax-saving mutual funds (Rs 20,000), medical insurance (Rs 10,000) and infrastructure bonds (Rs 10,000).
I want to buy a house. Do you think I can go for a loan of around Rs 10 lakh (Rs 1 million) at this stage? Or should I wait?
- Ashok K
Great going! Keep on with your SIP and gradually increase your investments every month.
You seem to have more debt than equity. At your age, you can take a chance by investing more in shares or in diversified equity funds.
Perhaps you should shift the NSC and infrastructure bonds to PPF. The interest income on PPF is not only tax exempt, but also compounds over years. In the other cases, interest is taxable.
Keep up your investments as much as you can in your current status.
However, you need to prepare for a higher monthly expense as well. You perhaps live with your parents and manage at Rs 3,000 per month. Your expenses can only grow faster than your salary in the next five to ten years.
Given the above fact, you should not lock too much into the house. If you would like to buy a house, do so, but make sure that your monthly EMIs, for car and the house are not more than 30%- 40% of your salary.
Or else, you would end up using high cost credit card debt for your expenses because your EMIs are too big. Do not buy a luxury house, beyond your means, only because the bank is ready to loan you the money. Or that they are allowing you to repay the loan over 15 years at an EMI you can afford right now.
Think ahead, exercise prudence and you will be fine.
I am recently married and my husband and I together draw Rs 26,000 per month. We have saved Rs 50,000 in post office schemes. I have saved Rs 5,000 in my PPF account.
We would like to buy a house and a car. What do you think?
- Shikha
Buy a house that meets your needs, and is well within your repayment capabilities. Don't base your loan on the amount a bank will be willing to give you.
They have no idea about your other commitments or saving requirements.
I also suggest you read the answer I have given above to Ashok.
Illustration: Dominic Xavier
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