Memo Alert: This goes against everything we’ve been hearing about how EMIs are good for us & challenges principles of finance that marketing has us to believe. This is for everyone stuck in a job they don’t love, forced to listen to their boss while dreaming of a vacation and looking at the clock for the day to end, living Friday to Friday. If you are one of those, this is definitely for you.
We all have dreams. Big ones. Small ones. Ones that revolve around what defines an acceptable standard of success as per society. We judge ourselves and how our lives are going in relation to how our peers are doing. Mostly, of course – speaking of the masses. For some, it’s about owning a bigger car or investing in a second home and getting a promotion with a higher cost to a company than your batchmates or even having money in the account for that coveted ‘one-week-a-year’ vacation. For others, it’s about being able to do better than our parents or providing expensive toys for our kids because we never had any ourselves. And how do we get to achieving those dreams? We take an EMI. Take your pick, cause financial institutions have us pegged to the floor & at their mercy.
For a lot of us, success is about owning things. Or rather, being able to afford things. Often, disguised as a thought of achievement as ads have us believe. An EMI, of course, quantifies as a better lifestyle than our parents had. Making us run after things that we want rather than the ones we need. So if you are wondering what happened to your salary and why there is no money in your account for the last 15 days of the month, look closely at your expenses and see how many of these were credit card payments or/and EMIs. Take a hard look at what you spend on and where your money goes.
Q. Would your career choices have been the same if you did not have an EMI? Would you possibly have chosen a ‘riskier’ career if it was not for the financial burden you carry?
But, I also invest! Some of my EMIs are SIPs in highly ‘recommended’ mutual funds. And if my relationship manager has his money in that fund, chances are, it is good for me. Wrong again! Contrary to popular belief, a majority of relationship managers are great ‘sales’ guys who know how to sell you a dream that your money will grow with time. The average tenure of a Relationship manager in a fund can max 3 to 4 years and this means that by the time [if] your money grows, your relationship manager might not even be around to guide you. It’s their job to sell. Period. Dig deeper and you will see that the money you earn and invest is now in the hands of someone who [in this case the fund manager – backed by a research and data champion] will take decisions on your behalf. Because they know best. Right?
Think about this. If every fund manager was equally competent, how is it that only a few funds grow year on year? And even fewer give out dividends? Because the system ain’t working for everyone. And what happens when a fund starts paying out? More people put money there. So as a herd of sheep, we flock to the least possible risk avenue and hope we don’t get slaughtered by the market. And while people have gone to the extent of calling a SIP a good EMI, it is only one if you make money and not the other way around. So the next time someone recommends a fund to you, ask them a few questions and see how much they really know. Then, maybe you’ll know too,
Taking a step back, as people, we’re only figuring out the things we love every day. Some of us realize our true calling when we are in our 20’s [a more care-free, risk-taking life stage] while for most of us its when we have some money in our pockets and want to do the things we love.
This is also the time that two realities hit us. One: That the career I’d love to take up [for e.g. being an artist or a scuba diver] won’t make me enough money & Two: Money makes the world go around. Simple.
By the time we are 30, we have a couple of EMIs running [Personal loans for a marriage, car loan or/and a home loan or the latest sensation – a gadget loan]. Credit card payments are an added bonus and not to mention the life we have chosen that comes with a maintenance bill. We’d all like to live the good life and yes, an EMI makes that happen. Before you know it you are a slave to the monthly payment, caught in a tenure of 10, 20 or 25 years [depending on the loan availed].
From this point on, every single thing we do -from running the grind to being submissive in front of authority – is a mindset that stems from a deep subconscious fear. And the older we get, the more responsibilities we shoulder, the greater this fear becomes. We’ve all heard stories of executives and how their life changed one day when they got the pink slip. This fear runs across levels. Imagine waking up one day and not knowing where your salary will come from? Or that you have a notice in your account for late payments and that your home might no longer be yours. This fear also means we become ‘yes people’. Ones who rarely challenge status quo.
Your credit score might determine if you get a credit card, but if you’ve never taken a loan, chances are how will they know? It’s paradoxical as much as it is toxic. How is it that your worth and potential is based on whether you pay your bills on time or if you have a stable income? Does this not mean at some level, companies prefer ‘safe’ conformists. Ones who will never question the rules and sign off their lives on a dotted line, pay their EMIs on time and put their heads down so that you can slap them with a late fee or interest for even a day off the mark. And even if this upsets you, what can you do? It’s not like we’re in the ‘fight club‘. Speaking of fear, wonder what would happen if we, as a nation of people living on an EMI, collectively, as one, decide to default and not pay up? What if non-performing assets [NPAs] of lenders and banks cross a limit of say 50%? Would companies be able to manage this wave? Would they survive? Ha!
And, guess what? The money we borrow is actually our own. Theoretically, for the layman, this is how banks make money: We put our money in a Fixed Deposit for say 5 years at 6.5% per annum and end up taking an EMI in the form of a personal loan at say 16.5% per annum for the same tenure on a car, the 10% difference is what the banks make. It’s our money being sent back to us at a higher cost. So, we end up paying more, making less and draining our savings. All of this, to live the great lifestyle lie.
Living on an EMI also has deeper social ramifications. Imagine having to live in shame if you are not able to have a ‘li[f]e-style’ that and what will society think? We go deeper into the rabbit hole. Look for avenues of income to satisfy our wants and paying in parts to live a life we don’t really own. Moreso, since our decision making is based on being able to ensure an acceptable standard of living, our definitions of right and wrong tend to mirror those that do not break that myth or cause disturbance to your monthly payouts. We take sides that work for us, hold back on following our dreams of doing the things we love and even take shit from our bosses because we have EMIs to pay. What’s more? We’ll do nothing about racist comments in a foreign country – compromising our dignity, to say the least, so that our dream of a better lifestyle is not impacted and have great pics on facebook. Just so that society does not tag us a ‘reject’ because we did not go on a vacation for the last two years. We might just fall prey to ‘get rich quick’ schemes and invest in loss-making avenues only to regret those decisions at a later date. The more I think about this, the more complex this gets.
We’ve often heard parents say ‘live within your means’. Never really understood what that means until the day I saw us buy a house. With one cheque, all white. My father had been saving for it his entire life. The price we paid for the wait was nothing compared to the pride we had of owning our home from day one. Having the financial freedom to do what we want with it. That’s when it hit me. The answer to this mess. That taking an EMI would only limit our dreams and not help me fulfill them. That if I was willing to pace my life, I would not need an EMI. Ever. Imagine the possibilities. This would mean a slower pace of life – but a happier one. Where age/life stage did not determine the nature of my expenses but instead, invest in the things we needed to have at a particular time.
All this said, can you truly avoid taking an EMI today?
Scenario 1: You are in your early 20’s and are thinking of a big purchase like a phone that costs double your current monthly salary. This is a no-brainer. The answer is that there is hope for you. Hold on. Put aside some money for the phone and in six months, you’ll own it at zero interest. The only price you will pay is that you will be six months behind your peers who bought it on day 1 standing sleepless in a queue. That’s it. It will still be the same phone and it will be yours from the day you bought it and not from the day you paid it off. Hold back because this will also bring in a lot of much-needed financial discipline.
Scenario 2: You are already neck deep in EMIs. This is a tough cookie because you need financial discipline of another kind. The only answer is to restructure your life. Transfer loans to a lower interest rate as soon as you can and if you can’t, dedicate your life to paying off every loan you have. Down to the last one. Then, start afresh.
How will this change your life? Coming from someone who does have an EMI, this decision will make you smarter, financially independent, live stress-free and help you reach your true potential. This will also help you make balanced decisions that help you grow emotionally. Rome was not built in a day. Neither is our life going to be. We’ll all rest in peace someday and then, there is nothing we can do except ensure that our kids don’t fall into the same trap we did. That they are able to live free.
Do write back & share this if this blog makes sense. From where am standing, we could all do with a bit of re-alignment.
Within hours of posting this, have received numerous requests to share insights on how loans work and what can one do to save on interest. Attempting to demystify a few questions in a separate post here.