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Ramalingam Kalirajan |8309 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jun 26, 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 Joy on Jun 26, 2024Hindi

I am a Railway employee, my monthly salary is approx 38000. I have a personal loan of monthly emi 17000 and it's outstanding amount 490000 about remaining 40 months. I have also invest 9000(5000 RD + 4000 MF) for my marriage in first of 2026 . My total expenditure ={ 23000 ( including loan emi) and invest 9000 for marriage and 7000 for try to prepayment to loan }= 39000 My next plan build my house take a home loan about 15 lakh and try to prepayment my personal loan with extra emi 7000 but it takes 20 months, I want to take home loan in next year 2025 about 8 month later, so I try to close my personal loan as early as possible in each month with extra emi. But can't get the result at proper time. what should I do ? And Ami I going in right path? Pls suggest me

Ans: I see you're working hard to manage your finances and future goals. Let's look at how you can achieve your plans effectively.

Understanding Your Current Financial Situation
First, let's break down your current financial position:

Monthly Salary: Rs. 38,000
Personal Loan EMI: Rs. 17,000
Personal Loan Outstanding: Rs. 4,90,000 (40 months remaining)
Monthly Investments: Rs. 9,000 (RD and MF)
Total Monthly Expenditure: Rs. 23,000 (including loan EMI)
Additional EMI for Loan Prepayment: Rs. 7,000
You have a clear goal: to close your personal loan as early as possible and take a home loan next year.

Loan Repayment Strategy
Focus on Personal Loan Prepayment
You're already paying Rs. 7,000 extra towards your personal loan each month. This is a good step. By prepaying, you're reducing the interest burden. However, it may not close the loan as quickly as you hope.

Increase Prepayment Amount
If possible, try to increase the prepayment amount. Even a small increase can significantly reduce the loan tenure. Check if you can cut some discretionary expenses temporarily to allocate more towards prepayment.

Lump Sum Payments
Whenever you receive any extra income, such as bonuses or gifts, use it for lump sum payments towards your personal loan. This will further reduce your outstanding amount.

Investment Strategy
Balancing Loan Repayment and Investments
You’re investing Rs. 9,000 monthly (Rs. 5,000 in RD and Rs. 4,000 in MF) for your marriage in 2026. This is important, but your immediate priority is clearing the personal loan.

Temporarily Redirect Investments
Consider temporarily redirecting some of your investments towards loan prepayment. For instance, reduce RD and MF contributions slightly and use this amount for prepayment. Once the loan is cleared, you can increase your investments again.

Continue Some Investments
It’s essential to continue some investments for your marriage goal. Don’t stop investing completely, as this goal is also crucial.

Planning for the Home Loan
Timing of Home Loan
You plan to take a home loan in 2025. Clearing your personal loan before that is wise. This will improve your credit score and reduce financial stress.

Home Loan Amount
Plan your home loan amount carefully. Ensure the EMI is manageable within your monthly budget. Avoid over-borrowing to keep financial stress low.

Save for Down Payment
Start saving for the down payment of your home loan. Typically, lenders require a down payment of 20% of the home’s value. This will reduce your loan amount and EMI.

Building an Emergency Fund
Importance of Emergency Fund
An emergency fund is crucial to handle unexpected expenses without disrupting your financial plans. Aim to save at least 3-6 months’ worth of expenses.

Gradual Savings
Start small. Save a portion of your salary each month towards the emergency fund. You can increase this amount once your personal loan is cleared.

Ensuring Financial Stability
Budgeting and Expense Management
Create a detailed budget to track your income and expenses. Identify areas where you can cut costs. This will free up more money for loan repayment and savings.

Avoid New Debt
Avoid taking any new loans or credit until your personal loan is cleared and you have a stable financial situation. This will help you stay on track with your goals.

Regular Financial Reviews
Monitor Progress
Regularly review your financial situation. Check your loan balance, investment growth, and budget adherence. This will help you stay focused and make necessary adjustments.

Seek Professional Guidance
Consider consulting a Certified Financial Planner (CFP) for personalized advice. They can provide insights tailored to your situation and help you achieve your goals efficiently.

Evaluating Investment Options
Avoid Index Funds
Index funds might seem attractive but they have limitations. They may not beat inflation or provide superior returns consistently. Actively managed funds, with professional management, can offer better returns and adapt to market changes.

Benefits of Regular Funds
Direct funds require active management and market knowledge. Investing through a Mutual Fund Distributor (MFD) with CFP credentials offers professional guidance and better fund selection. This can lead to better performance and peace of mind.

Final Insights
You’re on the right path with a clear focus on your financial goals. Prioritizing loan repayment is wise, but balancing investments for your future goals is also essential.

Increase your prepayment amount if possible and consider redirecting some investments temporarily. Regularly review your financial situation and seek professional advice if needed. You’re doing great, and with some adjustments, you’ll achieve your goals effectively.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

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