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Ramalingam Kalirajan |7101 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jun 21, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Question by Ravinder on Jun 12, 2024Hindi

I am 26 year old, earning 30k. In upcoming month im going to take 10 lac home loan and i have no investment and saving right now. I have to repay my loan and also want to invest. So please suggest me a good idea. So i can work on that

Ans: Taking a home loan is a big step, and it's great that you are thinking about how to balance loan repayment with investing. Here's a detailed guide to help you manage your finances effectively and build a secure financial future.

Understanding Your Financial Situation
First, let's understand your current financial situation. You are 26 years old, earning Rs 30,000 per month. You plan to take a home loan of Rs 10 lakh, and currently, you have no investments or savings.

Budgeting Your Monthly Income
Proper budgeting is essential to manage your loan repayments and save for future investments. Here's a suggested budget breakdown:

Monthly Income:

Salary: Rs 30,000
Monthly Expenses:

Household Expenses: Rs 10,000
Loan Repayment: Rs 10,000
Savings and Investments: Rs 5,000
Miscellaneous: Rs 5,000
This budget ensures that you can meet your loan obligations while also starting to save and invest.

Managing Loan Repayment
Paying off your home loan should be a priority. Here's how to manage your loan efficiently:

Understand Your EMI:

Calculate your Equated Monthly Installment (EMI).
Ensure it fits within your budget.
Timely Payments:

Always pay your EMI on time to avoid penalties.
Set up automatic payments to ensure you never miss an installment.
Prepayment Option:

If you receive a bonus or extra income, consider making prepayments.
This reduces the loan tenure and overall interest.
Building an Emergency Fund
Before you start investing, it's crucial to have an emergency fund. This fund should cover at least 6 months of your expenses.

Benefits of an Emergency Fund:

Provides financial security during emergencies.
Prevents the need to liquidate investments or take loans.
How to Build an Emergency Fund:

Save Rs 2,000 monthly until you reach your target.
Keep this fund in a separate, easily accessible savings account.
Starting Your Investment Journey
Investing is essential for long-term wealth creation. Here's how to start:

Systematic Investment Plans (SIPs):

Start with SIPs in mutual funds.
Invest Rs 2,000 monthly in diversified equity mutual funds.
Public Provident Fund (PPF):

PPF is a safe, long-term investment.
Offers tax benefits under Section 80C.
Invest Rs 1,000 monthly in PPF.
Gold Investment:

Consider investing in gold ETFs or sovereign gold bonds.
Avoid physical gold due to storage issues.
Allocate Rs 500 monthly to gold investments.
Creating a Balanced Investment Portfolio
A balanced portfolio minimizes risk and maximizes returns. Here's a suggested allocation:

Equity:

Diversified equity funds: 50%
SIPs: 20%
Debt:

PPF: 20%
Fixed Deposits: 10%
Gold:

Gold ETFs or sovereign gold bonds: 10%
Review and rebalance your portfolio annually with the help of a Certified Financial Planner.

Insurance Planning
Having adequate insurance is essential to protect your financial future. Consider the following:

Health Insurance:

Ensure you have a comprehensive health insurance policy.
It should cover you and your dependents.
Term Life Insurance:

A term plan provides financial security in case of any unfortunate event.
Ensure you have a term insurance policy with adequate coverage.
Efficient Tax Planning
Efficient tax planning can save you money. Invest in tax-saving instruments and claim deductions:

Section 80C:

Invest in PPF, ELSS, or NSC to claim deductions up to Rs 1.5 lakh.
Section 80D:

Claim deductions for health insurance premiums.
Regular Monitoring and Adjustments
Financial planning is not a one-time activity. Regularly monitor your investments and make adjustments as needed. Here are some tips:

Annual Review:

Review your financial goals and progress annually.
Adjust your investments based on performance and market conditions.
Consult a Certified Financial Planner:

A CFP can provide professional advice and help you stay on track.
They can also assist in rebalancing your portfolio.
Managing Debt
Avoid taking unnecessary loans. If you have existing debt, prioritize paying it off. Here’s how:

Debt Repayment Strategy:

List all debts and their interest rates.
Pay off high-interest debts first.
Use any surplus funds to clear debts faster.
Setting Up a Retirement Fund
While planning for your current financial needs, don't neglect your retirement. Start investing early for a secure retirement:

Employees’ Provident Fund (EPF):

Ensure you contribute to EPF.
It offers tax benefits and long-term savings.
National Pension System (NPS):

NPS is a good option for retirement planning.
It offers tax benefits under Section 80CCD.
Teaching Financial Literacy
Teaching yourself financial literacy is crucial. Building good habits will benefit you in the long run:

Simple Saving:

Understand the importance of saving money.
Use a budgeting app to track expenses and savings.
Basic Investing:

Learn the basics of investing.
Understand how different investment options work.
Final Insights
Financial planning is a journey. It requires discipline, regular monitoring, and adjustments. With proper planning, you can manage your loan repayments, start saving, and invest for a secure future. Remember to stay focused, be patient, and seek professional advice when needed. You are already taking a great step by planning for the future, and with consistent efforts, you will succeed.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.