Can you afford it?
Affordable EMI is an oxymoron. Putting aside business debt, a debt related cycle is a crippling one especially when we get caught into it at earlier stages in life when we are monthly salaried. Lifestyle is sold to people through media, so there is a ton of perceived pressure to be in great clothes, carry an expensive mobile phone, buy a premium vehicle as soon as someone lands on a job. It does not stop there, eating out only at top class places, having catchups at expensive coffee joints and pubs is draining people at a rate more than they can sustain.
Catch them young is the secret for all consumption, businesses spend a lot of effort in catching someone earning for the first time. Businesses thrive only when people spend a lot, these are the companies who do not hesitate to increase the diameter of the toothpaste tube mouth to increase revenue instead of increasing value. It is not unheard of someone buying their dream bike or mobile phone as soon as they land on a job. When I landed in my first job, there were lots of marketers waiting at the gate when I leave office every day. These were from credit card companies, eating joints, apparels, gadget dealers etc.
I got my credit card, bought the best mobile on offer that time and ended up spending what I earned in about a week and was living on my credit card for the rest of the month. I was not able to use my credit card in my neighbourhood small restaurants, so I had to use it at more expensive restaurants. I was trapped, rolling over credit card balances and running out of cash around 15~20 days and using expensive loans for the rest of the month. During college days I never used spend this much, I had more savings through my pocket money than when I was earning a five digit salary. It hit me hard when I fell sick towards the end of the month, I did not have any money and a doctor who treated me, walked with me to a medical store so that I can use my credit card at the counter and pay the doctor as well as get some of my medicines.
That was when I hit the reset button on my lifestyle, determined to get out of the debt cycle and got over with it within two months. I was lucky, realised very early that lifestyle was not priority and it was peace of mind which is the priority. It is fine if I have only 5 sets of clothes or not having a top class sports shoe. I had a budget for eating out and declined any requests for hanging out at expensive places if it was beyond by budget. More importantly I learnt to budget my expenses which continues till date. Surprising thing is I have very generous budgets for my vacations, celebrations than ever before because my lifestyle is not eating into my savings and investments. I don’t want to showcase my apparent wealth and suffer in silence most of the time. Sadly many don’t realise early.
The simplest rule to not get into a bad debt trap is not buying anything on loan. Loans dilute our ability to visualise the magnitude of expenses and the affordability, also carries the allure of instant gratification. Studies show that those people who can resist instant gratification are the ones who are generally successful in their life. Standford Marshmallow Experiment is one such experiment that proves self control is a critical factor in one’s life. Remember, if you want to buy something on loan, it means you cannot afford it. There is no other explanation.
