Sunday, July 27, 2014

Whats next

Recently, on Ashal's FB group (Soon, Ashal will start charging me for using his name :P ), somebody asked a query. The person has taken care of all his goals (from investment per se) and now was thinking to close the home loan so that his wife can opt out of job to take care of their child. 

This made me think. First thing first, we must congratulate the guy (and his wife too) for making it. It is very difficult to achieve such a feat. Just imagine a person who has calculated all his needs and has been making regular investments to fulfill those goals. Awesome.

My guess is, he must be in late thirties or early forties. I started wondering, what should a person with such an ability should do with his excess money. Below are my thoughts on the same matter:

1. If he chooses to close his home loan with his excess money, he loses the tax benefit. Big deal? Nah.. The financial reason why he must choose to run the HL as is: the decreasing power of the money which is used as EMI. The 20k EMI (just a example) that he pays today does not have same purchasing power 5 years later. Hence, if he chose to pay 20k extra today, he is losing much more than just tax benefit. 
Some people would argue that closing HL will give him peace of sleep, they can read my previous post "Personal Finance". However, his case is little different. He does not want peace of sleep or he does not intents to purchase second house. His point is, if he closes HL, his wife can opt out of job. So in this case, IMHO, he must close his HL and stop worrying about tax benefits.

2. If he chooses not to close the HL then, he has few more options. The person must focus on building a good corpus for medical costs. Read Pattu's this post.

3. JD Roth suggested some time back to build an opportunity fund. Now what this means? Let us see this with an example. Suppose a friend of yours is going to settle in some other country and is looking to sell his house. Now, since he is in a hurry to sell it and have cash, he is selling it at 50% market rate. He circulates this news among his friends and gives them 3 days to respond. Can you take advantage of this opportunity? Depends on how much liquid money you have. If you have 20% of the selling price in money market MFs or liquid funds, zoommmmmm, you got it. Make no mistake. Do not (repeat do not) dip in your Emergency Fund for this opportunity. That would be bad financial decision. Hence, JD suggests to build another fund and call it as opportunity fund.

4. Sundaramjee (from same FB group) donates good amount of his money to needy people. Sometime back, he donated hefty amount to a girl, whose marriage was in jeopardy due to some money problem. You can also get tax benefit for donation in 80G. Read more about it here.

5. You can increase contribution to your child's education fund. This can be very helpful for your child. Today you are planning to send you child in one of the top ten colleges in India and you are investing from that point of view. Suppose, tomorrow your child decides to study from some abroad university and for that he may have to avail a education loan. Hence, by increasing your contribution to the education fund, you can save him from starting his career with some burden of debt. Offcourse, this can be contested as pampering your child.

Big note: All these points are assuming that you have enough emergency fund and you are contributing enough to your retirement corpus.


  1. I'm not going to charge you for quoting my name time and again. :)

    Coming to the topic, I like the idea of opportunity fund.



    1. Yes, it is interesting .... Here is the link to JD's article:

      Btw, any idea what our friend in AIFW did?