Real Estate- SwitchMe

Created a well researched, original article in the area of financial planning for India’s budding startup- SwitchMe. SwitchMe helps customers switch over housing loans and provides advice in real estate planning, purchase, selling and governmental policies.

A little bit of financial planning is all we need.

By 2020, India will be the youngest country in the world with more than 50% of its population under the age of 29. The 400 mn millennial population is driving close to 46% of the modern workforce and in some cases- is already the primary provider of household income. Why is this number important? This means, that a significant number of people in the country are going to be investing in assets such as realty, pursuing higher education for themselves/kids, travel to global destinations and save for retirement. Financial planning is a very important component in making these dreams come true for an individual and the country.

Financial planning is a combination of mapping the route towards life’s major goals ( build a retirement corpus, buy a house on the beach even! ) and providence for short term solutions to problems that could hinder the long term plan. It is the process of determining the amount of money and avenues to earn, save, spend and invest.

According to a recent survey, India lags in the financial planning aspect. It states that the millennials aged between 30–45 are aware about instruments of investments, but falter in the planning stages. 81% of Indian parents are unaware of the cost of higher education and a massive 71% are willing to be in debt to fund their child’s education ladder. Citizens still bear 89% of healthcare expenditure out their pockets.

From the day we earn our first rupee, we have only been instructed to “save, save, save” by our parents and society through the ages! But if you want to be truly financially independent, it is crucial to know how to make gains from your money, create a regular habit of budgeting and most importantly — lay a solid economic foundation for you and your family. Here is a quick guide to get you started:

1. Start a realistic budget.

For the most part of our lives, budgeting is defined as the allocation of money in two categories- household and personal expenses. A common situation observed in today’s world- expensing a lifestyle which a salary cannot support and ultimately living from paycheck to paycheck, with minimal possibility for saving of any money for future financial planning. At the very elemental level, the value and need for a budget must be understood. It allows for smarter decisions as it forces you to think, plan and foresee the financial risk of each purchase. A budget gives you a clear picture of your money, expenses, debt and surplus. Follow the thumb rule- reserve 20% of your income as savings and build a corpus for continued investments into instruments.

2) Audit your expenses and build an emergency fund.

Post the formulation of your budget, the next step is to audit your expenses and cut down what’s unnecessary. Take a closer look at spending patterns, variable expenses and determine the gaps between monthly inflows and outflows. Now that you have arrived at a realistic figure, the next step is to build an emergency fund with at least 3–6 months worth of expenses. When a grave situation occurs such as being laid off, the fund will take care of your financial burden and keep the planning intact.

3) Guard with insurance.

When you are investing and building assets, securing yourself from risk is critical too. Protect yourself and your family by creating an insurance portfolio, which is a permanent fixture in your life. People weigh insurance as a means to save tx and as an investment asset, it is actually the most preferred investment option after fixed deposits for most in the country. Get medical, term and accident plans to safeguard yourself from risk for the paid premium of as low as Rs 2,000/month.

4) Try to stay out of debt.

Even after a reduction of expenses and a sound budget, you may find yourself burdened with credit card debt. Do not let it linger on, pay it as soon as you can. Your payment pattern is factored into your Credit Score which affects your ability to secure a loan ( personal or home). Also, getting out of debt becomes increasingly difficult if you are facing high-interest rates on your credit cards and loans.

5) Create an investment portfolio and monitor it.

Saving does not mean anything unless you can make your money fruitfully work in your favor! Create an investment portfolio and periodically monitor it. Start small with SIPs into mutual funds, move into equity instruments and create short term/ long term goals from day one. With a measly investment of just Rs 6,000/month into a SIP, you can potentially build a retirement corpus of over 90 lacs!

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Another aspect of financial planning is loans. Whether it’s a long term goal of buying a home, or a short term goal of a vacation in Paris, loans are accessible instruments that are helpful in meeting any shortfall. Home loans and personal loans are rising in the country and an increasing number of consumers are using it to meet their financial needs. But before you take a loan, here are certain factors to ponder and consider:

Determine the “why” of the purchase

Financial planning is mostly about practising cautious restraint and less about impulse buying. If you are considering making a big-ticket purchase, you need to clearly determine the reason behind it. Is it an emotional or a pragmatic decision? Will it further your financial goals? Is it helpful for your family and business? There are many factors to consider, before you commit your hard-earned money towards a loan.

The personal checklist

Now that you have determined the “why”, it’s time to move on to the “how” of the purchase. Before securing either a personal, education or even a home loan, a thorough check of the following is key:

• Credit score to check for eligibility. A credit score is a calculation of income and how timely you are at servicing your debts. Currently there are 4 information companies licensed by the RBI, and the Credit Information Bureau(CIBIL) is commonly used to check scores. Each individual is scored between 300–900.
• Personal affordability: Typically, paying off monthly loan installment should not account for more than 30–40% of your total household income. Affording the down payment and the payment of EMI ( equated monthly installments), a liability emergency fund and other expenses should be planned out before securing a loan.
• Due diligence of bank interest rates: Always shop for your loan and compare rates in all banks. Other than interest rates, banks offer discounts on processing fees, have special terms on prepayment & penalties, need for a guarantor, customer service, online transaction & payment facilities. The loan difference between banks could be between 0.5%- 1% and this will make a significant change to your payment amount.
• How to raise down payment: Every loan 10 % of its principal amount to be paid as down payment. Whether it’s a large home loan or a small personal loan amount, plan out the raising of the down payment amount. Borrowing it from the family & friends, liquidating your investment portfolio, paying off your credit cards are some of the popular methods.
• 6-month liability fund: It is absolutely essential to build an emergency fund which can last you for 6 months comfortably, should all your avenues of income be lost or you are struck with an grave emergency. The fund should cover your basic expenses and loan payment amount.

This checklist will not only help you keep your loan on track, but if calculated well, could even leave you with money that could be invested in other options in the market. SwitchMe is your ideal friend-in-need, in this regard. It’s tech enabled loan services will guide you towards the best bang for your buck and even advise you on switching loans to save valuable money ( home loans only). Once you are loan path, it goes without saying- it is imperative to pay your monthly installment on time and maintain a balance against the expenses. Keep a track of your emergency fund and keep continuously building it- should you need to use it a later date for your advantage.

And finally, do not be afraid of taking control of your finances. Jump right in, take the reins and move forward. Save more, invest more and reap more gains. The road to financial independence is long but absolutely indispensable. Start now!