Clear your personal loan or credit card dues, and increase the size of your emergency fund
You finally heave a sigh of relief after repaying your home loan. Good for you. Home loans are a big burden for most people and getting them out of the way is indeed a reason to rejoice.
But with the home loan paid off, your EMIs would have stopped. So, you have some money left every month.
What should you do now?
Many people are real estate lovers and would want to take a home loan, again. Buying your first house for residential use is a good idea. But buying the next one for investment should only be considered once you have taken care of other important aspects of your life. Don’t be in a hurry to get yourself another home loan. So should you do with that extra money each month?
Here are some suggestions.
Using the extra money smartly
If you don’t have an emergency fund or if it is not big enough, then it’s time to use your new-found monthly surplus to top-up your contingency corpus. This might sound boring, but is essential. Emergencies don’t wait for us to accumulate funds! So, get going. Also decide how big your emergency fund must be.
In case you have other high-interest debt (a personal loan or credit card outstanding), start clearing that off. Start with the debt with the highest rate of interest, i.e., unpaid credit card balances. Once credit card dues are fully paid off, move on to the loans with the next-highest interest rate.
So, increasing your emergency fund and paying off high-interest loans can go hand-in-hand. It’s up to you.
Now comes the turn of your other goals. Saving for retirement, children’s future goals such as education and marriage are important. Do some goal-based financial planning to find out how much to invest for each goal. And if you are not saving enough, then redirect your newly found surplus towards these goals. Suppose you had a home loan for which you were paying Rs 45,000 in monthly EMI. Now the loan is over and you have this EMI money with you every month. Suppose you did some Math and found that you need to invest Rs 50,000 per month for children’s future and Rs 35,000 for retirement. That is a total of Rs 85,000. But as of now, you are only investing Rs 20,000 each for children and retirement goals. You can use the new surplus of Rs 45,000 to invest more for your children and retirement goals
Investing for other goals.
And where can you invest in for these goals? For retirement, you can consider increasing your VPF contributions (and/or PPF) and equity funds. For children’s future, you can go for SIPs in equity and debt funds.
It’s possible that some of you may have additional goals or expenses that are more short-term in nature. If that’s the case and you want to save for those first, then use debt funds or recurring deposits to save money for these near-term goals. But do not keep postponing saving for long-term goals. It really helps to start early.
And I must say this here. Live your life too. It is not just about saving and investing. So, if you want to splurge and spend a bit, go ahead and do it for a few months. Go on a trip. Pamper yourself. But, after a point, get back to normalcy and be reasonable. Redirect your old EMI money towards a solid, periodic investment framework.Many people put off other things till they have a home loan. So, if you have just recently closed your home loan and are randomly investing here and there without any thought, then don’t do that. Think hard about what your next set of priorities are and take some directional action.
