Got a question about your money? What you should or should not do with it?

Our expert Devang Shah has the answers. Please write to us.

I'm 26 and working for the past three years. My take home salary is around Rs 44,000.

I have a life insurance policy from ICICI Prudential towards which I pay Rs 18,000 per annum.

I was thinking of taking a home loan of around Rs 25 to Rs 30 lakh (Rs 2.5 to Rs 3 million).

Do you think it is wise at my age? Or must I invest elsewhere?

I keep getting calls from banks like Citibank and ICICI Bank [Get Quote] where they offer different investment policies. Frankly, I am confused and don't know what to do.

- Amit Yadav

Hi Amit,

I am glad you have written in and I do hope I am able to provide some clarity.

Losing focus

You are wondering whether it would be appropriate to trust the advice of financial service providers who keep calling you with products that seem to be the solution to your problem and exactly what you need.

But, remember, at the end of the day they are very keen on just selling their products

You are finding it difficult to differentiate between financial advice and sales talk. It is here that I would advise you to go in for fee-only advice; take advice from professionals who will not have any interest in your transaction. They will charge you a fee and tell you where to invest based on your income, goals, number of dependents and your preference for risk. Since they are not getting a commission from selling any specific product, their advice will be unbiased.

Culturally, in our society, this is 'not done'. People will tell you not to pay for something you can get for free. You will have to make up your mind on whether you think you are getting what you want and whether it is worth it, even if it is 'free'.

Also, this seems to have got you to focus on your money rather than your own needs. Simply speaking, the logical thing to do is first find out what you need. Read The best way to save? Have a goal.

Have you considered your future financial such as retirement? Maybe marriage? Do you want to buy a home? If yes, have you looked at immediate issues such as loan repayments?

Buying a home or investing the money?

That really depends on your need.

Is there an event like a marriage or medical treatment that you need to pay for in the near future? If yes, then it is better you postpone purchasing the home so that you don't have too many demands on your money resource.

Do you need a home? If you are buying a home for investment purposes and you do not have any other investments, very soon you will have concentrated all your savings in property.

Historically, as an asset class, property has given lower returns than equity. However, if you are simply deciding when to buy a house rather than whether you should buy one, that would be a positive in your decision favouring the purchase.

Is it too early for you to take a home loan?

Is your concern your ability to keep earning till your loan repayment lasts or are you anxious because, culturally, we are not accustomed to taking a loan? Your real concern should be the former.

Are you the sole bread winner in the family? If yes, then in the event of your inability to earn income, a loan would be an additional burden on the rest of your family.

What it can mean, in such circumstances, is that your family would need to sell the house to repay the loan.

However, you can cover your life and also take an insurance cover to make sure that at least in these events your family will have the money to repay the loan.

Read Too young for a home loan?

Finally, I would like you to take encouragement from the fact that confusion arises out of choice. So, make the most of your choices; you won't regret it.

Illustration: Dominic Xavier

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