Here are a few money managment tips to consider before buying a house. These involve servicing the home loan and investments and are unrelated to the property purchase.
- Don’t be in a hurry! Buying property is often an emotional decision and even more frequently driven by a fear of missing out. These can result in mistakes. Take your time doing the research.
- Do not take a home loan for more than 70% of the property cost. You will need to pay the rest (30%). So while you do the research, accumulate the downpayment corpus.
- Ensure that the EMI is not more than 40% of your take-home – 30% would be ideal. The most desired mix is 30% expenses, 30% EMI and 30% for savings and investments.
- Do not rush to pre-close your home loan. You can pre-pay in parts little by little without affecting your long-term investments.
- If servicing the loan bothers you too much, do not pre-close it. Instead, open a fixed-income instrument, add what you can there, and call it the pre-closure corpus. Soon you will become comfortable with the idea of servicing debt as you have this corpus as a fall-back option.
- Ask, “What is the true cost of owning a house?” The answer for most people is inadequate retirement planning. It is okay to be emotional about buying a house, but why not also be emotional about financial independence in retirement?
- Most people have a “we will manage retirement planning later” attitude, but unfortunately, each year spent planning for a house purchase and servicing debt is a year lost forever and that “later” would never turn up.
- So emotional about retirement and ask/answer, “What is the shortfall in my retirement planning?”, “What am I going to do to correct this shortfall?”
- Track your progress to investing more for retirement each year.
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