You can also look at your increment for further years or at least some part of it as “for prepayment purpose”. For most people, an increment in their salaries means an upgrade in their lifestyle. The additional money is never additional in their life; it just fits in their life and finds its own equivalent
expenses. However, you can be prepared to use it only and only for prepayment purpose and keep a check on your lifestyle for few years. If you don’t want to use the full increment for prepayment, you can at least use 50%
of it. A balanced approach!
Investing money vs. paying back debt
One big question in many people’s mind is that if they have additional money in their life, is it prudent to pay off the loan or invest it to generate a higher return? Now there can’t be one answer, which will fit for everyone. A lot depends on you. The biggest factor is how emotionally you are attached to a
“LOAN”. Does having a loan in your life make you uncomfortable? If yes, you better get rid of the loan fast. If you are too afraid of taking risks in life and are going to keep the additional money in bank deposits or savings bank accounts, better pay off the loan.
But tax saving also plays a role
While tax saving itself should never become the big reason to go for a loan (like home loan), if you have already taken the home loan and you are already enjoying tax benefits and it’s saving you some money at the end of the day, you might want to consider it as a strong reason for not repaying your loan.
Now based on this knowledge, let’s see if you can make some actionable outcome out of this or not. Fill up the table below.
Action Time
Your outstanding debt
Number of months you have to pay the EMIs as of today
How much money can you prepay more in next 1 year?
Write down your plan for that 1 year prepayment in detail How much money can you prepay more in next 3 years?
What is the plan for next 3 year prepayment?
Bonus Tips
1. If interest rates go down, you can ask your bank to decrease the tenure and keep the EMI constant, instead of the other way round.
2. Some banks have restrictions on how much minimum and maximum you can prepay, check with the bank and include it in your repayment plan.
3. You can prepay your loan online by linking your loan account with your bank account. This will help you prepay as soon as you are ready with money. More on this in the next chapter.
The 10th step in your financial life is to organise it well and keep it clean. It’s as important as any other aspect of your financial
life.
Are you organised in your financial life? You might wonder what exactly I mean. Imagine your financial life as your living room. How does it look? Try to visualize it for a moment. Does it have clutter all around, are things properly placed in the right place, are things thrown on the floor or they are properly kept in a cupboard?
It happens!
1. If your bank deducts Rs. 100 from your bank account and there is no trace of it, no mention in your bank statement or no SMS on your mobile about it? There are higher chances that you will not come to know about it, correct?
2. There are various kinds of financial documents in your life. Are they scattered all around and you have no idea where they are stored exactly?
3. There is enough financial information and things that your family is unaware about, and in case you are not in the world tomorrow, it will be tough for your family to figure out things and really frustrate them.
4. There are many pending tasks in your financial life and you are wondering from long to complete it, but still they are not completed.
5. Your financial life requires a lot of manual intervention and you have not optimized it well so that many things can be done online.
If the answer for most of these questions is a “YES”, you are probably too unorganised in your financial life and you need to make sure you fix things ASAP so that you become organised.
We respect our money, we respect financial products, we know they will help us in our financial life, but once we complete our actions of buying the financial products, we just don’t find time to be organised. Somewhere we don’t respect the power of organising our financial lives, or we over-rely and believe the companies we deal with that they will come to our rescue. Many times, we underestimate the bad outcome due to mismanagement in our financial life and our unorganised behaviour.
In this section, we will look at 4 major areas to organise your financial life.
Once you complete all of them, you can consider yourself as fairly organised.