There is a famous saying “Don’t live beyond your means. If you can’t afford something then save for it”. What does this saying mean? If you must avail a loan or swipe your credit card to purchase an item….It better be worth every rupee. If you needlessly swipe your credit card for things you don’t really need, then days will come when you have to sell the things you need. But…your neighbor has just bought a brand new car…. Your cousin has gone on a trip to Paris….Your friend has bought the latest Smart Phone…Visiting your friend and cousin is now quite difficult. Your cousin will ask you…Sir, when are you going abroad? Your friend will say…Still stuck with the same old phone? Enough of all this “If I have to take a personal loan or swipe my credit card to go on a holiday abroad or buy a smart phone, so be it”. But is this a good idea? Is it worth sacrificing peace of mind, just to impress your friend and cousin? Want to learn the benefits of making a good investment? Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice / education to ensure that you are not mis-guided while buying any kind of financial products.
You don’t need a reason to spend. You just need to go to a shop…You will surely find something to buy. This is the power of a want…not a need. Unfortunately for you advertisements and marketers have just one purpose…Make you spend on things you don’t really need. Let us understand what happens if you live an undeserved life style. Uday who is 27 years, works in an International call center. Uday earns a salary of INR 30,000 a month. Uday and his friends spend a lot of money on fine clothes and parties. One day Suresh a friend of Uday, shows him his new gaming laptop. This laptop costs INR 1 Lakh. Uday fell in love with this laptop…the moment his eyes fell on it. Playing games on this laptop was an out of this World experience. The graphics were simply amazing. Suresh allows Uday to use this laptop whenever he wants. Suresh never says No to Uday. But Uday’s ego has taken a serious beating. He wants his own gaming laptop. It must be same in every way as Suresh’s laptop.
One day fed up with all the waiting, Uday went to a mall and bought this amazing laptop. He simply swiped his credit card and the laptop was his. Did Uday buy only a laptop by swiping his credit card? No….Uday was a shopaholic. He purchased fine clothes, shoes, the latest smart phone and even a smart watch….all of this simply by swiping his credit card. The credit card was a magic wand in Uday’s hands. Only instead of waving….Uday had to swipe. What Uday did not know was that his credit card charged a very high interest of 30% a year, on the outstanding balance. Uday simply paid the minimum balance on his credit card. This is typically 3% of balance outstanding (amount you have to repay), on the statement date. But Uday could not control swiping his credit card and soon even paying the minimum balance on the credit card, was getting difficult. Uday fell behind in his payments and his credit score was down. Uday was not eligible to avail any further loans, from any bank in the country. But this was just the beginning of his problems. The bank threatened Uday with legal action. The collection agents of the bank were calling him….night and day. Uday had fallen in the money trap. There was just no way out.
What was Uday’s mistake? Uday lived a lifestyle he couldn’t afford. To finance this gaudy lifestyle, Uday used his credit card. Uday did not know that his credit card was charging him a very high interest. He was sacrificing his peace of mind for a lifestyle, he did not deserve and had to borrow to finance. You must use your credit card, only if you are confident of making the repayment in time. Otherwise a credit card can be a sword in the hands of a monkey.
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Life is short…enjoy it to the fullest. If this is your motto and you are not earning well enough to sustain your flashy lifestyle, what choice you have but to borrow. You have to remember that just as you cut your dress according to your cloth, limit your expenses according to your earnings.
Let’s learn what happened to Suhan, a back office executive in a telecom firm, when he did not follow this simple rule. Suhan is 25 years and loves to show off, in spite of earning just INR 25,000 a month. He blows up money lavishly, throwing parties for friends, whenever he feels like it. Suhan has never travelled abroad and thought… “All my friends have traveled abroad. Now I want to go abroad”. Suhan wants to visit Spain. Having no ready cash, Suhan avails a personal loan of INR 2,00,000 from a reputed bank. The bank charges him an interest of 17% a year. The loan has a tenure of 2 years. Suhan goes to Spain. He enjoys the Spanish art and architecture in Barcelona. He enjoys the legendary La Tomatina food fight festival near Valencia. Throwing over ripe tomatoes was something you just never enjoyed back home. After spending a week in Spain, Suhan returns home. Suhan is now on the top of the World. He has the boasting rights. Little did Suhan realize that a bunch of problems were about to leap on him. Suhan has to pay an EMI of INR 10,000 a month on his personal loan. Initially Suhan was prompt with his repayments. However after a few months, Suhan fell behind in his payments. Bank recovery agents were harassing him. His credit score was in shambles. Suhan had fallen into the money trap.
What do you learn from Suhan’s mistakes? Suhan lived a life beyond his means. Did he need to go on a holiday to Spain? Definitely not….His greed to enjoy a life he did not deserve, led him to the money trap. A personal loan is an emergency loan. It charges you a high interest. Though you can easily avail a personal loan, use it only in an emergency. Availing a personal loan for a holiday abroad is a strict… No.
Mr. C S Sudheer is the founder and CEO of IndianMoney.com – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.
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