BackPut checks and balances on current expenses to meet long-term financial goals
You can also increase the tenure of housing loan. Based on your existing tenure, you could consider increasing it up to 25 years as repayment term. You can also consider prepaying a part of the housing loan.
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My wife and I both work and our total monthly income is 1.5 lakh. We plan to start a family and my wife wants to take a sabbatical for 3-4 years after that. We have a home loan equated monthly instalment (EMI) of 50,000 and a car loan EMI of 8,000. Once my wife stops earning, our monthly income will go down 30-35%. How should we plan towards this?
—Ramesh Tiwari
Financial goals need to be defined in advance with an objective to create a seamless transition. And that’s where the challenge lies. In your case, all these goals were defined, but planning was missing.
As mentioned, the income would reduce by 30-35%, thereby the in-hand income reduces from 1.50 lakh to about 1 lakh. And with pre-committed expenses of fixed EMIs of 58,000, you have about 42,000 left to take care of daily expenditure along with other expenses.
While the house loan EMI would continue for long, the car loan EMI will get over much sooner. Depending upon the balance tenure of the car loan as well as existing savings, you may consider prepayment of the car loan, subject to the prepayment charges. Doing so will help bring additional cash in hand, and improve the cash flows.
You can also increase the tenure of housing loan. Based on your existing tenure, you could consider increasing it up to 25 years as repayment term. You can also consider prepaying a part of the housing loan.
These alternatives do not change your lifestyle. Also, you may need to consider your current expenses and put checks and balances in place to ensure that after the new addition to your family, your expenses do not go up manifold. While you would want to maintain the same standard of living, you might have to make some adjustments. This can be started with immediate effect.
As a couple, you may also consider changing some of your decisions. For example, your wife may consider going back to work a little earlier than the 3-4 years planned; maybe in 2 years. But these are decisions that you and your spouse need to take duly considering your existing financial situation as well as your current and proposed expenses.
While this is a stopgap arrangement and you will be able to manage it, other steps need to be planned more carefully. Define your financial targets and make sure the goals are specific, attainable and time bound. This will help in early identification of the gap between where you are now and where you want to be.
Queries and comments at mintmoney@livemint.com
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