Mostly people tell you ‘I bought a house for Rs. 50 lakhs’. Great.
A house is rarely just the cost that the broker told you when you bought the house. Have you seen what are the associated costs?
Cost of the house is Rs. 50 lakhs. Assuming you did not have any money for down payment, you paid Rs. 50,000 per month for 20 years = 50,000 x 12 x20 = Rs. 1,20,00,000.
Stamp duty, brokerage, etc. @ 2% = Rs. 100,000
Furnishing (throughout the life of the house) = Rs. 15,00,000
Maintenance, tax, etc. @ 2% of the original cost of the house : Rs. 100,000 x 20 = Rs. 20,00,000
thus the total costs = 1.56 crores. Assuming a 30% tax, you need to earn about Rs. 2.2 crores to afford this house. If you are an employee and earn about Rs. 10 lakhs gross, that is about 16 years effort.
Yes during this period the value of the flat would have gone up…I am not talking about that.
My take is if 16 years of your 30 year working life has gone into buying a house, how much time is left for you to earn for your entertainment, retirement, children’s education (a friend is just now paying Rs. 4 lakhs as fees for the kid’s 12th standard and IIT coaching class fees, yipee!), children’s marriage (Rs. 30 lakhs is not unheard of, correct?)….and of course RETIREMENT.
The financial services industry is desperate about ‘where to lend’ is happy lending to the housing industry. Just how much are they willing to lend? Well, frankly anything. But that is another post.
My idea of writing this blog is simple. Money like time is just energy. It can change form. So if you look at ANY EXPENSE, look at it in terms of TIME, not money. If you earn Rs. 5 lakhs a year, and if your wife suggests a vacation in Switzerland, tell her ‘It is one year gross – about 3 years net’…LOL….Just change the mirror, the image will change!!
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