Financial planning helps borrowers

Home loans are huge financial commitments that usually span over decades. Defaulting on a home loan can have serious implications. A borrower must plan and manage his finances well ahead to avoid a debt trap.

There are three broad aspects of financial planning:

Predicting need
You must be able to predict any major expense or financial commitments. If you are planning to take a home loan, you must make arrangements for 8-10 percent of the total loan amount that would be needed as down payment or margin money. Need for money may arise either immediately or in the future. If you can anticipate it, you can be better-prepared to make arrangements for it.

Chalking out a budget
Record all your sources of income. Create a monthly expense list that will include utility bills, debt repayments, groceries, insurance, transportation expense, rent and money spent on entertainment. You will observe that a few expenses are fixed and are essential. Some expenses are variable from month to month. If you want to cut back on expenses, you can easily start with variable expenses. Review your budget on a regular basis.

Emergency fund
Despite numerous debt obligations, you must be able to save some money every month to build an emergency fund. A serious financial crisis may arise in case of a job loss, medical emergency or an unfortunate accident. The situation could be stressful with bills piling up, every passing day. The emergency fund will come in handy at least to pay the EMIs for a few months till you get back to work.

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