by Akash Pharande, Managing Director – Pharande Spaces
You’re not alone if you harbor a desire to finally buy your own home and get off the rental treadmill. The great Indian homeownership dream is driven by a combination of cultural norms valuing property ownership, increasing urbanization and economic growth leading to higher disposable incomes, and various government initiatives encouraging homeownership.
But one of the most substantial reasons for the Indian homeownership dream today is the goal of financial freedom. A trendy model of achieving financial independence nowadays is driven by the Indian housing sector’s latest and perhaps greatest buyer segment – millennials.
Having to pay monthly rent is incompatible with a typical millennial goal that has gained ground worldwide – financial self-sufficiency and walking away from the office cubicle much earlier than the usual age of 65+. In short, financial independence + retirement early (FIRE).
Many advocates of the FIRE movement recommend owning rather than renting homes. Apart from eliminating monthly rent payments, owned homes appreciate in value while second homes rented out provide passive income – another must-have for FIRE enthusiasts.
Like most significant undertakings, the homeownership journey starts long before the sales deed is signed. In most middle-class situations, it takes meticulous planning backed by a strong vision of the desired goal.
Buying a home is expensive by any yardstick; saving enough for the down payment alone can often be challenging, and after that, you have to pay EMIs. The journey can feel humungous without a roadmap. Some of the basic principles of the FIRE movement provide such a map – and over the last couple of years, I have personally heard from several customers that they used them to achieve their homeownership goals.
Let’s take a look at the FIRE principles which can help bring you closer to your dream of buying your own home:
Spend less than you earn and live below your means
Most FIRE enthusiasts make it a point to save anything between 25-40% of their regular income. This is not easy; it involves prioritizing expenses and saying ‘no’ to (or at least reducing) many of the things we usually take for granted – such as regularly eating out, too many OTT subscriptions, compulsive shopping for clothes, upgrading phones that don’t need upgrading, entertaining at home, etc. Short-to-mid-term self-denial to achieve long-term goals is the basis of a FIRE plan.
- Invest your savings wisely
Merely parking cash in a savings account is a bad strategy. With inflation and low interest, it actually loses value there. You need to invest it. Globally, FIRE enthusiasts prefer investing their surplus money in passive index mutual funds with the lowest expense ratios – and usually better ROI than expensive actively managed funds.
As of now, fixed deposits are also an excellent option to build capital for specific financial goals like a down payment on a house. The returns are guaranteed and predictable. However, bear in mind that the currently attractive interest rates may only last for a while longer.
- As far as possible, avoid debt
The financial industry has created the temptation to spend money we don’t have via credit cards, which keeps us in debt. Personal and car loans also make it hard to build capital. Home loans are considered the only ‘good’ debt because they pay for an asset that gains value and eliminates rental expenses. If you’re really focused on your homeownership dream, your home loan would be your only form of debt.
- Increase income through side hustles
This may not be an option for full-time employees of most companies in India – especially today, with a spotlight thrown on moonlighting in the IT/ITeS industry. However, if you’re a consultant or your company has no objections to freelancing as long as it does not interfere with your main duties, this is a good option while building capital for a down payment. Moreover, having a steady secondary source of income helps you pay off your home loan faster. Alternately, some FIRE practitioners ask for salary raises or take on additional duties for extra pay.
- Regularly re-evaluate and adjust your strategy
If your investments have yet to deliver good returns over one year, tweak them. If your side hustle does not pay enough for the extra time and effort you’re putting in, change to one that pays better. If you have been overspending on some things despite your best intentions, acknowledge it and take steps to prevent a reoccurrence.
Apart from these FIRE precepts, another essential measure to prepare yourself for a home loan is improving your credit score by paying bills on time and reducing credit card debt. This will allow you to negotiate for the best interest rate.
Also, get pre-approval for a home loan so you know exactly how much you can borrow and what your monthly payments will be. Being pre-approved also gives you better negotiating leverage with developers. And finally, shop for the home loan that offers you the lowest interest rate.
Remember, all your sacrifices and extra effort are towards the ultimate goal of owning a home. While the discipline of following the FIRE model is helpful throughout one’s life, you will not have to curtail yourself and work extra hours forever. Once you live in your own home or are even earning rental income from a second home, you will find it all worth it.