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Ramalingam

Ramalingam Kalirajan  |3819 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 07, 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
samrat Question by samrat on Jun 03, 2024Hindi
Money

Hello, I want to buy a car. However my salary is only Rs. 30k per month. I only have Rs. 1.5 lakhs in my savings. First hand car will cost me around 8-9 lakhs. Help how to make provision so that I can finally buy a brand new car

Ans: Let's embark on a comprehensive analysis to help you make an informed decision about purchasing a car. Your current financial situation requires a strategic approach to balance your aspirations and financial health.

Assessing Your Current Financial Situation
Your monthly salary is Rs. 30,000, and your savings amount to Rs. 1.5 lakhs. A new car costs around Rs. 8-9 lakhs, which is significantly higher than your current savings. Here’s how to proceed.

Monthly Income and Expenses Breakdown
First, evaluate your monthly income and expenses. This step will help identify areas where you can save more.

Income: Rs. 30,000 per month
Essential expenses: Rent, utilities, groceries, transportation, etc.
Non-essential expenses: Entertainment, dining out, subscriptions, etc.
Creating a Savings Plan
Increase Savings Rate
To buy a car, you need to save more aggressively. Aim to save at least 20-30% of your income. Here’s how you can do it:

Cut down non-essential expenses: Reduce spending on entertainment, dining out, and subscriptions.
Re-evaluate essential expenses: Look for cheaper alternatives for rent and groceries.
Establish an Emergency Fund
Before making any major purchase, ensure you have an emergency fund. This fund should cover at least 6 months of essential expenses.

Monthly savings goal: Set aside a portion of your savings for the emergency fund.
Automate savings: Set up automatic transfers to your savings account.
Exploring Financing Options
Buying a car outright may not be feasible right now. Consider financing options to spread the cost.

Car Loans
A car loan can make purchasing a car more manageable. However, assess your ability to repay.

Down Payment: Use your Rs. 1.5 lakhs as a down payment to reduce the loan amount.
EMI Calculation: Ensure the monthly EMI does not exceed 15-20% of your income.
Personal Loans
Personal loans offer flexibility but usually have higher interest rates than car loans. Compare options.

Interest Rates: Shop around for the best interest rates.
Loan Tenure: Choose a tenure that offers manageable EMIs.
Budgeting for Ongoing Costs
Owning a car involves ongoing costs beyond the purchase price. Factor these into your budget.

Insurance
Car insurance is mandatory and adds to your monthly expenses.

Premium Costs: Research and compare insurance plans.
Coverage: Choose a plan with adequate coverage at a reasonable premium.
Maintenance
Regular maintenance is crucial for the car’s longevity.

Service Costs: Budget for routine services and unexpected repairs.
Fuel Expenses: Estimate monthly fuel expenses based on your usage.
Depreciation
A new car depreciates quickly. Understand the depreciation curve and its impact on resale value.

Alternative Options
Given your financial situation, consider alternatives to buying a new car.

Pre-Owned Cars
Pre-owned cars are more affordable and depreciate slower than new cars.

Lower Purchase Price: Find a reliable pre-owned car within your budget.
Inspection: Have the car inspected by a trusted mechanic.
Leasing
Leasing allows you to use a car without the long-term commitment.

Lower Monthly Payments: Lease payments are typically lower than loan EMIs.
Flexibility: At the end of the lease term, you can choose to buy the car or lease a new one.
Investing Wisely
While saving for a car, invest your savings to grow your wealth. Avoid risky investments; choose stable options.

Mutual Funds
Invest in mutual funds to potentially earn higher returns than a savings account.

Systematic Investment Plan (SIP): Start a SIP to invest regularly.
Diversified Portfolio: Choose funds with a diversified portfolio to mitigate risks.
Fixed Deposits
Fixed deposits offer safety and predictable returns.

Short-term Goals: Use FDs for short-term savings goals.
Interest Rates: Compare interest rates from different banks.
Professional Advice
Consider consulting a Certified Financial Planner (CFP) for personalized advice.

Customized Financial Plan
A CFP can help create a customized financial plan based on your goals and financial situation.

Goal Setting: Define clear financial goals and create a roadmap to achieve them.
Investment Strategy: Develop an investment strategy tailored to your risk tolerance and time horizon.
Practical Considerations
Given your current financial constraints, it may be wise to delay the purchase until you’re more financially stable.

Building a Strong Financial Foundation
Focus on building a strong financial foundation before making a large purchase.

Debt Management: Avoid taking on debt that you may struggle to repay.
Savings Growth: Prioritize growing your savings and investments.
Long-term Financial Health
Consider the long-term impact of a car purchase on your financial health.

Opportunity Cost: Understand the opportunity cost of tying up a significant portion of your savings in a car.
Financial Flexibility: Maintain financial flexibility to handle unexpected expenses.
Realistic Timeline
Set a realistic timeline to achieve your goal of buying a car. This timeline should consider your savings rate, investment growth, and potential financing options.

Short-term Goals
Focus on short-term goals to improve your financial situation.

Increase Savings: Aim to save a specific amount each month.
Improve Credit Score: Ensure a good credit score to qualify for better loan terms.
Long-term Goals
Align your car purchase with your long-term financial goals.

Financial Stability: Ensure you’re financially stable before making a large purchase.
Future Planning: Consider your future financial needs and plan accordingly.

You’ve taken a significant step by assessing your financial situation and planning for your goal. This proactive approach is commendable.

Recognize Your Efforts
Recognize the efforts you’re making to secure your financial future. This discipline will serve you well in achieving your goals.

Stay Motivated
Stay motivated and focused on your goals. The sacrifices you make now will lead to greater financial security and freedom.

Conclusion
Purchasing a car is a significant financial commitment. Given your current salary and savings, it’s essential to approach this decision strategically. Focus on increasing your savings, exploring financing options, and investing wisely. Consider alternative options like pre-owned cars or leasing. Consult a Certified Financial Planner for personalized advice. By building a strong financial foundation and setting realistic goals, you can achieve your dream of buying a car without compromising your financial health.

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.
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Ramalingam Kalirajan  |3819 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 06, 2024

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Hello Experts, Greetings Im 33yr old and was earning just to make ends meet until now.Now I have a job where I can save 1.5 lakhs per month. I have short term goal to buy a car worth 10 lakhs in next 1 year or so. . suggest an investment strategy so that I can plan accordingly to achieve this goal. Also with about 50,000 I can invest in equity and debt with 60%-40% ratio for a long time. please suggest SIPs for the same. Thank you
Ans: Congratulations on your new job and the opportunity to save significantly each month! Let's outline a strategy to help you achieve your short-term goal of buying a car worth 10 lakhs within the next year, as well as a long-term investment plan for your equity and debt portfolio:

Short-Term Goal (Car Purchase):
Since your goal is to buy a car within the next year, it's crucial to focus on low-risk, liquid investment options to ensure the safety of your capital.
Consider investing your savings in a combination of fixed deposits (FDs), liquid mutual funds, or short-term debt funds. These options provide relatively stable returns and allow for easy access to funds when needed.
Aim to allocate your savings in such a way that you can accumulate 10 lakhs within the specified timeframe. Calculate the required monthly contribution based on your investment choice and the expected rate of return.
Long-Term Investment (Equity and Debt):
With a monthly surplus of 50,000 for long-term investments, you have the opportunity to build a well-diversified portfolio that balances growth potential and risk.
Considering your risk tolerance and the long investment horizon, a 60%-40% allocation to equity and debt, respectively, seems reasonable.
For equity investments, consider investing in a mix of large-cap, mid-cap, and multi-cap mutual funds through SIPs. These funds offer exposure to different segments of the market and can help diversify your portfolio.
For debt investments, opt for high-quality debt funds or fixed income options like PPF or debt-oriented mutual funds. These instruments provide stability and regular income while preserving capital.
Regularly review your portfolio's performance and make adjustments as needed to stay aligned with your financial goals and risk tolerance.
For your short-term goal, prioritize capital preservation and liquidity, while for your long-term investment portfolio, focus on creating a balanced mix of equity and debt instruments to achieve your financial objectives.

Best of luck with your investments and car purchase journey!

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Ramalingam Kalirajan  |3819 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 12, 2024

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Hi Sir, my name is Mathew, Im 29 and would need financial advice from you. I have a current salary of 1.19L per month and i stay in Bangalore. I send home 25k every month, keep apart 10k for charity/tithe, I pay a rent of 13k/month. Credit card bills account to 12k/month, loans and EMIs at 15k/month, I invest 3k in MF, and save 15k at the start of the month. Internet bills and Recharges at 1.5k a month. How much more can i save and invest, if i want to purchase a car and invest on buying a house later. Currently im unmarried and i also have to plan for a family and other expenses as well. Please guide me on how i should save more.
Ans: Hi Mathew,

Thank you for reaching out for financial advice. It's great that you're already allocating a portion of your income towards savings and investments. Let's delve into how you can optimize your finances to achieve your goals of purchasing a car, buying a house, planning for a family, and managing other expenses effectively.

Current Financial Situation:
Income Allocation:
Sending home: ?25,000
Charity/tithe: ?10,000
Rent: ?13,000
Credit card bills: ?12,000
Loans and EMIs: ?15,000
MF investment: ?3,000
Monthly savings: ?15,000
Internet bills and Recharges: ?1,500
Maximizing Savings and Investments:
Budget Review:

Analyze your expenses to identify areas where you can cut back. Consider if there are any non-essential expenditures that can be reduced or eliminated.
Increase Monthly Savings:

Aim to increase your monthly savings by allocating a higher percentage of your income towards savings and investments. You may consider gradually increasing the amount you set aside each month.
Reduce Credit Card Expenses:

Try to minimize credit card usage to avoid accumulating high bills. Create a budget for discretionary spending and stick to it to prevent overspending.
Explore Additional Income Streams:

Look for opportunities to supplement your current income. This could involve taking up freelance work, starting a side business, or exploring passive income streams such as investments in dividend-paying stocks or rental properties.
Financial Goals Planning:
Car Purchase:

Determine the timeframe and budget for purchasing a car. Start setting aside a portion of your savings specifically for this goal. Consider factors such as down payment, monthly EMIs (if applicable), and ongoing maintenance costs.
House Purchase:

Begin planning for buying a house by setting a target amount for the down payment and estimating your affordability for a home loan. Allocate a portion of your savings towards building your house fund.
Family Planning:

Factor in future expenses related to family planning, such as marriage and children's education. Start setting aside funds in advance to meet these financial obligations.
Investment Strategy:
Review Portfolio Allocation:

Assess your current investment portfolio and ensure it aligns with your financial goals, risk tolerance, and investment horizon. Consider diversifying your investments across different asset classes for optimal risk management.
Long-Term Investing:

Focus on long-term wealth accumulation through disciplined investing in mutual funds, stocks, and other financial instruments. Regularly review your investment strategy and make adjustments as necessary.
Emergency Fund:

Build an emergency fund to cover unforeseen expenses or financial emergencies. Aim to have at least 3-6 months' worth of living expenses saved in a liquid, accessible account.
Seek Professional Advice:
Consult a Financial Planner:
Consider seeking guidance from a Certified Financial Planner to develop a comprehensive financial plan tailored to your specific goals and circumstances. A professional advisor can provide personalized recommendations and help you navigate complex financial decisions.
By implementing these strategies and maintaining financial discipline, you can work towards achieving your short-term and long-term financial objectives while ensuring a secure and prosperous future.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

..Read more

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Ramalingam Kalirajan  |3819 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 06, 2024

Asked by Anonymous - Jun 02, 2024Hindi
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I am residing in Chennai hot city Wish to buy SUV city occasional use only (Monthly once or twice) within 60km including up and down. Family of 54 aged me and 51 aged wife 18 years son My wish list car Toyota any model because of engine stability Preferably automatic petrol version Some time going marriage function and waiting for call taxi makes the situation awkward to my status ???? Please advise really I need car in this situations? and if so advise me which model I have to select and purchase through ready cash or loan to avoid income tax eye ???? Budget below 15 lakhs.
Ans: Understanding Your Needs
Residing in Chennai, a hot and bustling city, presents unique challenges and opportunities for car ownership. Your family includes yourself, aged 54, your wife, aged 51, and your son, aged 18. You wish to buy a car for occasional city use, primarily for marriage functions and similar social events. You prefer a Toyota, known for its engine stability, and an automatic petrol version for convenience.

It is understandable to want a vehicle that reflects your status, especially when relying on call taxis can sometimes feel awkward. With a budget below Rs 15 lakhs, let's evaluate whether you really need a car and which model would suit your requirements best.

Assessing the Need for a Car
Considering your situation, purchasing a car could provide several benefits. It offers the convenience of transportation on your own terms, eliminating the need to wait for taxis. It also provides a level of comfort and status during social events. However, owning a car also comes with responsibilities and costs, such as maintenance, fuel, insurance, and potential depreciation.

Evaluating the Costs
Initial Purchase and Depreciation:

A car's purchase is just the beginning of its expenses. Cars depreciate over time, losing value as they age. This depreciation is something to consider, especially if you plan to sell the car in the future.

Maintenance and Fuel:

Regular maintenance is necessary to keep the car in good condition, and these costs can add up. Fuel expenses are another significant factor, particularly with petrol vehicles. Given your monthly usage of 60 km, fuel costs may be relatively low, but it's still an expense to account for.

Insurance:

Car insurance is mandatory and ensures protection against accidents and damages. The insurance premium varies based on the car model, age, and other factors. It's crucial to factor this into your budget.

Financial Planning for Car Purchase
Ready Cash vs Loan:

You have the option to purchase the car with ready cash or through a loan. Paying in cash avoids interest costs and can sometimes get you a better deal. However, using a loan might help manage your cash flow and retain liquidity for other investments or emergencies.

Avoiding Income Tax Eye:

To avoid drawing attention from the income tax department, it's essential to keep the car purchase within your financial means. If opting for a loan, ensure the EMI is affordable and doesn’t strain your monthly budget. Proper documentation and transparency in transactions will help avoid unnecessary scrutiny.

Choosing the Right Model
Given your preferences and budget, let's explore some suitable Toyota models. Toyota is renowned for its reliable engines and durability, making it a wise choice.

Toyota Glanza:

This model is an excellent choice within your budget. It offers good mileage, a comfortable ride, and the reliability Toyota is known for. The automatic version would provide ease of driving, especially in city traffic.

Toyota Yaris:

Another good option is the Toyota Yaris. It comes with a comfortable interior, advanced features, and Toyota’s trusted performance. The automatic petrol version fits well within your requirements.

Benefits of an Automatic Petrol Car
Ease of Driving:

Automatic cars are easier to drive, especially in heavy city traffic. They reduce the stress of manual gear shifting and provide a smoother driving experience.

Maintenance:

While automatic cars can sometimes have higher maintenance costs, Toyota’s reputation for reliability can mitigate this. Regular maintenance as per the manufacturer’s guidelines will ensure longevity and performance.

Conclusion
Given your situation and preferences, purchasing a car seems like a reasonable decision. It will provide the convenience and status you seek, especially for social occasions. Within your budget, Toyota Glanza or Toyota Yaris are excellent choices, offering reliability, comfort, and the convenience of an automatic transmission.

When it comes to financing the purchase, paying with ready cash might be the better option if it doesn’t strain your finances. It avoids interest costs and keeps the transaction straightforward. However, if you prefer to maintain liquidity, opting for a loan with manageable EMIs is also a viable choice.

Ensure to keep all financial transactions transparent and well-documented to avoid any issues with the income tax department.

Ultimately, owning a car can enhance your lifestyle and provide significant convenience. Make sure to choose a model that fits your budget and needs, and plan your finances carefully to enjoy the benefits of car ownership without unnecessary stress.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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