I've Bought The Best Phone And The Best Camera - But I Have no Time to Use Them!
Young, qualified, and drawing a salary you didn't think was possible at your age. If I'm describing you, you probably have the latest new phone, the best new camera, the hottest new bike or car, but your bank account is surprisingly empty and you end up using these things far less than you thought you would.
If you've ever wanted to travel and thought that you couldn't because of your job / empty wallet - you're wrong. It's no one's fault but yours - as you're the one who needed stuff, and to buy stuff you need loans, and to clear loans you need to pay EMIs, and to pay EMIs you need a steady salary, and for a steady salary you need a job, and the only jobs that pay decently are the ones behind a desk. If you miss even one payment - you will end up owing the bank way more than you think.
With these EMIs chaining you to your desk - will you ever use that awesome DSLR to take pictures of incredible vistas, or towering mountains, or endless beaches? Will you ever be able to use that awesome new phone to call your loved ones and tell them of your journeys and exploits?
I urge you to reconsider your definition of success, and try to remember the last time you were actually tension free when thinking about your finances. The large salary you draw for sitting at a desk is being devoured by EMI payments. Could that money not have been used for something that would actually give you a sense of fulfilment (like travelling, or saving up and investing in yourself / your own business) rather than fill a void with mass-produced garbage?
The model of life that's being sold to us through popular music and new media is one of consumerist bliss. Companies produce millions of units of literally everything you can imagine that promises to make your life easier - but is that what you really need?
Your new phone / vehicle / electronics that you just HAD to have are all being paid off through EMIs, because let's face it - no one really ever has the large wad of cash on hand that you'd need to purchase these things outright. When you sign up to pay EMIs, you're signing up to pay interest every month for the facility of satisfying your need to consume as soon as this need hits you. People take 6 - 12 months to pay off loans on phones which will be outdated by the time the EMIs are cleared off. The irrationality in this is incomprehensibly idiotic, and the fact that so many people still do this is even more astounding. This may just be a matter of opinion - but how much difference does it make to your life if your camera has 18 megapixels instead of 12? You've been alive and well when your camera just had 8! But we just can't stand the fact that there's something better out there that we don't "own" yet. It's an inexplicable need to own the best of what's being made by world's collective industries, and through this ownership, feel that we are somehow the best. It fills a void in us that our ancestors never had. This is a type of FOMO (Fear Of Missing Out) that's being exploited by companies, and banks are all too happy to help you indulge this freakish desire.
I'm not saying that wanting to own the latest and best product out there is necessarily a bad thing - or that banks only exist to control our lives through EMIs**. It's just that the way in which we choose to define success and chase fulfilment ends up feeding a system that relies on exploiting human needs and devouring the planet's limited natural resources, for profit.
Let's draw out a small part of this issue and deal with it:
You want the latest phone - but a loan with EMIs is the only way to buy it. EMIs mean that the overall cost of the phone goes up by a substantial margin because of interest, but you don't have the money to buy it outright. EMIs also mean that you can't sell the phone and buy a new one if your phone gets outdated by the time the EMIs are paid off.
What's the alternative? Well, you can adopt the old school method of saving, and using your savings to purchase what you need - when you need it.
The best phones being launched today are in the Rs.30,000 - Rs.35,000 price range, and let's assume you want one of these.
Try this - instead of buying "Model X" of a phone today, and paying Rs.5,000 as EMIs for the next 8 months, save Rs.5,000 every month and buy "Model X 2" of a phone 6 months from now. It will have better features and I guarantee that it will be in the same competitive price range. You'd be able to avoid paying interest, and you'd get the best phone at the time without having to pay EMIs for the foreseeable future. This phone would immediately be your property as soon as the money is transferred, and you wouldn't receive any notices from the bank.
Savings of this type can also be invested to make the most of interest additions to stay ahead of inflation in our growing economy. If you're smart and have stayed away from unnecessary EMI, you will have enough spare income to save and invest. Consider the below example:
If you save (as you should), try this - instead of saving Rs.15,000 every month in your sock drawer, you could invest it in a fixed deposit or mutual fund. You aren't going to be spending your savings any time soon, anyway, and locking it up for a 5-year term in any fixed deposit or balanced mutual fund can give you excellent returns, and keep the value of your money consistent with the inflation that will undoubtedly be present 5 years from now.
Investing in a 5-year FD every month means that you will receive a pay-out (as your FD matures) every month, in 5 years' time. For example, if you invest Rs.15,000 a month starting in January 2017 - you will be paid out Rs.21,747 (assuming 7.50%* interest rate on a reinvestment deposit) every month starting January 2022. This could replace your salary - as it is a constant amount being paid to you on a monthly basis - and you could finally travel the way you've always wanted, free from your desk. Don't forget your travel insurance!
*7.50% is the average interest rate for deposits as on 28th July, 2016.
***Please note that all promotions, amounts, tenures, repayment requirements, time frames, interest rates, other rates, charges, fees, ceilings, requirements, criteria, features, benefits, exclusions, calculations, ratios, ratings, terms and conditions mentioned above are as of January, 2016, and are subject to change at any time. All banks / NBFCs / insurance providers / financial service providers / companies, etc. mentioned above retain all rights to modify, replace, or add to or subtract from any of the above, in any way, at any time, and at their own discretion. You are requested to reconfirm the same with your chosen bank / company / NBFC / insurance provider / financial service provider, etc. before making any financial commitments. The above article is not intended to hurt the sentiments or business model of any banks / NBFCs / insurance providers / financial service providers / companies, etc. and merely expresses an opinion about the way the model is structured, and ways through which the common public could avoid pitfalls relating to unpaid dues, etc.