Taking a loan and paying it off in full is no less than a victory. Whether it's a home loan, a car loan, or a personal loan. After the EMIs end, you suddenly have some extra money saved each month. This is the time when you should refocus on your financial goals.
Many people increase their expenses after paying off their debt, but it's wise to invest the EMI money now so that you don't have to borrow again in the future.
Step 1: Review Your Financial Situation
After paying off your debt, first understand your financial situation thoroughly.
What is your net income?
What are your monthly expenses?
How much surplus money is left after the EMIs stop?
For example, if your salary is ₹80,000 and you used to pay ₹20,000 in EMIs, now that ₹20,000 is free. Investing this money in the right place is the foundation of your post-debt strategy.
Step 2: Build an Emergency Fund
After paying off debt, an important task is to create an emergency fund. This fund should cover your expenses for six months. If your monthly expenses are ₹50,000, your emergency fund should be at least ₹3 lakh. Keep this in a savings account or liquid mutual fund so you can access money immediately when needed.
Step 3: Decide on your investment direction
Now it's time to invest. Turn your EMI amount into a wealth creation tool. These three methods will be best for your goals.
1. SIP (Systematic Investment Plan)
Start investing the same amount as your EMI every month in a SIP. Suppose you invest ₹20,000 in a SIP for 15 years and earn an average return of 12%, then after 15 years, you will have a corpus of approximately ₹95 lakh.
2. PPF (Public Provident Fund)
A great option for long-term and tax-saving investments. You can invest up to ₹1.5 lakh annually. At an interest rate of 7.1%, this amount can reach approximately ₹40 lakh in 15 years.
3. Gold
Keep 10-15% of your portfolio in gold to maintain balance during market fluctuations. You can include digital gold or gold ETFs in your portfolio.
Step 4: Don't Forget Insurance
Many people think they no longer need insurance after paying off their debt, but this is the biggest mistake. You should definitely have two insurances:
Term Insurance: To provide financial security to your family in your absence.
Health Insurance: To ensure medical expenses don't eat into your savings.
Step 5: Open avenues for Passive Income
Now that you have EMI-free income, invest it in a way that generates regular income.
Invest in REITs (Real Estate Investment Trusts). These provide rental income.
Dividend stocks or fixed deposits are also good options.
If you want, you can also invest in a side business or digital assets.
Step 6: Create a new financial plan
Now that you've gotten rid of debt, re-evaluate your financial goals.
Set goals like children's education,
retirement planning,
or home renovation.
Create a separate investment plan for each goal. This will keep your financial life organized and stress-free.
Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
