TLDR;
In this episode of Money Matters, Warikoo assists Yogesh, a 32-year-old engineer, in managing his finances, which are currently strained due to a home loan, a personal loan, and other expenses. Yogesh seeks advice on how to handle his debts, save for his pregnant wife's expenses, and start investing. Warikoo provides a detailed plan to build an emergency fund, manage loans, and begin long-term investments, emphasizing the importance of financial discipline and planning.
- Focus on building an emergency fund of ₹1.5 lakh to cover 4-5 months of expenses.
- Prioritize repaying the expensive personal loan with 16% interest.
- Start an SIP in debt mutual funds and later shift to equity mutual funds.
- Pay one extra EMI annually and increase the EMI by 10% each year to reduce the home loan tenure significantly.
About Yogesh [0:00]
Yogesh, a 32-year-old engineer, is the focus of this Money Matters episode. He lives with his father and wife, who recently completed her degree. Yogesh has been working for 12 years and recently shifted to a new company. He is seeking financial advice due to the burden of a home loan and other personal loans.
Expectations from Money Matters [0:44]
Yogesh outlines his financial concerns, primarily centered around managing his loans. He has a home loan of ₹26 lakh with an EMI of ₹19,000 for 30 years at 7.9% interest. Additionally, he has a personal loan of ₹2 lakh from Trade App at 16% interest with an EMI of ₹5,838 for four years, and a mobile EMI of ₹2,346 for 10 months. Yogesh is looking for guidance on how to manage these loans effectively.
Current finances [1:48]
Yogesh's in-hand salary is ₹46,000 after PF deductions. His wife is currently not working. His monthly expenses, excluding loan payments, amount to approximately ₹9,000. Including the home loan, personal loan, and mobile loan, his total monthly expenses are around ₹36,000. Yogesh has ₹1,75,000 in his bank account, but after paying ₹1,40,000 for initial expenses, his savings are depleted. He also has an RD of ₹35,000 for emergencies. Yogesh mentions his wife is pregnant and he is concerned about covering the additional expenses. He has corporate health insurance but no life insurance due to a previous medical issue.
Advice for buying a house [7:29]
Warikoo highlights the common mistake people make when buying a house: underestimating associated expenses. Beyond the down payment and EMI, costs like registration, brokerage, furniture, and appliances significantly increase the financial burden. He advises budgeting and accounting for all these expenses to avoid sinking further into debt. Warikoo emphasizes that buying a home is a valid aspiration, but it requires careful financial planning and consideration of all related costs.
Plan for investing [9:25]
Warikoo provides a detailed plan for Yogesh to improve his financial situation. First, he advises building an emergency fund of ₹1.5 lakh to cover 4-5 months of expenses, given his responsibilities. Yogesh should stop adding to his existing RD of ₹35,000 and start an SIP of ₹10,000 in debt mutual funds to build this fund. After 12 months, he should have around ₹1.5 lakh in his emergency fund. Once the mobile loan is repaid, the ₹2,300 EMI should be redirected to children's expenses, and the ₹10,000 SIP should be moved to equity mutual funds. Warikoo suggests paying an extra EMI each year and increasing the EMI by 10% annually to reduce the home loan tenure from 30 years to 11 years, saving a significant amount of interest. He also advises Yogesh to take a term life insurance policy.
Closing remarks [18:35]
Warikoo concludes by encouraging Yogesh, emphasizing that with disciplined financial management, he can overcome his current challenges. He advises against taking further personal loans, as they indicate living beyond one's means. Warikoo assures Yogesh that by using his money wisely and understanding his finances, he can become debt-free and secure his family's future.