I am a newly married working woman. I earn Rs.2.50 lakh a year and my husband earns Rs.4 lakh annually. We both want to buy a 1-bedroom-hall-kitchen apartment (costing around Rs.20-25 lakh) in another two years. For the short-term, what are the risk-free investment options available to us? We plan on taking a home loan for 75% of the value of the property. Can you also suggest a budgetary plan for our domestic spending?
It is financially prudent to plan for your needs well in advance. This not only gives you ample time to create a road map but also helps in creating a corpus which reduces your dependency on leveraging.
You should know that housing loans give the advantage of low-cost loans—they have one of the lowest costs of borrowings. They also come with a tax incentive. Under section 80C of the Income-tax Act, 1961, you get the benefit of deduction of principal repayment from your taxable income for purchase or construction of residential house property with a cap of Rs.1.5 lakh. Further, section 24, allows deduction of interest on self-occupied property up to Rs.2 lakh.
In case of pre-construction interest, the deduction is allowed in five equal instalments starting from the year in which the house is in possession or the construction is completed.
The above deductions can be claimed separately both by yourself and your spouse provided the property and loan are in joint names and the repayment is also being done jointly.
At the same time, if you have surplus funds, you can prepay the housing loan. There are no prepayment charges after the loan is held for a minimum holding period.
As the plan is to buy the property within the next two years, surplus income needs to be invested in a secured asset class with low risk. The investment options gets limited to bank recurring deposits, and systematic investment plan in short-term mutual funds. The rationale is to keep the funds in products with high liquidity and low risk.
Similarly, you need to create various baskets for other financial needs and as said earlier, you should plan early. For instance, creating a corpus for children’s education, and another for you own retirement.
It is also good that you want to start disciplining yourself by bringing budgetary measures. Budget in your reference is mainly done to understand expenses and matching them with income.
Carefully scrutinise the expenses for few months and see whether you are in line with expectations, i.e., are you exceeding the budgeted expenses and if yes, try to control within reasonable means. Make sure you don’t try to overdo it and set realistic and practical targets. Try to live within your means and avoid borrowings. Also, plan for contingencies and unexpected expenses—you can create a separate basket to provide for the same.
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