Purchasing a home is a personal milestone that many people aspire to achieve in their lives but with varying timelines. For some, this dream could take almost their entire working lives to materialize whereas for others, it can be achieved relatively early and easily.
Quite often, the gap between financial goals and their attainment is the result of a lack of adequate planning, and buying a home is no exception. Any specific financial goal, including buying a house, can be achieved in a systematic manner with a monthly savings plan.
What is Financial Planning?
Financial planning is a process in which you consider the different elements needed to achieve your financial goals and make appropriate decisions. Specifically, you proceed as follows:
- List your present financial capability, including your income, expenses, and financial obligations
- Identify your financial goals, for instance, accumulating a certain amount of savings by a certain point in time
- Estimate your potential financial position after a specific period, say, six months, a year, or five years
- Chalk out appropriate plans to bridge the gap between your financial capability and your financial goals
Therefore, financial planning can outline a roadmap for the future, including what you need to do to achieve your dreams and what mistakes you need to avoid.
Here is How You Can Start Financial Planning
One of the ways through which you can start planning for the future is by contributing to a savings plan from an early stage in your life, perhaps when you start earning. This approach makes you financially disciplined and optimises your earnings, expenses, savings, and investments. You can also benefit from the compounding of your investment for a long period. A guaranteed1 savings plan is the easiest first step in saving for your financial goals and a risk-free avenue to park your monthly savings.
The plans can be purchased in simple steps by logging on to their website and receiving the policy in soft copy after paying the Tata AIA premium online.
Tips for Financial Planning When Purchasing a House
There are several ways in which you can ensure the effective management of your finances and pursue your financial goals in an organised and time-efficient manner, including purchasing your dream home. In this context, four important tips for financial management while you shop for a home are given below.
1.Determine the kind of home you wish to purchase
The first step in effective financial planning for the purchase of your home is identifying the kind of home you wish to buy: an apartment, a villa, a semi-independent house, or a full-fledged bungalow. You could have other options like demolishing an existing home and redeveloping it or purchasing a second-hand property. As you scout for properties you would know their cost vis-a-vis their location, reputation of the builder, age of the property, amenities available etc. Your family’s requirements such as proximity to educational institutions, hospitals, shopping, and entertainment areas, etc also play a role in choosing a house.
The above assessment will help you to compare your present financial situation, including your earnings, expenses, and other financial commitments, vis-a-vis the cost of a new home. Furthermore, you must also determine how your earnings will grow and keep a track of your other commitments. It is important to be realistic as possible in the ascertainment of your financial strengths and constraints, failing to do which will lead to inaccuracy in your financial planning
2.Identify the timeline for the purchase and build a financial plan
The next step in the process of financial planning for buying your dream home is drawing up a timeline. This will help you make a financial plan that can match the various goalposts in the buying process according to the predetermined timeline. Most people buy a house with the help of a home loan. However, financial institutions have a set of guidelines for eligibility. Therefore, if you have not yet reached the prescribed eligibility norms, you should not delay or postpone your home buying proposal.
You can start investing in a monthly savings plan from an early age, so that you can build a substantial corpus by the time you qualify for sufficient funding. Then you can either obtain a loan and use the monthly income from the plan to pay the EMI or go for a lump sum payout from the plan and obtain a smaller loan. For instance, if your present savings and investments will enable you to accumulate ₹25 lakhs by the age of 30 years and the estimated cost of your dream house is ₹40 lakhs, you must decide how you are going to accumulate the deficit of ₹15 lakhs in time to be able to buy the house within the specified timelines.
3.Account for contingencies and strike a balance
Your financial plan should account for contingencies such as a sudden medical emergency, a permanent disability, loss of a job, a career switch, or any other adverse personal or professional circumstances. Allocating some funds regularly for these conditions will keep you prepared if life throws you a curveball. Furthermore, your efforts towards achieving your financial goals should be balanced: for instance, the pursuit of the goal of purchasing your dream house should be coordinated with the goal of, say, planning for your retirement.
4.Choose a flexible plan and invest with less risk
Plans should be flexible depending on changing circumstances. For example, your savings plan should have the option to enhance the contribution as your income rises. Further, plans with payouts at predetermined times allow you to match payments for the house. You can even use the funds to invest in other instruments until you must pay for a milestone in the purchase of the house.
By following some simple tips for financial planning, you can attain your financial goals in an organised manner. Drawing up a plan, eliminating unnecessary expenditures and remaining flexible between competing requirements will ensure that all your financial commitments are met.