The EMI Disease pay later EMI option|equated monthly installment

#theartofwealthbuilding #EMI
Is Installment system of payment bad? Definitely NOT!
Definitely NOT! It’s a very convenient way of buying things, but the problem is that the EMI way of buying, gives a lot of people the feeling that they can afford anything which comes their way. And there lies the problem! A sizable chunk of people believe, that they need a bigger bone (when they actually don’t) and the easy availability of everything, in EMIs plays a large role in said belief. The EMI is such a beautiful concept, that even a person with a salary of 30k can buy a helicopter! Why not? Just 9999 per month, for next 200 years! Does he need it? Who cares? He can afford it! The problem is not the EMI concept in itself. The problem is us – losing our control on our spending and extending our affordability horizon to such great lengths, that we have everything in our life; but most of it is under debt.

Our home and our car are the two classic examples of this. Let’s talk about the home. I don’t have much data, but my instinct says that most of the people who have taken a home loan, are living in a much bigger home than they need. As per an in-house study, (through a poll,) I found out that as much as 67% of the readers on this blog or urban net-savvy people are paying at least 1 EMI, which would mostly be a house or car loan EMI. It was astonishing to see that 11% of readers here pay more than 3 EMIs! That’s too much!. Make sure that your EMIs are not more than 50% of your total, in hand (net), salary.

Affordability of EMI vs affordability of Loan
If you tell a person, the EMI of a product, chances are that they will believe that he/she can afford it, as compared to when you tell them the actual price of the product. The problem lies in the numbers. The lower the number, the more affordable it becomes! However, this is not true! Actually, the more you reduce the EMI figure, the longer the tenure, and hence the total cost for you over a long period of time increases drastically!

Calculate your EMI

Car Loan

A lot of people buy a car before a home, as the EMI is affordable and the car adds to their comfort. I know a lot of people who can easily manage their life with a bike or without a vehicle, but have bought a car for reasons only known to them. There are just 2 people in the family, both have company transport, aren’t really outgoing, but they have a car. Not sure why!

A car is a depreciating asset. This means, that when you buy a car on loan, you are paying more money for something, whose value is coming down day by day, unlike your home. So buy a car, only when it’s really important or your comfort gets more bigger than your simplicity, when commuting is a problem.

The main problem again, is people buy cars that are much bigger and costlier than what they can afford and need. If you are in the starting phase of your career and have no more than 4 people in the family, why take anything beyond a Santro or Zen? You can always buy that dream car when you are more stable in your career and the other important things in life are taken care of. My views may be biased because I am not a car or vehicle lover, so all car experts might disagree with me here 🙂

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