Good EMI, Bad EMI…..

It’s so strange the way people, in general, are dealing with money. In my interactions when I ask people I meet what they like, paying interest or earning interest? Almost all of them want to earn interest, and yet they end up paying one. Why is it happening?

As students while we were in school we have all learned in economics that wants are unlimited.  It is practically impossible to have everything we want. Yet we are overtaken by the innate desire to satisfy our wants.  The other big factor is instant gratification and pride of ownership. New car is launched and we want to buy it, or a new phone is come into the market and we want to have it, the list is endless. And also practically everything today is available on EMI, be it mobile phone, or travel and tourism, electronics, automobiles, house, even insurance is now available on EMI the list is long. Some even come with zero down payment schemes.  So then how do we decide if buying things on EMI is good or bad?

I guess the following case study will help you understand this better.  Aman and Ajay decides to purchase a car. They both pay a certain down payment and balance amount is raised through loan. Let us say they are both paying an EMI of Rs.8600/ month for a 5 years loan tenure.

Now, Aman needed a car because he uses his car every day for commuting to and fro for work and on week end’s he takes his family for outings too. Ajay, on the other hand, travels by train for his workplace and never takes his car to the office. Once a month he goes to the shopping mall for grocery purchase, and in a fortnight he goes for outings with his family.

In Aman’s case since he is using his car to optimum his paying EMI is justified. But in Ajay’s case he is hardly using the car for 5 days, and almost 25 days of month his car is not used. On these 5 days when Ajay goes for outings or grocery purchase, even if he takes an air-conditioned cab on all these days his total expense will be much lower than what he is paying as EMI. This my friends is a bad EMI. There is no visible need for him to own a car. The difference in money could be used for something more useful.

This is just one example, there are so many things where money is spent unnecessarily. What is needed is the sensibility to ask your own self every time you want to buy something especially on EMI are these questions…… Do I really need this? How important this purchase is? And lastly, whether it can be postponed? If the answer to these are all positive then, by all means, buy things on EMI, but if even one of the answers is negative please avoid the purchase.

Temptations are always there but how to take charge of them and not get carried away by them is something you need to learn and bring in to practice. It is not easy but if you are determined and want to live a stress-free life in the long run, this is precisely what you really need.