We all have varying needs and wants, be it clothes, fancy gadgets, cars or home. In order to fulfill all our needs it is imperative that we manage our finance in such a way that allows us to save for our future as well. In America, there are about 150 million people who have saved nothing for their retirement. This could be because most of us focus on meeting our current needs first. We tend to think very little when it comes to saving for our old age. According to a survey, more than one-third of people spend more than they can afford. This leads to borrowing and getting things financed from external sources. In America, less than 30% of the population has personal finance education.
Tips for Borrowing:

  1. Monthly Debt Payments: Monthly debt payments of any person should be less than 36% of his or her gross monthly income.
  2. Mortgage: Total mortgage should not exceed 25% of total gross income.
  3. EMIs: EMI of borrowers should not exceed 36% of gross monthly income. EMIs should lesser when one is close to retirement.
  4. Home Loan EMIs: At any point of time, home loan EMIs should not exceed 28 % of gross income.

Mentioned below is the rule of thumb one should remember while getting car financed:

For car loan, the 20/4/10 rule should be followed. According to this rule,

  • The down payment must be 20 per cent of total price of the car.
  • The tenure to repay loan should not exceed four years.
  • And lastly, monthly EMIs should be less than 10 per cent of monthly income.

Managing finance is an important key if you are planning to take loan from bank. Loans directly impact our monthly expenses pushing us to curb on over-spending. If someone has more than one loan then it should be managed separately keeping all expenses in mind. Despite the recurring expenses one needs to give monthly EMIs which leave little room for savings. Thus, following few tips can make your finance planning successful.