We all think House is an asset, and it can never damage our Financial Wellness, Correct? Read on to discover the truth…
Life mein 3 cheeze chahiye hoti hai – roti, kapda aur makaan. (Three things are required in life – food, clothes and a house)
It is always a proud moment to buy your own house and hear that auspicious key click when you unlock it for the first time.
A ‘home’ brings along with it satisfaction and security. A house will be your home, and that is quite significant.
Not exclusively will a house likely be the biggest buy of your life, it will be the place you will spend the greater part of your day, and hence life.
It will be your place of shelter from a universe full of work and stress. It might be where you will begin and raise a family
Buying and owning a home is often a wise and thoughtful financial decision for your financial wellness, but sometimes your home can take a toll on your mental health.
Your home will most likely be the biggest purchase of your life. So you will, I trust, give plenty of thought to the amount you ought to spend on it.
In spite of the fact that the cost of an expensive house can eat up your peaceful nights, there is something particularly enticing about buying a house which costs way more than you can afford, right?
The reason behind this is simply that the Indian mentality makes us all believe about how a costly house reflects a strong stance in the social and financial wellness of your life.
- 1 Is it a Trap? Is Your House Damaging Your Financial Wellness?
- 2 1. It demands more than 30 percent of your pay
- 3 2. You are not able to make a dent in your loan principal
- 4 3. You have other debts as well
- 5 4. You’re struggling to hold on to your home sweet home
- 6 5. You feel lonely in your ‘lavish’ neighborhood
- 7 6. Investing is not an option
- 8 7. You feel stuck in your job because of your home loan
Is it a Trap? Is Your House Damaging Your Financial Wellness?
Most of us fall into this trap since we believe that buying a house is a one-time event and we should get whatever we can, even if that means stretching your finances like a rubber band.
But what we often ignore is the negative recoil this action is going to have on our personal life.
In light of this, it is important to always, always keep in mind that you must purchase a cheaper house than you can afford.
We often go after our ‘fantasy home’ and spend exorbitant amounts on it just to ultimately realize that the expenses of owning and maintaining a large house are really keeping us from accomplishing other objectives.
That is, if you intend on buying a big house thinking that it’s just a one-time investment, you’re wrong my friend.
Expect everything to cost more in a bigger house i.e. when you purchase a greater or progressively costly home, nearly everything costs more.
For instance, more space implies all the more area that requires air conditioning which in turn implies higher service bills.
Well, that is not all. A greater house implies everything is greater and increasingly costly to fix.
A larger rooftop will cost in excess of a little one, and the more windows you have, the more costly it will be to redesign them.
Flooring and tiles are typically valued in square feet, so more square feet will definitely prompt greater expenses in terms of larger carpet. A larger garden will call for greater landscaping expenses.
The list can go on and on, and so will your housing bill.
Let’s look at some signs which may suggest that your home is affecting both your mental as well as financial health or financial wellness:
1. It demands more than 30 percent of your pay
One of the first steps in determining whether your house is costing you more than it should is to gauge how much income it is eating away. It is important for calculating your financial wellness.
If you are unable to come up with an ideal percentage of accommodation expenses, 30 percent of your pay is reasonable.
Experts believe, “Cost Troubled” individuals are those who spend in excess of 30 percent on housing and accommodation costs.
However, there is no fixed universal rule of finance for everybody.
The 30% proportion may not fit everybody. For instance, it may not work with those who have below-average salary levels. These people will have to appoint more funds towards housing in order to meet it.
Likewise, there is sometimes such a high earning level where allotting 30% of one’s salary to housing will make no sense. Hence, a lower housing proportion will have to be fixed in such cases.
Well, my advice is to continuously spend short of what you might, and you’ll never have to lose sleep over your finances.
In the event that you need more space or another element, you can redesign. In the event that you truly don’t feel comfortable in your purchased home, you can move.
However, in the event that you purchase an expensive house and discover you can’t manage the cost of your home loan, you might not have any choices.
In the most pessimistic scenario, you could get yourself submerged in a terrible real estate market and not have the option to sell your home.
The less cash you put into your month to month housing installment, the more cash you have accessible for:
- Emergency funds
- Retirement funds
- Recreation and travel funds
- Business opportunities
- Improving or remodeling your home!
2. You are not able to make a dent in your loan principal
When your loan amount is too high, it often happens that you get stuck in paying interest only and are not able to collect sufficient funds in order to repay the principal amount.
The installment (principal+interest) amount gets so huge that one is not able to afford it anymore and enters a sort of debt trap.
This can take a toll on your mental health.
3. You have other debts as well
When you try to gauge the amount you can easily afford to spend on a house, you must take various types of debts and obligations into account.
For one, there’s the house maintenance cost that you can bear and furthermore the all-out month to month obligation you can manage (your accommodation instalment joined with other obligation instalments, for example, vehicle loans, and Visas).
The more other obligations you have, the less you ought to spend on your housing instalment.
One easy way to analyze whether you have too much debt is to check your financial health by calculating the debt-to-income ratio.
Your debt-to-income ratio is determined by taking the aggregate sum you owe and dividing it by your monthly income. This will help you in calculating your financial wellness.
So for instance, suppose your month to month net salary (before taxes) is Rs.70,000/-, and you have the following debts to take care of:
- Home loan — Rs. 10, 000/-
- Vehicle — Rs. 2,000/-
- Education expenses — Rs. 10,000/-
- Credit card — Rs. 500 /-
So your complete monthly debts are Rs. 22,500 /- every month. Divide that by your monthly income of Rs. 70,000/- and you have a debt-to-income ratio of 32 percent. (Rs. 22,500/Rs. 70,000 = 0.32).
Experts believe that an ideal debt-to-income ratio should be of 30% or lower.
In case you’re moving toward a ratio of 40-50 percent, it should be considered a warning signal for you to lower your debt obligations.
4. You’re struggling to hold on to your home sweet home
When that home loan bill is expected every month, do you have to struggle in order to get funds together?
Have you ever been late on installments or skipped them altogether?
Has the bank threatened to take away your home?
If your answer to any of the above questions is ‘Yes’, let me tell you that this is a terrible way of living on a monthly basis. The reason for the ‘yes’ answer is mostly because you have purchased a house which went way beyond your budget and income.
The home which you imagined will give you peace, is ironically taking away your peace. It’s probably best to relocate to someplace cheaper.
5. You feel lonely in your ‘lavish’ neighborhood
This is perhaps one of the first things you notice when you’re on the lookout for a new place to live in.
Let me tell you one thing, what neighborhood you live in doesn’t make a difference.
Obviously, you must be thinking what rubbish is this. Obviously it matters.
But no, what matters is community and relationships.
It won’t make a difference how many Audis are parked in your neighborhood. What matters at the end is how good a company you have in your neighborhood.
If you feel isolated in your apparently ‘rich’ neighborhood, trust me you will become very sad and dull eventually.
It is true that our family time is increasingly decreasing (just trying my hand at wordplay!)
With increasing office hours and commute time, we are not able to do much when we get back home and just hit our bed while blankly watching some Netflix show.
But, to feel energized and rejuvenated, it is important you spend some quality time with your friends and family daily in order to relax and take some time off from the daily mundane rituals.
Regardless of where you live, feeling accomplished companionship-wise will decide whether you like or place or not.
Therefore, it is important to Smartly Pick a House Location to Become Wealthier than You Ever Imagined
6. Investing is not an option
You know about the various investment opportunities available in the market, but unfortunately, you have to pass on them because you don’t have any spare funds left.
If you think that you are not ending up with any spare cash at the end of the month, it could be that your home is eating up a lot of your salary.
Reducing your housing expenses and investing as little as even Rs. 3, 000 per month can give you a larger retirement corpus than what you imagined.
Don’t consider investing as optional because not investing is a big, big mistake. To know more, read Reasons to start investing your money now
7. You feel stuck in your job because of your home loan
Many a times it happens that we come to hate our current career path. Maybe it’s the nature of the job, the boss or work-load. However, a vast majority of us don’t leave a dreaded job because we have got a home loan to pay for.
On the off chance that this sounds like you, consider how your home is really forcing you to stay with an occupation you hate.
Think about it this way: if you feel stuck in your current job, is your home loan to blame?
Also, to avoid ending up in a hated job the next time, click here.
If you think even one of the above points apply to you, it’s time you consider relocating to a cheaper and happier house.
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Short answer, yes. A bad property may damage you financially for the rest of your life!