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  • Category: Finance and Investments

    House construction first or car- confused about managing finances-please help.


    Are you confused about constructively using your finances? Are you in a dilemma about whether to construct your house first or to buy a car? Are you in doubt as to how you should manage your finances? This is the right place where you will find many solutions and advises from our experts.

    I am 41 years old having a monthly income of around Rs 90,000/-. I staying in a rented house at present on a monthly rent of Rs 9000/-.

    I purchased a plot in 2015 but the construction of my house has not yet started. EMI on the loan I took for the plot is Rs 13000/- pm.

    Now I want to purchase a car but I am confused because I need to start the construction of my house also. To be precise, I want to start construction of my house and at the same time want to by a car also.

    I request financial experts to kindly guide me so that my finances are not badly affected.

    Please guide me....
  • Answers

    3 Answers found.

  • Whether to buy a car?

    You have to assess your priority requirement now. Is car an immediate necessity? Will you be getting some reimbursement from your employer for using car like fuel allowance, driver's bata etc. Can the use of your own car save time and much money on your present mode of transportation? Do you have need to travel frequently with family?

    If the answers are yes, then you may buy a car. You can give it a priority and go for buy at the earliest. The house constructionmatter may take some time to plan and implement. By that time a good part of your car loan(if availed) would have been repaid. Here you can make an optimum decision depending on your necessity and affordability. You can take a loan with low interest and low EMI.

    Whether to construct a house?

    You are 41 years now. You have already purchased a plot and started repaying the EMI of Rs13000/- You have a reasonably good income.

    A house is a sentimental satisfaction for most people. It is a good asset most people want to possess. In your case you already own a plot. As Housing loans are usually long term loans, this is the right time for you to avail a Housing Loan. You can get a comfortable repayment term. The housing loan interest is very low now. The earlier the better, as the tax concessions given to Housing loans may not be continued for long as government policy may change.

    As ground work, you have to have some basic plan and idea about the construction cost. You may also assess your monthly expenses, savings you have, other sources of income etc. Based on that you can work out whether you need a housing loan or if needed how much loan you need. Once constructed if possible you can move to your own house and save the rent. Or you can let out and earn income. This also can be factored in fixing EMI.

    Once you have decided you may talk to the existing credit institution (who have given you loan for plot) about house construction loan also. If the terms are not favourable, you may discuss with another institution. They may have to take over the existing loan also. Else you may have to close the loan availed for the plot.

    My assessment form what you have given here is that you can have both- purchase of a car as well as construct a house; provided you are sticking to affordable and optimum level of cost and expenses and negotiate loan/loans with maximum possible favourable terms.

  • You are in a good job and getting a good income and you have many years of service also. The selection between the two depends on the conditions of the individual's responsibilities and family expenses.
    In any case House construction should be the first priority. Already you are spending up to Rs.9000/- as house rent. If you are not constructing your own house and if you continue to stay in a rented house you have to spend nine thousand rupees and the amount may increase from year to year. The EMI for the house loan is Rs.13000/-. That means if you go for your loan for the house you have to spend some Rs.4000/- extra but ultimately the house will be yours. So it will not be a burden to you. Your savings may reduce by Rs.4000/-. If I were in your position I will immediately go for house construction.
    Regarding the car, you have to decide based on your financial position and the necessity. The EMI will depend on the type of car you want to purchase and the loan amount you are opting. I feel that based on your salary, it will not be a problem for you to have a car as well as a house loan. You have to start the repayment of the loan for the car immediately. But the repayment of house loan will start after the total loan is disbursed. So you will get that advantage also. You decide to base on your monthly savings and go for a car loan. But don't hesitate to go to the house loan immediately.

    drrao
    always confident

  • One of the biggest expense or responsibility one has is having his/her own house and this is also the biggest necessity too. Now, as you have planned for both car and house construction at the same time so the financial impact is and will be huge no matter the income flow.

    It is although possible to meet both the expenses at the same time with proper planning and a little bit of control over expenses. Personally, for me, a car is a minuscule expense in front of a house, hardly 10% -15% of the house cost.

    I still don't have all the information to suggest to you the best way, but still, I will try to answer your query based on the available information.

    In the case of a car, depending upon the size of the family, go for wither a hatchback or sedan but don't exceed the budget by maximum Rs. 6-7 lakhs. You can get a good hatchback and sedan within this price range. Now, when you buy a car, few more expenses will get added to your list viz., petrol, insurance, servicing of the car, more outings on weekends and some accessory costs. Now if you consider the running cost of a car and your current travel cost then the incremental difference can be worked out. A hatchback will cost you nearly Rs. 7 to 7.5 per km and based on your current total travel cost you can find the incremental cost.

    Now, coming to your house construction. I do not know the place where you reside and the cost of labour and material. So, I am assuming, it will cost you nearly 20-25 lakhs to construct a two-storey house. Now to meet such huge expense I am hoping you have some savings and also willing to take another hosing loan for meeting the expense.

    I would suggest that you start with one storey as of now and then go for the second storey after 2 or 3 years when the burden settles a little, as well as your income, sees a bit of increment. This way the burden will be mitigated.

    One thing I read in your query and its a big mistake that you have committed that you have already availed a housing loan in 2015 but have not yet completed the construction of your house within 5 years of availing the loan. So, you will miss on the deduction under section 24 of the Income Tax Act.

    In hand salary - 90000
    Rent-9000
    EMI-13000
    Household expense-25000
    School fee-10000
    Travel expense-5000
    Savings-20000
    Total expense-82000
    Balance cash in hand-8000

    Now if you avail another loan of around Rs. 2 lakh for car and 8 lakh for the house then you may be left with nothing in hand based on the above assumption. So, to save some cash in hand you will need to reduce the savings part. Rest you will have to meet out of your savings if any.

    This condition will remain somewhat the same for the next 2 years until some contingency arises. The position will improve once your income sees an upward trend or you cut down on some current expenses to manage your finances. Also, liquid cash of around Rs. 2 lakhs should always be in your bank, no matter what.

    There are other possible solutions but for them to be discussed I would need more fine details to suggest an even better solution. You can anyway use the above suggestion and rework them based upon your actual expenses and planning you have in your mind.

    Live before you leave.


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