hi,
i am 46 year old central government employee in Pune, I had several bad financial decision in my life.
i have two daughters aged 11 and 17
i have no saving left,
i have a flat in pune with liability of 38lac on home loan and 10 lac on personal society loan at 9% interest
i have a ancestral property of 50 lac in Tamil nadu where my mom lives
per month iam paying 550000 as home loan and personal loan EMI,
My income is around 86000 how can I come out of this EMI burden
and improve financial stability
Ans: Understanding Your Financial Situation
First, let me commend you for reaching out for guidance. It's never too late to improve your financial situation. You have two daughters to support and considerable loan burdens, which makes it essential to adopt a well-structured plan to regain financial stability.
Current Income and Expenses
Your current income is Rs. 86,000 per month. However, a significant portion of this income goes towards EMI payments. You are paying Rs. 5,50,000 annually towards home loan and personal loan EMIs, which is a heavy burden. This leaves limited room for savings and other expenses.
Loan Burden Analysis
The home loan liability is Rs. 38 lakh, and the personal society loan stands at Rs. 10 lakh. The home loan EMI is likely a major part of your monthly expense. Given the 9% interest rate on the personal loan, it is essential to address this first due to its higher interest rate compared to many other debt forms.
Asset Overview
You have an ancestral property worth Rs. 50 lakh in Tamil Nadu, where your mother lives. While this property holds significant value, it is tied to emotional and familial considerations.
Steps to Improve Financial Stability
Reassess and Prioritise Debts
Prioritise High-Interest Debts: Focus on reducing high-interest debts first. The personal loan at 9% interest is more expensive than typical home loans. Prioritising its repayment can save you significant interest over time.
Consider Debt Consolidation: Look into consolidating your personal and home loans. Consolidating at a lower interest rate can reduce the overall EMI burden. Discuss with your bank for possible consolidation or refinancing options.
Utilising Assets
Evaluate Ancestral Property: While the ancestral property is valuable, it might be worth considering its role in your financial recovery. You might explore options like renting out a portion of the property for additional income.
Downsize or Rent: If possible, you might consider downsizing your living space in Pune or renting out a portion of your flat to generate extra income. These steps can help manage EMIs more comfortably.
Budgeting and Expense Management
Create a Detailed Budget: Track all your income and expenses meticulously. Identify areas where you can cut down unnecessary costs. Budgeting helps in allocating resources more efficiently and finding ways to save money.
Emergency Fund: Establish a small emergency fund to cover unexpected expenses. Even a modest fund can prevent you from taking on more debt during emergencies.
Increasing Income Streams
Leveraging Skills and Opportunities
Freelancing or Part-Time Work: Explore opportunities to leverage your skills through freelancing or part-time work. Additional income from side gigs can significantly help in managing loan repayments.
Utilise Government Benefits: As a central government employee, explore any available benefits, allowances, or grants that might assist in your financial situation.
Investments and Savings
Start Small Investments: Begin with small, regular investments in safe, growth-oriented funds. Consult a Certified Financial Planner to select funds that align with your risk tolerance and financial goals.
Employer-Provided Benefits: Maximise contributions to government-provided savings schemes and benefits. These can provide tax advantages and enhance your financial security.
Reviewing and Adjusting Insurance
Insurance Policies
Evaluate Existing Policies: If you have LIC, ULIP, or investment-cum-insurance policies, consider their current value and benefits. These policies might not be the most efficient use of your funds.
Surrendering Underperforming Policies: If your policies are underperforming, you might consider surrendering them and redirecting those funds into more effective investments, such as mutual funds managed by certified professionals.
Adequate Coverage
Health Insurance: Ensure you have adequate health insurance coverage. Medical emergencies can drain savings and push you further into debt.
Life Insurance: Maintain sufficient life insurance to protect your family’s financial future in case of unforeseen events.
Planning for Children's Education
Education Fund
Separate Fund for Education: Create a separate education fund for your daughters. Even small, regular contributions can grow significantly over time.
Scholarships and Grants: Research scholarships, grants, and educational loans that can help fund your daughters' education without straining your finances.
Long-Term Education Planning
Invest in Education Plans: Consider education-specific investment plans. These can offer returns aligned with the timeframes of your daughters' educational needs.
Consult a CFP: A Certified Financial Planner can help tailor an education savings plan that suits your financial situation and goals.
Building a Sustainable Financial Plan
Setting Financial Goals
Short-Term Goals: Focus on immediate goals like reducing debt and creating an emergency fund. These are crucial for stabilising your financial situation.
Long-Term Goals: Set long-term goals for retirement, children's education, and eventual financial independence. A CFP can help you set realistic and achievable goals.
Monitoring and Reviewing
Regular Financial Check-Ups: Conduct regular reviews of your financial situation. Adjust your plans as needed to stay on track towards your goals.
Professional Guidance: Regular consultations with a Certified Financial Planner can provide ongoing support and adjustments to your financial strategy.
Final Insights
Improving your financial situation requires a multi-faceted approach. Prioritise paying off high-interest debts and consider refinancing options to reduce your EMI burden. Utilise your assets effectively, and explore additional income opportunities. Establish a disciplined budgeting and savings strategy to build financial stability.
Consider the future needs of your family, particularly your daughters' education, by creating dedicated funds and exploring scholarships. Regularly review your financial plan and adjust as necessary to stay on track. Engaging a Certified Financial Planner can provide personalised advice and support throughout your financial journey.
Your determination and willingness to improve your financial situation are commendable. By taking these steps, you can work towards a more stable and secure financial future for yourself and your family.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
