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

Our expert Devang Shah has the answers. Got a question? Please write to us.

My wife and I are both 25 and we earn Rs 65,000/month. We maintain an upper middle class lifestyle.

Home loan: EMI Rs 17,000 (24 years left)
Personal loan:  EMI Rs 3,000 (11 EMIs left)
Personal loan (downpayment): EMI Rs 9,000 (5 EMIs left)
Car loan: EMI Rs 5,000 (3 years left)

We are planning to have a baby end 2007 for which my wife would take a year's break.

I want to buy a second flat in Bangalore for Rs 18,50,000 (the earlier one was Rs 22 lakh � Rs 2.2 million).

I have to give Rs 1,00,000 as the booking amount by this month. This I will get from my post office savings.

This home loan will be on my wife's name. Once it is completed in December 2007, I will give it on rent for Rs 7,000/month.

No other savings.
No insurance.
I have even utilised my provident fund of the last three years.

Do you think I should buy the second flat?

- Rahul Dahiya

No.

Of course you need to make your decision based on professional consulting with your financial advisor, but this would be my first reading.

Presently, your joint income is Rs 65,000. I have no idea what you and your wife are individually earning. So I am going to assume that both of you earn an equal amount -- Rs 32,500.

The Equated Monthly Installments on all your loans equals to Rs 34,000 per month.
Balance monthly income = Rs 65,000 � Rs 34,000 = Rs 31,000.

When your wife takes a break, your monthly income will go down by Rs 32,500. So, if you are only earning Rs 32,500 how will you service your EMIs of Rs 34,000? Without your wife's income, you are presently in the negative of Rs 1,500 on your EMIs.

What about your other monthly expenses?

If you buy another home, you are likely to have an EMI of approximately another Rs 17,000. By the time your wife takes a break, your personal loan EMIs will be complete. So, by then, the two home loan EMIs and the car loan EMI will total to around Rs 40,000.

Besides your earnings of Rs 32,500, you will receive a rent of Rs 7,000. That will be a total of around Rs 39,500. Where will you get the money to run your home and pay for other expenses?

More loans will only increase your EMIs into a territory where your income will not be enough even to repay loans.

So you would have to borrow to repay. 

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Illustration: Dominic Xavier

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