Have you ever noticed how it’s always, ‘my dream home’ and never just a ‘home’? I think that’s partly because that’s all it’s become nowadays, a dream.

Being a financial planner, I’m yet to come across a plan wherein buying a ‘dream’ home isn’t a high priority goal. In Indian cultural mind-set, nothing screams stability and wealth like owning a property.

Last Sunday, I had a first-hand experience of a home buyer’s dilemma when it comes to making a practical decision about an emotional goal of house purchase.

My brothers’ best friend, Ajay (32) and his wife, Mrs Nishigandha (31) had come over. Post lunch, while watching a movie, the same Shah Rukh Khan advertisement reappeared and gave my father the opportunity to start grilling my brother and his friend on the importance of buying a property now!

This started a discussion on how to effectively plan buying a house, while not burning a hole in your pockets.

Ajay remarked, ‘I want to buy a house, but the home loan EMI is Rs 52,000! That’s about 52% of my household income. Is that advisable?’

‘No!’ I replied.

Your home loan EMI’s should not be more than 35% of your total household income. In this case, a 52% EMI to Income ratio is not advisable.

‘But then shall we give up on our dream of owning a home in Mumbai?’ enquired Nishigandha.

Again, ‘No’.

Even though buying a home is an emotional goal, planning for it need not be one.

Here’s how Ajay and Nishigandha can go about planning for buying their dream home and not burning a hole in their pockets.

Table 1: How much will your dream home cost you?

Particulars	Amount
Current Value of Property (In Rs)	65,00,000
Loan Amount (In Rs)	58,50,000
Tenure of loan	20 years
Interest Rate on loan	8.75%
EMI (In Rs)	51,697
Income : Ajay (In Rs)	65,000
Income : Nishigandha (In Rs)	35,000
Total Household Income (In Rs)	1,00,000
EMI : Total Income Ratio	51.70%

The property, a 1-BHK apartment in Airoli, Navi Mumbai, currently costs Rs 65 Lakh. The loan amount would be 90% of the property value i.e. Rs 58.50 Lakh at 8.75% interest rate. The monthly EMI comes to Rs 51,697 on a 20-year tenure, which is 51.70% of their household income.

While the Rs 51,697 EMI will not affect them initially, as and when they decide to have a kid and the child’s financial goals come into picture, their dream home will have an adverse effect on their financial goals.

So, what’s the way ahead for us, Deepika?, enquired a concerned Ajay.

The way ahead was simply a change of attitude. A rented apartment, though it has its own hassle (regular shifting), can prove to be a boon for Ajay and his wife.

Table 2: Why renting a property is sensible?

Income	Amounts (In Rs)
Ajay	65,000
Nishigandha	35,000
Total Income	1,00,000
Expenditure	Amounts (In Rs)
Household	25,000
Rental	15,000
Lifestyle	5,000
Medical	2,000
Total Expenditure	47,000
Savings	53,000

The couple earn Rs 1 Lakh collectively and their monthly expenditure is around Rs 47,000, resulting in a surplus of Rs 53,000 every month. Their current rent is 15% of their total monthly income, while their savings ratio is a commendable 53%!

The plan was simple. If Ajay and Nishigandha ensure that Rs 30,000 is invested every month going forward for the next 20 years, they can finally afford their ‘dream home’.

Let me elaborate.

Table 3: Achieving the dream

Particulars
Current Value of Property (In Rs)	65,00,000
Years to Goal	20
Real Estate Growth	7%
Future Value (In Rs)	251,52,949
Monthly Savings (In Rs)	30,000
Years for investment	20 years
Return on Equity	12%
Future Value of savings of Rs 30,000 (In Rs)	299,74,438
Future Value of the property after 20 years	251,52,949
Surplus Goal	₹ 48,21,488

By saving Rs 30,000 every month for the next 20 years, the Ajay and Nishigandha will accumulate Rs 2.99 crore while the property value will appreciate from Rs 65 Lakh to Rs 2.51 crore, resulting in a surplus of Rs 48 Lakh.

The remaining surplus savings of Rs 23,000 can be utilised for their upcoming financial goals.

‘Wow, can this really happen?’, questioned a bewildered Ajay.

‘Why not? But there’s a catch’.

‘Catch?’ asked everyone at the table, a bit puzzled.

Yes, financial goals and achieving them requires meticulous planning and disciplined approach. Once Ajay starts investing Rs 30,000 each month for the next 20 years, under no circumstances should he withdraw from the corpus or stop his investments as that will derail his plan and his dream will never become a reality.

So, next time you look at the Mumbai skyline and decide that you too want to purchase your dream home in the city of dreams, but the home  loan EMI looks daunting, remember you are not alone. But unlike, many instead of carrying the EMI burden, take a planned approach to savings and you too can have a dream home in the city of dreams.

As Mr Lao Tzu (Chinese philosopher and writer) aptly remarked, ‘The journey of a thousand miles begins with one step’.

So, take the first small step towards financial freedom and connect with our financial planning team for a practical approach to your emotional financial goals.

You can reach out to PersonalFN's Financial Guardian on 022-61361200 or write to info@personalfn.com. You may also fill in this form and our experienced financial planners will reach out to you.
PersonalFN is a SEBI registered investment adviser. We will be happy to help you.

Happy Planning!

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