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Budget

When to Stop Dreaming and Start Building Your Dream Home

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Build your dream

You have been dreaming of a home for many years. You have also been saving a significant part of your income. You are still waiting for the right time to start building your home. Today is the time for you to take proactive steps without procrastinating further.

Evaluate Your Savings

You may have done the savings in many forms. Bank accounts, stocks, bonds, and other investments can be useful for making down-payment to your mortgage loan. But you’ll need to convert them into cash assets before taking up the mortgage project. You can consult your stock brokers and find the fastest possible ways to transfer the investments as cash into your bank account.

Simple Practices

Credit Rating: It is essential to have a decent credit rating and plan for ways to improve it. The first task is to start paying your bills through credit card. Clear your credit card balances on time. Keeping a low balance can help to increase credit ratings.

Credit Limit:  Increasing your credit limit is one way of avoiding negative credit rating. It can also increase your purchasing power and the loan limits for a mortgage.

Reduce Debts: You have to reduce other debts and clear the existing ones as soon as possible. Giving top priority to your home building means you have to forget about other luxuries like an expensive car, jewelry, holiday travels, etc. Initially you may find it to be a tough task, but eventually, you will get conditioned. Then it is possible to have a low debt which is a positive booster for your mortgage.

Plan Your Budget

The budget for the dream home should be within your repayment capacity. Evaluate the basic accommodation you need in your home. If you are a small family, it is better to plan for a two bedroom home.

Buy or Build: You have to choose between buying an apartment and building your home. A real estate consultant can give you the best advice based on your budget. If you own land it is better to build. It gives you scope for extension in the future. You may think of extending your rooms or building additional structures when the finances stabilize.

Buying is more economical than building. You don’t need to deal with the hassles of contractor management, material management, inflation, and other uncontrollable factors. But your home may be restricted in its dimension and facilities. It is better to take a decision after consulting with your family.

Mortgage Loan:  You can apply for a mortgage loan after talking to your consultant. He can advise you about the right bank or financial institution to approach. If you are an employee and have a regular source of income, it is possible to approach a federal or state-owned public bank.

Low-interest rate and flexible repayment policies will make your mortgage simpler. Make sure you have insured your home for fire, external elements, and other forms of damages. You can start building your dream home now by taking the proactive measures listed here.

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Budget

How to Prioritize Spending

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Budget

Personal spending can be categorized into fixed, periodic, and variable types. Fixed spending includes rent/mortgage, school fees, taxes, insurance, utility bills, groceries, etc. Periodic spending may include subscriptions (TV, newspapers, etc). Variable spending may include vacation, gifts, hobbies, etc. These are the spending which you may not be able to avoid. So, you need to plan your budget every month.

There is yet another type of spending called discretionary. It happens at the spur of the moment. For example, you may consider a trendy watch, an expensive jewellery, fancy item, or an unexpected weekend party with friends. These spending may not be a part of your budget.

Earnings and Spending

Make a list of spending in each of the categories listed in the first section above. Calculate the net spending.

You can also make a list of your earnings. They may include salary; stocks and bonds, rent (if you have a property), small business, freelancing, etc. calculate the net income and match it with net spending. The difference (fund to spend) will be the money you have for saving or spending outside the scope of your budget.

What about emergency spending? For example, you can think of car repair, equipment and appliance breakdown repair, and medical spending etc. Of course, you may not be able to estimate the exact value of spending. However, you can reserve a part of the fund to spend every month. The recommended method is to discuss with your spouse, so you can plan better.

Prioritization Order

Your prioritization could be in the order of fixed, periodic, emergency, variable, and discretionary spending. It helps you balance your life without worrying about going penniless when the need for fund arises.

At times priority may change unexpectedly. For example, emergency medical spending may exceed your budget. Having insurance coverage can help you during such a crisis. If you or a family member has a medical history, priority order for health insurance has to move up the order.

If you have an old car or a motorcycle that is susceptible to frequent breakdown, priority for replacing it with a new one moves up the order. It may include down payment and EMI. Similarly, you may think of old and poorly functioning home appliances, gardening equipment, etc. So, it is a recommended practice to check the condition of appliances and equipment regularly. You may be able to avoid unnecessary replacement costs when it is possible to repair them.

Priority Shifting and Balancing

Having a shoestring budget for variable and emergency spending may make your life highly discontented. The recommended method is to increase your earnings. For this, you may have to take up a part-time job, make investments, start a small business, expand your business, or get into freelancing on weekends.

Enhanced income gives you the freedom to add discretionary spending into your budget. You can also avoid the constant feelings of restlessness, irritation, and discontentment from your life. The recommended practice is to keep your earnings 20% to 30% higher than the net spending from all the categories.

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