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Fianacial Planning Cases
Main Purchase Activities
A non-moderate life as a consumer causes excessive liabilities, resulting in economic failure for you and your family. Since wise investment is necessary in preparing your retirement fund, marriage fund, and education fund, a reasonable, wise life as a consumer is an important factor in securing economic stability in the future and fulfilling your financial objective. To satisfy your needs given limited resources, you need to develop a purchase habit that considers the following:
  • Whether or not you need the product is more important than whether or not the product is low-priced.
  • A low-priced product has poorer quality than a high-priced one.
  • A low-priced product may develop defects after the service or guarantee period is over.
  • When purchasing through home shopping or Internet, repair and refund can be inconvenient.
  • You may spend considerable time and effort trying to find a low-priced, good-quality product.
  • The interest and commission related to payment in cash, payment via credit, and payment through credit card should be considered.
  • Therefore, what can be considered reasonable consumption?
    Reasonable consumption is planned consumption considering your own income and objective. To help you practice reasonable consumption, please refer to the following:
    1. Buy at a proper time.
    You can buy a product after adjusting your purchase time according to when the product’s price is lower. For example, you can buy an air conditioner in advance in winter or a carryover that is on sale when the season changes in the case of clothes. This way, you get more satisfaction in terms of the price.
    2. Buy at a proper place.
    Consider all the conditions of various retail stores including department store, specialty store, convenience store, home shopping, and conventional-type market. The variety, quality, and prices of products depend on where you buy them.
    3. Don’t put a high premium on brands.
    Branded products are relatively expensive due to the huge PR cost. In making a purchase decision, depending only on the name brand cannot be considered reasonable consumption.
    4. Compare the unit price.
    If a similar product has a different dimension, then by all means compare the unit price. Buying a product with lower unit price than the marked retail price is reasonable consumption. A cost depends on the store location, convenience of consumers, selling time, and service. A disposable or a finished product is priced higher than a non-disposable or a semi-finished one. A product on sale is not always cheap. In fact, a product on sale that is purchased even if you don’t need it is as good as waste.
    What should I do when I plan to buy a house?
    It depends on the kind of house. Since more funds are required when buying a house, long-term preparation is required. If you want to buy a house, you should consider the following:
    1. First of all, consider the advantages and disadvantages of buying a house.
    Purchasing your own house may provide you with psychological comfort, i.e., knowing that you secured a stable asset. Likewise, it continuously provides economic stability when the real estate’s price rises; in fact, when it is higher than the inflation rate, the purchase of a house can prevent loss due to inflation. What’s more, if you satisfy certain requisites, you can get incentives such as income exemption and tax exemption for mortgage interest. Since there are many cases wherein people secure funds through a guarantee loan when purchasing a house, however, they may run into economic danger due to the principal and interest repayment if their personal income is unreliable and an economic situation develops and worsens. Besides, you need to take into account the acquisition tax and registration tax required for purchasing a house, integrated land tax associated with home ownership, property tax, real estate sale tax accompanying the selling of the house, and other expenses necessary for the house’s maintenance.
    2. Set a concrete objective.
    You need to check which house type is appropriate for you from among single-family houses, apartments, row houses, and multiplex houses; ditto as to whether you should buy an existing house or a house payable in installments. The methods of buying an existing house include purchase at the normal price, purchase of houses subject to rush sale, auction/public sale, exchange, redevelopment/reconstruction share investment, and purchase through monopoly. A new purchase of a house payable in installments includes a combined house sold at the same time through subscription and the purchase of an unsold apartment.
    3. Prepare for as long as necessary.
    First, you have to search for various information and market conditions considering the inflation rate during the preparation period to estimate the funds required for buying a house. You have to plan a supply method after calculating the shortage in funds based on this. If you use the house application system as a long-term strategy for buying a house, you can get several benefits in terms of subscription right and tax incentives.
    Application right Exclusive dimension:
    Less than 85㎡
    Privately built house
    private construction’s medium-sized national house
    Exclusive dimension:
    Less than 85㎡
    Private construction’s medium-sized national house
    public institution
    (separate use from tax break-integrated savings)
    Privately built house per deposit
    private construction’s medium-sized national house
    Tax break Possible Possible Possible
    Institution in charge All banks KB bank All banks
    Income deduction Before 31 October 2000;
    possible only for a subscriber, 40% up to 960 thousand won
    40% of savings from payment due, up to 3 million won Impossible
    4. Utilize an appropriate mortgage loan.
    A mortgage loan from a financial company has a fixed interest rate and a variable interest rate. A variable interest rate is an interest rate linked with CD, changing every 3 months; if a low interest rate seems to persist, choosing a variable interest rate is profitable. The repayment methods include lump sum repayment at maturity, equal allotment repayment of principal and interest, and equal allotment repayment of principal. Thus, please decide the repayment condition according to the amount of your income. If you want a long-term loan, please use the mortgage loan offered by Korea Housing Finance Corporation . A mortgage loan is the system that lends money on a long-term basis (more than 10 years) up to 70% of the house’s price. Note, however, that eligibility for the loan is limited to persons without houses or persons with only one house. When taking out a loan to buy a house, subscribing to trust & life insurance is better since the loan’s balance is paid with insurance money in case of the subscriber’s death; thus allowing the bereaved family to keep the house even when the head of the family dies.
    What should I do in case I want to buy a car?
    If you want to buy a car that is appropriate for your needs and budget, you would do well to consider the following:
    Decide based on an accurate budget.
    You have to decide the price and allotment condition based on whether you can undertake the monthly car allotment and car maintenance expenses. In case of buying at allotment, you should take note of the allotment interest rate. The expenses associated with having a car include related taxes and interest expense; car maintenance expenses include fuel expenses, parking expenses, insurance expense, and car’s repair charge.
    Buy a car appropriate for your use and your ability.
    You have to choose a car appropriate for your use and whose purchase fee and maintenance fee are affordable. For example, if you don’t need a big car right now, you can purchase a small car and simply rent a big car when you need one.
    Consider buying a used car.
    Although a used car costs less, its repair charge and fuel expenses are high. For a used car with short mileage, however, you can drive it for a long time; thus eventually offsetting such expenses. What’s more, the tax and registration fee are low. When buying a used car, you have to check for any problems in the papers by referring to the original register of the car. Be sure to request for a thorough analysis from competent maintenance personnel to determine past accidents or problems.
    Conduct a thorough market research.
    Compare the advantages and disadvantages of cars from different sales companies and check the service being offered to you. If you use the Internet, professional magazines, and car stores, you can easily understand the various market conditions.
    Practice restraint when it comes to options.
    The excessive options will unnecessarily hike up the car’s purchase cost. Most additional options also have a relatively short guarantee period; hence the inconvenience of repairing the car at your own expense in case of a breakdown.
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