What is the ideal EMI I should be servicing as a fraction of my take-home pay?
The answer lies in understanding what your ‘disposable surplus’ is.
By Rahul Soota
The answer lies in understanding what your ‘disposable surplus’ is. In simple terms, this is the sum available to you after you have paid for necessities like rent, education, household expenses and transportation costs coupled with basic level of financial investment into life and health insurance premiums. This surplus increases as your income grows, as some of the costs begin to taper off.
So assuming you are in an early part of your career with a net income of Rs 30,000 per month, your surplus is likely going to be 15-25 per cent. The same would change dramatically if your net income reaches Rs 1 lakh per month. It is quite likely that you will then have the ability to set aside 40-50 per cent to pay for all your EMIs. It is very important to realise that it is incumbent upon you to maintain a good credit history. So I would urge you to borrow only as much as you can pay off comfortably, leaving a margin for the curve balls that life throws at you by way of family emergencies, break in employment, and one-time expenses at the time of marriages in the family.
Rahul Soota is Co-owner and Executive Director, Mymoneymantra