Can we dream of becoming a homeowner?
I have been living in a house for more than 20 years. Though it is not mine, I'm happy. I could be happier if I could purchase a flat.
Though I might need to manage a house loan, I could tell everyone that I live in my own house. However, there remains little difference between the two cases of houses depicted above if economic sense is applied. In both cases, we are undergoing some sort of rental agreement, though under different forms of leases.
In the case of a rented house, one can switch to a comparatively low-rated house if his or her income falls. Though many difficulties will appear, liberty is there.
Renting a home might be a better option sometimes because it is free of headaches associated with owning a house. For example, the maintenance cost of a house might outweigh the tax benefit involved with the owning.
Above all, one might get more homes if one rents a house instead of owning one. However, most of us dream of buying or building a grand house like a castle because we want to impress others.
If we want to own a flat or house, we need to add 10-20 per cent to our rental expense of 20 per cent
A friend of mine had long cherished a house of his own. The grand house of his grandfather, one of the biggest in the area, was devoured by a river. After serving a private organisation for many years, he could save a little money to build the plinth structure, a precondition for any house loan. Eventually, my friend could become the proud owner of the most beautiful building in his upazila.
However, the primary happiness faded away when my friend ended in a credit card loan. The decorative rural house failed to return a single penny. This is, undoubtedly, the worst financial decision one can take in a lifetime.
As the rule of finance says, we shouldn't spend more than 80 per cent of our take-home salary. Besides, rent shouldn't cut away more than a quarter of our total budget. As such, if we earn an average income, say, Tk 50,000, we will have Tk 10,000 at best for paying rent.
If we want to own a flat or house, we need to add 10-20 per cent to our rental expense of 20 per cent. However, this should not compromise with the rule of finance.
We can spend a maximum of 40 per cent for the monthly payment, like instalment or rent, taxes and insurance. And we need to settle every other expenditure into the next 40 per cent. So, we get to keep ready to sacrifice a bit of our comfort while buying pride in house ownership.
Our dream needs not to be compromised. But our finances, which we earn by shedding sweat, need to be taken care of. If we want to buy a house, we need to save the 20 per cent down payment. The down payment is good for us because it is likely to create a sense of ownership that will bring us some added qualities like seriousness and responsibility.
If we can secure a job early in our life, we can dream of saving a sum of money sufficient for a down payment for a house. If we comply with the rules of personal finance, we shouldn't spend too much in the early years of our job because that is the period of savings. However, we do the opposite in most cases. Our big houses are often built on the grave of better education and nutrition for our kids.
The author is a banker.