Thought for life – Is your life an EMI repayment schedule?

For many, wealth creation begins with buying a property. There are palpable anticipation and excitement early in the earning lifecycle to buy a property. But, can you afford it? You may be able to afford the housing loan and repay the bank in monthly installments (EMI) but most likely will not be able to afford to pay for the house with savings.

Even before the house, comes the car. That too is affordable only on EMIs and not on outright purchase. Just like that, even before savings start, we are drawn into the EMI cycle.

It doesn’t stop with the first house and car

The first housing and car loan can be rationalized; one hopes for prudent savings and wealth creation beyond that. However, it doesn’t usually end there. Almost always a second property investment comes about soon, again on loan. The first car is sold after five years and another more expensive one is bought. In 5-7 years, the primary home gets upgraded to a larger space either by selling the first one and taking on another loan or putting the first one on rent and buying another bigger space on a bigger loan. Five years later what you have is higher EMIs.

As EMIs keep going up, you will find that you have insufficient funds to cater for emergencies like medical expenses for aging parents or even for education costs for young children. Both seem to be escalating at a rate that is much higher than expected year on year. Lastly, lifestyle demands tug at your wallet, which, by now is almost empty at the start of the month thanks to multiple EMIs. Here is where personal loans enter your space.

There is pressure to keep upgrading that car, house, and lifestyle; pressure that will lead you to continue increasing your EMI rather than the assumption of reducing it. Pressure that will keep you tied to a job whether you like it or not.

As EMIs keep going up, you will find that you have insufficient funds to cater for emergencies like medical expenses for aging parents or even for education costs for young children. Both seem to be escalating at a rate which is much higher than expected year on year. Lastly, lifestyle demands tug at your wallet, which, by now is almost empty at the start of the month thanks to multiple EMIs. Here is where personal loans enter your space.

What can you do? 

1. Buy what you can afford. Let’s take the car as an example. No need to buy a four-wheel sedan worth Rs 10-15 lakhs, when a hatchback at Rs 5-7 lakhs serves the purpose. Upgrade only when the proportionate expense relative to your income does not increase. A car can be used for many years after the EMI ends, you don’t have to change every time your EMI ends.
2. Start saving and investing early. Saving and investing should be top priority right from when you start earning. In relation to your goal of buying a house, this might mean you have to live on rent for a few years. That will enable you to build a large enough corpus so that any loan you eventually take is not disproportionately high compared to your income.
3. Don’t keep up lifestyle with your friends and neighbors. Only you know what you can afford. Trying to match up with others without the means will land you in trouble.

It’s important to not get sucked into the culture of overspending and taking on credit to fill that income and expense gap. It’s easy to get carried away with credit and loans, but when income is under stress or its time to retire, you will find there is no way out. Be wise from the start and don’t make your life one long EMI repayment schedule.