Personal Finance

Loan-Investment Mix for Different Life Goals

Loan-Investment Mix for Different Life Goals

Last Updated : April 8, 2022, 11:47 a.m.

Planning a loan for marriage but getting annoyed by high interest rate quotes of lenders? Postponing your travel under the impression of having to pay too much for the same? What will you do if anything unpleasant happens suddenly? All these need an apt response, however, many err by taking WRONG financial decisions. Either they take too much loan or consume too much of their investments to meet the aforesaid purposes. In both cases, you’ll do your finances NO GOOD! So, you need to have a perfect loan-investment mix to achieve your life goals and meet emergency needs. We can help you ensure so through this post. Let’s read on!

Goal-wise, Loan-Investment Mix Will Vary

Don’t be linear while planning to achieve your financial goals. Different life goals come with different financial implications, hence calling for tailor-made strategies. Funding requirements for marriage could be different from those for travel. Even financing norms set by the lenders could differ for different purposes. For some, you may only require a loan, some could be done through sheer investments, and others may need a combination of both. Let’s shed some light on the same.

Loan-Investment Mix for Marriage

Ensuring a fat Indian wedding comprising a long list of attendees, food expenses, besides the usual Band Baaja Baarat and jewellery costs, requires perfect planning. Something that will ensure all without putting too much burden on you. This way, you can save for other life goals too. So, keep saving for marriage in financial instruments such as fixed deposits, recurring deposits, mutual funds, etc.

Your parents may have arranged some too for your marriage. Use that too along with yours. However, to achieve other goals too, a mix of both loans and investments will be better for marriage. Let’s have the loan-investment mix of 50:50.

Next Comes Higher Studies of Your Kids – How Much Should You Borrow and Invest for That?

Paying for academic courses feels much easier than doing so for professional courses such as medical science, engineering, M.B.A., etc. These studies incur you a lot, and the expenses related to the same keep going up every year by around 4-5%. So, after marriage, focus on building your savings even more for higher studies, something that will make you a proud parent later. As it opens up a glorious career path for your kids to blossom. Don’t hesitate to compromise on your routine, if the situation demands it, for achieving this glorious life goal. You’ll only feel good doing this!

But, Where Should You Invest for Education?

Trust equity mutual funds more for child education as the same can lead to a massive sum over time. But don’t invest the same amount month after month. Instead, hike it annually so that you can earn more and achieve all your goals without any fuss. Use your annual appraisals smartly to create space for extra investments every year. However, as you’ll need to manage your retirement too later, don’t consume all your investments. Take a loan too for child education.

This Much Loan & Investment Required for Education

If higher studies cost around INR 25 lakh, use investments worth around INR 15 lakh and the remaining as a loan. You could get tax benefits on both investments and loans. The interest component of education loans is allowed as tax exemption for the first eight years under Section 80E of the Income Tax Act. Equity-linked Savings Scheme (ELSS), a type of equity mutual fund, allows tax benefits of up to INR 1.5 lakh in a financial year under Section 80C of the Income Tax Act. However, unlike education loans, the tax benefits here continue till the time you stay invested. So, the more you invest in it, the more you earn and save taxes.

Know Your Travel Expenses First Before Planning

Travelling to new places and exploring their cultures does make for a refreshing experience amid the hustle and bustle of our daily lives. But travel COSTS and can seriously impair your finances if not planned well. Now, the cost will depend on your travel destination, accommodation and roaming expenses, etc.

Loan-Investment Mix Destination-wise

If you’re planning to travel within India, maybe you won’t require a loan! The savings, if made diligently over the years, will alone take you through to the destination. Yes, if you want, you can use the travel rewards of your credit card for such roaming experiences. Rewards, discounts and cashback only boost your savings. Besides relaxing and enjoying complimentary meals at airport lounges, thanks to these cards, will only give you a KING-like feeling!.

Overseas travel, on the other hand, would require a combination of loans, credit cards and investments. If the amount is too heavy, which will likely be the case, use less investments and take loans at the lowest interest rate. Compensate for the loan payouts by using rewards & other savings offers of credit cards.

Health Emergency Strikes You – What to Do Then?

Health emergencies of a serious nature can hit you hard financially if not prepared for the same with health insurance. A RIGHT health insurance plan covering a wide range of diseases is required. But twists await you there too! Almost all plans come with certain exclusions – which means the diseases or conditions for which you will need to pay yourself. In case you or any of your loved ones is having a disease not covered by the plan, you’ve got only two options then – loan and investment.

The Ideal Proportion of Loan & Investment for Health Emergencies

It will depend on the treatment cost, your savings and overall finances, etc. In case this emergency happens while you’re about 5-6 years away from attaining retirement, consider taking a loan that you can pay comfortably till you retire. Using investments won’t be advisable as you would almost achieve your retirement corpus by then. Secure that first! In case the emergency happens much before, you can take both loans and investments. Even then, don’t use much of your investments. So, if a medical emergency requires INR 3 lakh, take a loan of INR 2.5 lakh and withdraw the remaining amount from your investments.

What to Consider When Taking a Loan?

A loan feels good when taken at the least interest rate and for the right time. Most apply for the maximum time permitted for a loan. It’s because the EMI lowers substantially in that case and becomes much easier to pay. But that also leads to maximum interest payments. You can avoid that by choosing the loan tenure wisely. Choose a relatively shorter tenure that keeps the EMI affordable while reducing your interest payments.

How to Choose the Best Investments?

Choosing the best investments is as important as choosing the best loan. You can thus choose the best one online. There are various portals showing the returns of different financial instruments for different periods. See which has delivered the maximum and remained consistent throughout.

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