You might have come across many people giving you advice about managing your loans and savings in parallel. Few say you should stand big on your savings and few suggest you go big on making the repayment of the loan to reduce the burden of loans. There is a lot of information available suggesting you many options while choosing between planning for savings as well as managing the loans. Both the savings and loan repayment carry equal importance in life. The current article gives you thumb rules to manage both savings and loans effectively.
Financial Thumb Rules for Savings and Loans
Savings – 50-20-30 thumb rule
When you are managing budget between paycheck to paycheck, it will be hard for you to decide between how much to save and how much to spend. Follow the thumb rule of 50-20-30.
- You can plan to spend 50%of your income towards addressing household expenses and groceries
- 20% of the income should move towards your saving for long term and short term goals
- 30% of the income should be stored for flexible expenses like travel
This thumb rule is applied when you don’t have any loans in your debt portfolio.
Car Loan – The 20/4/10 Rule
Car loan becomes a mandate for a person when you are looking to purchase hatchback or sedan car. What is a rule of thumb you should follow when you have a car loan in your debt portfolio? 20/4/10 rule comes handy when you have to manage the car loan effectively.
- 20% should be afforded towards the down payment of the car so that you will pay sufficient amount initially and reduce the burden of home loan.
- Number 4 refers to the maximum tenure you can choose for the car loan to repay it comfortably. Though the lenders allow you to choose the tenure of 7 years, it acts in the favour of lender
- 10 is the percentage of the salary, you should spend towards EMI of the car
Applying for a home loan was never this easier and many are looking to take the advantage of this offer to own a home. Managing the home loan effectively is as important as buying home with the help of it.
- Irrespective of the term you take the home loan, the EMI you pay for the home loan should not exceed 30% of your total income.
- If you have other loans like car loan and a personal loan in your debt portfolio, the total EMI you pay for the loan should not exceed 50% of your total income.
To help you figure out the actual amount of EMI you should pay for the home loan taken, there are online tools like EMI calculators and loan eligibility checker to help you better.