Building a home without a loan: Reader seeks advice

Ans: Assessing Your Current Financial Situation
Your combined monthly income is Rs 1.13 lakh, a solid base for building assets.

You have three active loans with a current EMI of Rs 26,000, which includes loans for land purchase.

Monthly expenses are Rs 53,000, while Rs 19,000 is allocated to LIC premiums, and Rs 20,000 goes to NPS.

You plan to close all loans by September 2025, and currently focus all excess funds towards these debts.

Evaluating Loan Repayment Strategy
Your focus on loan repayment is a wise step. Clearing these high-interest loans will free up monthly cash flow.

Prioritise the SBI loan at 12.46% interest after closing the ICICI loan, as it has a higher rate than the LIC loan.

Once these loans are cleared, your EMI obligation will reduce, allowing you to redirect funds toward home building and investment goals.

Strategic Steps Towards Home Building in 5 Years
Step 1: Plan a Dedicated Savings Fund
Begin a dedicated "Home Building Fund" once the loans are paid off by September 2025. This will give you two years of free cash flow before the home construction goal.

Estimate the cost for building your house. Allocate monthly contributions based on the required budget over 5 years, adjusted for inflation.

A balanced mutual fund or an SIP in a multi-cap fund could be beneficial for growing this fund with moderate risk.

Step 2: Review Existing LIC Policies
Rs 19,000 monthly in LIC may not yield optimal returns. Consider the role of these policies in your overall portfolio.

If these are traditional or endowment policies, they typically offer low returns. Switching to term insurance and investing the rest in mutual funds could enhance your wealth-building potential.

Consult a Certified Financial Planner (CFP) for an analysis of the LIC policies to determine if a shift would benefit your long-term goals.

Step 3: Explore NPS and Additional Investments
NPS is a good retirement tool with Rs 20,000 monthly contribution, but it may not support short-term goals like home building.

Post-loan, consider a diversified mutual fund SIP to grow your funds for the next 5 years, aiming for inflation-adjusted returns.

A combination of large-cap and multi-cap funds offers stability with moderate growth, which is suitable for a 5-year timeline.

Structuring Finances for Future Goals
Step 4: Create an Emergency Fund
As government employees, your jobs are stable, but emergencies can occur. Aim for 3-6 months of expenses saved in a liquid or short-term debt fund.

This fund prevents disruption to your goal-oriented savings if sudden expenses arise.

Step 5: Regular Review and Adjustment
Review your investments annually with a Certified Financial Planner to ensure they align with your timeline and goals.

Assess any rise in construction costs or changes in your financial situation. Regular adjustments ensure you stay on track without compromising other financial priorities.

Finally
Your disciplined approach to clearing loans and managing monthly contributions is commendable. A focused investment strategy after loan repayment will allow you to grow the funds needed to build your house in 5 years. Maintain an emergency fund, optimise insurance, and regularly review your investments to ensure a steady path toward your home-building goal.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: Building a home is a big financial goal. You want to construct a house worth Rs 30 lakh in 5 years. Your monthly salary is Rs 35,000. With the right savings and investment plan, you can make this dream a reality.

 

Step 1: Understanding the Total Budget Requirement
The house construction cost is Rs 30 lakh.

You will need to save or arrange this amount in 5 years.

Costs may increase due to inflation.

Having a buffer amount is important for unexpected expenses.

 

Step 2: Evaluating Your Savings Capacity
Your monthly income is Rs 35,000. The goal is to save a portion consistently.

 

First, identify your essential monthly expenses.

Reduce unnecessary spending to increase savings.

The more you save, the less you need to borrow.

 

Step 3: Creating a Dedicated Home Fund
Open a separate investment account for home savings.

Invest in growth-oriented mutual funds.

Avoid keeping all money in fixed deposits due to lower returns.

 

Step 4: Choosing the Right Investment Strategy
A 5-year investment plan should have a balance of growth and safety.

 

1. Avoid Index Funds and ETFs
Index funds cannot adjust to market risks.

Actively managed funds perform better in volatile markets.

 

2. Avoid Direct Mutual Funds
Direct funds need market tracking and knowledge.

Investing through a Certified Financial Planner (CFP) ensures proper management.

 

3. Maintain Liquidity for Construction Costs
Keep some funds in liquid investments for easy access.

Avoid locking money in long-term illiquid assets.

 

Step 5: Considering a Home Loan as an Option
If saving Rs 30 lakh is difficult, a home loan can help.

 

Banks may provide up to 80% of the home cost.

Your EMI should not exceed 40% of your income.

Higher down payment reduces loan burden.

A shorter loan tenure saves interest costs.

 

Step 6: Cutting Expenses to Boost Savings
Reduce unnecessary spending like eating out and entertainment.

Avoid impulse purchases.

Use discounts and cashback options to save more.

A simple lifestyle today helps in building your dream home sooner.

 

Step 7: Reviewing Your Plan Every Year
Track savings and investments regularly.

Adjust plans if income increases or expenses change.

Consult a Certified Financial Planner (CFP) for guidance.

 

Finally
A Rs 30 lakh home in 5 years is possible with proper planning. Focus on consistent savings, smart investments, and controlled spending. If needed, a home loan can bridge the gap. With discipline and patience, your dream home can become a reality.

 

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: You are in a very strong financial position.

Your monthly income of Rs. 7.5 lakh is stable and high.

You are able to save Rs. 4 lakh monthly. This shows excellent discipline.

Your stock investments have grown well from Rs. 1.1 crore to Rs. 2.3 crore.

You also hold Rs. 1 crore in fixed deposits. This gives you good liquidity.

You have already paid 50% of your home construction cost. This shows planning.

You need Rs. 1.2 crore more for construction, plus Rs. 25 lakh for interiors.

You have no loans or other liabilities. That gives you complete flexibility.

Let us now plan a simple way to manage the remaining Rs. 1.45 crore requirement.

Goal: Complete Home Construction Without Compromising Wealth Creation

You should aim to fund the house, and also retain equity growth potential.

Home is a consumption asset, not a financial one.

You already have 50% sunk cost in it. Balance 50% must be handled carefully.

You should avoid full withdrawal of your investments.

You should avoid breaking your FD fully in one go.

Also, avoid selling all your stocks together. That could trigger capital gains tax.

Try to split the funding over time. Use both assets and cashflow efficiently.

Recommended Funding Plan for Rs. 1.45 Crore Requirement

You can manage the funding with a mix of strategies.

You save Rs. 4 lakh monthly. That gives you Rs. 48 lakh over next 12 months.

Use this full Rs. 48 lakh for construction in monthly instalments.

That brings down the funding gap from Rs. 1.45 crore to about Rs. 97 lakh.

You can break FD partially to support balance amount in tranches.

Avoid breaking full Rs. 1 crore. Just break Rs. 50–60 lakh over 12 months.

Plan the FD maturity in 3 or 4 parts. Link them to construction payment schedule.

FD withdrawal is tax efficient as there is no capital gain tax involved.

Use your stock portfolio only if the market is favourable.

Sell part of equity, say Rs. 30–40 lakh in 3 tranches, only if markets are high.

Pick low conviction stocks or overvalued ones to sell.

Avoid panic selling or large lump sum withdrawals from equity.

Keep Rs. 40–50 lakh equity intact for long term growth.

About Loan Option: Take Only If Really Necessary

You don’t need a home loan in your case. But still, keep this backup.

Bank loan will cost you 8.5% to 9.5% interest.

That’s higher than FD interest and equity growth.

You are already able to save Rs. 4 lakh monthly.

Your liquidity is strong. So loan is not ideal in your case.

But still, have a pre-approved loan facility as backup.

If markets fall or FD is illiquid, loan gives flexibility.

You can take overdraft-type loan. You pay interest only on used amount.

Don’t take fixed EMI loans unless you have no other option.

Don’t use loan for interiors. Use only savings and FD for that.

Managing Your FD Efficiently During This Time

Let your FD serve construction flow with minimum tax impact.

Break the FD into 3 to 5 smaller deposits.

Let each part mature every 2–3 months.

This ensures your funds are not idle.

You avoid breaking entire FD at once.

Choose the highest interest paying FD. Prefer reputed banks.

Avoid corporate FDs unless AAA rated. Safety matters more now.

Keep Rs. 10–15 lakh FD as reserve. Don’t use up all.

Using Equity Smartly Without Disturbing Long Term Goals

Your stocks have grown well. But do not overuse them now.

Selectively redeem high valuation stocks first.

Don’t redeem high growth or dividend paying stocks now.

You can redeem stocks where conviction is now weak.

Avoid emotional attachment with any particular stock.

Ensure equity selling is spread across 2–3 quarters.

That way you can also manage capital gains taxation.

New rule allows Rs. 1.25 lakh LTCG tax free each year.

Beyond that, tax is 12.5% on long term equity capital gains.

Short term capital gains are taxed at 20%. So avoid recent stocks for redemption.

Interior Costs and Paper Work – Manage with Savings and FDs

Your interior and paperwork cost is Rs. 25 lakh. Handle it easily.

This is 5 to 6 months of your regular savings.

You can plan this expense over 6 to 8 months.

If some urgent payments arise, use FD tranches for it.

Don’t use equity investments for this portion.

Interior should not compromise your long-term wealth.

Future Strategy: Rebuild Portfolio Once House is Completed

Once your house project is complete, rebuild your portfolio slowly.

You can restart monthly equity SIP of Rs. 2 lakh from 2026 onwards.

Pick actively managed mutual funds through Certified Financial Planner.

Avoid direct funds. They offer no guidance or rebalancing support.

Avoid index funds. They give average returns, no downside protection.

Let your planner design an asset allocation plan.

Include equity, debt mutual funds, global funds, and gold savings.

Target Rs. 5–6 crore financial assets in next 10 years.

Don’t mix real estate again. You already own a big house now.

Review portfolio every year. Do rebalancing with expert help.

Your Risk Protection and Emergency Readiness

You must protect your family now with right insurance and emergency funds.

Have a term insurance of at least Rs. 1.5 crore.

Ensure Rs. 10 lakh health cover for you and family.

Keep Rs. 10 lakh as emergency fund in savings and liquid fund.

This ensures home funding plan does not get disturbed.

Finally

You have handled your finances wisely over the years.

You are in a better place than most people of your age.

Now your goal is to complete home peacefully without disturbing wealth.

Use your monthly savings, FDs and equity carefully.

Don’t rush to sell everything or take unnecessary loan.

Once house is done, build financial assets faster again.

Take help of a Certified Financial Planner to guide your investments.

Avoid random advice or trial-and-error approach in wealth building.

This is the right time to bring clarity and long-term planning.

Keep financial documents, home papers and investments organised.

Make a written plan for next 5 years with milestones.

Stick to the plan with discipline. Make adjustments only when required.

You have the right income, assets and mindset.

Now convert that into lasting financial security.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment