Kaustubh Belapurkar, Director – Manager Research, Morningstar Investment Advisers India, shared his view on how to use your credit card smartly, fund your retirement and save for buying your dream house in an interview with ET Now.
Indians’ credit card spending in September soared by 57% on a year-on-year basis to Rs 80,000 crore, according to the latest data from the Reserve Bank of India (RBI).
What led to this sudden increase in credit card spending?
People were cooped up in their houses during the pandemic. Some of the spending through credit cards can be attributed to pent-up demand. During the pandemic, people were spent on their day-to-day and essential needs.
Now that the restrictions have been relaxed, people are satisfying their wants and aspirational goals like travel, white goods, automobile, furniture, etc. While this is helpful for the economy, I would like to say that people should spend with caution.
Normally, people decide to save a portion of the money after whatever they have to spend. The equation is Saving = Income – Expense. I would tweak it. People should decide first how much they want to save every month for their different goals from their income and spend whatever is left. We have flipped the equation to Income – Saving = Expense. Spend whatever portion is remaining after saving. It will work wonders if people bring this change in their mindset. That said, this does not mean that you have don’t have to spend. Spend after you have factored in your near-term and long-term goals.
Impulse purchases increase when we have the convenience of credit card and EMI options. When making such buying decisions, you need to think if you need it currently or if it can be postponed.
Online payments such as UPI and net banking enable us to transact with ease. Whatever you buy through your credit card, you should have the capacity to pay the bill before the due date in full and not just the minimum due, failing which will attract interest. This is the one thumb rule people should follow when it comes to using credit cards.
Is it wise to take a home loan during retirement?
When you are close to or have already retired, your income should come from your retirement corpus which you have saved during your employment. One should start investing for building a retirement income early in their career. The benefit of starting early is that you will build a sizeable corpus that will easily fund your retirement expense.
The decision to take a loan when you have retired is a personal choice, depending on our finances. If you want, you can make the down payment from your retirement corpus while buying a home. The interest rates are at rock bottom at this juncture, which presents an opportunity cost. You can borrow money at 7% and invest your money in a mix of equity and fixed income which can earn more than 7% and compensate for the interest. You have to take into account if the retirement corpus you have accumulated is enough to pay for EMIs and other expenses.
Funding home purchase
If 50% of your salary is going towards home loan EMI, then your saving capability goes down. One can delay the purchase of a home by 4-5 years and invest that money in equities to fund your down payment. The choice is yours. Whether you want to delay the purchase or buy a house now depends on your financial position. In my case, I have invested my savings when I started earning and bought the house by making the down payment from the investment corpus. There is no one size fits all approach to this, and the decision would depend on your individual circumstances.
Watch the full interview here.
