As an IT Professional, I have noticed that most of us plan to ‘invest’ in a decent apartment, if not bungalow. Following are the points I have noted from my personal experience which might help you in your ‘Home Plan’:
Plan for a house early in your career: Well this is a tricky & bold at one hand but wise, according to me, at the other! Prices of construction is an ever growing process and it’s never early or late to make a decision on investing in them. In a professional career we can assume our income to be growing* year on year basis
I do not want to kick off my career with a loan!: That’s how most of you would feel initially. Is it a good way to start ‘investing’ early in your career with an amount that you loan from bank? To answer this, there are two parts to it; First, if you are planning to invest in high risk area’s like market funds, then the answer is NO. You are better off without investment than to plunge into with a debt burden on your head. However, as an accounting background person would say, Land is one of the asset class which has appreciation instead of depreciation since its scarce/limited! Therefore, construction done on land is bound to the same rule in long term, if not short term! That’s one of the major reasons we are seeing multi-storied construction (High-rise apartments) instead of ground level constructions (bungalow like)! There are various risks involved, however less as compared to investment in market instruments/funds.
What about EMIs you might ask?: It becomes difficult to manage the EMI’s along with your other expenses. At least that’s how one would think when looking at their monthly income & expenses put together. However, the sooner you can put behind the thought of ‘EMI as burden’ the better it positions you for your future. Consider the EMI to be an amount you would be putting in your Provident Fund account. The benefits of booming property value & reduction in tax liability are both available here as well, if you compare it with interest earned on PF and deductions you get for income tax calculation. I would also say we can compare it on the point of ‘risk free’ investment here as well, if you will! A simple rule as per financial advisors would be to ensure your monthly outgo on EMI is approximately 25% of your post-tax income. I do agree to this calculation. And to add on to this, if you buy home in initial days of career, you might very well end up with paying almost 50% of your income as EMIs. This would set you back for few initial years on your luxury spending. Considering a fixed increase in your income at a rate of ‘minimal’ 10% p.a.*, you could easily bring the percentage of EMI down to 25% from 50% in a mere 5-6 years of time! Now is that a long period to put some luxury spending on hold considering you started your career say at the age of 22? Well that’s left to be decided by individual’s choices and priorities.
Please note that opinion noted above is my personal choice that I have made/experienced and are strictly mine. And I am in no way a financial expert offering you a set of magical mantras of investment!
*Well I am not considering recession and assuming you work reasonably good to be put out of job J
