Money Management: Should I pay my Home/Business Loan v/s Investing first?

Money Management: Should I pay my Home/Business Loan v/s Investing first?
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It is extremely important to always manage & optimise your Money Management skills in such a way that it helps you generate additional income known as passive income. But sometimes one cannot decide when to invest because of other priorities which could be anything from paying off home loans to business loans and many more. All these thoughts create a vicious cycle in one’s mind, stopping them from choosing between paying a home/business loan or investing instead. While it is a big comfort to live without debt, there is an enormous opportunity that one can miss. 

Everyone has a mindset that one should live without debt, take care of their loans timely to avoid unnecessary burden but as always reality hits differently. The answer is NO. One should NOT worry about his/her loans, should not avoid taking loans but should work on managing their debts. This one simple rule applies to anyone and everyone, be it a small big business or any big firm. To explain how managing loans is not as difficult as it sounds, let’s first talk about the benefits of having a home or business loan.

There are various tax benefits you get when you have a home loan like Sec 80C, Sec 24 and Sec 80EEA (in case you have an affordable house to live in) where you get benefits of Rs 1.5 lakhs, 2 lakhs and 1.5 lakhs respectively. Now talking about the business loan and their benefits. Business loans reduce the profitability of a business so the only benefit it gets is saving up to 25% on corporate tax or if put in simpler words, 25% of the tax one can avoid because they can use the expense of the interest that they have to pay which reduces the profitability and further reduces taxes. This enhances Money Management skills and ensures that loans have certain tax benefits or implication which is positive, but there is one more important aspect which is the Interest.

Now it’s time to use the best of Money Management. The best interest rate on home loans lies between the range of 6.7% – 6.9% and for MSMEs it is between 6% – 7%. If we consider 7% being the maximum interest being paid on such a loan. It is important to understand why one should keep it rather than paying it off because if one can use such investments to invest this money into places that help it grow over 7%. Then one is not only getting back extra return on the capital instead of fixing it at 7% but can surely grow it at 9% or 10% or even at 11% which is the extra benefits one can generate. In addition, one can also get the tax benefits of keeping the loan and not paying it off. That’s a double bonus!

This is a win-win situation where one not only makes money but can also save on taxes. And making over 7% something which is easily achievable and promises guaranteed returns if you use the options available in the world of finance wisely. With certain skills-set which take you to the peaks of Money Management. One can use this with a right mindset such as that of a wealthy person and the right financial systems which help you to perpetually make this income because you don’t just want to do it for one year, you want to continuously do it for the years to come.

This is how staying in debt can make you wealthy in returns and efficient in taxes both at the same time.