I am 23 years old. My father is a retired employee and my mother is a home-maker. My elder brother is also working. My pay is Rs 3.16 lakh a year. I took an education loan of Rs 2.86 lakh and my EMI is Rs 6,500. But I have been paying only Rs 3,000 due to insufficient funds.

I took a five year personal loan of Rs 2 lakh, with an EMI of Rs 4,758.

Also, I have taken short term loan of Rs 30,000 from my employer. My monthly EMI is Rs 2,500 and it will be repaid by this December. My employer is deducting Rs 15,000 towards a medical policy, which also covers my parents. My EPF contribution is Rs 1,100. My tax for this year will be Rs 10,000. I have an FD for Rs 80,000 with an interest of 10 per cent. I had invested Rs 8,000 in equity. My monthly surplus is Rs 1,500.

My questions are:

Do I need to take life insurance? Besides my employer’s health cover, do I need to take any more policies?

TDS is not deducted from my fixed deposit. Do I need to file returns since my income is less than Rs 5 lakh? I want to buy a home in 2017 for Rs 40 lakh. How do I plan for that?

— Vignesh

Repaying loans is as important as borrowing. If you default on repayment, your rating with credit scoring agency CIBIL will go down. Later on, you will find it difficult to borrow.

Before planning for anything else, repay the loans .

Start repaying Rs 6,500 per month on your education loan. Break your fixed deposit to meet repayment needs. We presume the interest rate on your personal loan to be 16 per cent. Since the interest rate is higher than your deposits, make a partial payment toward the loan.

Insurance

Given your family’s financial situation it is prudent to take term insurance. Take a term insurance policy for Rs 50 lakh. Pay the premiums on quarterly mode and convert it to annual mode once your surplus improves.

Regarding your health insurance, if you wish to stay with this company for the next 3-5 years, continue with the policy . If you move jobs your parents will not be covered for any pre-existing aliments. So take a separate policy for your parents, once your surplus increases.

Income tax

Any bank will deduct TDS, if the interest payout exceeds Rs 10,000.This does not mean that you will not need to pay tax.

Any interest earned including the savings account, needs to be disclosed and tax has to be paid according your income slab. Do file your returns after factoring the interest earned .

Home loan

Repay other debts before taking on any long term commitment such as a home loan.

Start saving more. Once you reach a reasonable corpus size, think of taking a home loan.

(The author is CEO, SPP Wealth and Financial Planners. He can be reached at suresh@myassetsconsolidation.com)

(This article was published on August 18, 2012)
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