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#62 - Personal Finance 101 - Why loans are bad and how to avoid them?
These days it is easy to buy anything. Be it a bike, a car or even a house. Banks are ready to shell out loans given a good credit score. They go on a marketing overdrive by cold calling potential customers to lure them to take a loan from them. Many people fall for it.
It is easy to get a loan, but you will feel the pinch when you start paying your monthly dues. Say, If you have taken a loan to buy a house. You will end up paying EMI for 20–30 years depending on your loan amount and rate of interest. 20–30 years of your prime is no joke. Buying a home is a dream and there is no doubt about that. But at what cost?
During this period of outstanding loan, you can’t take bold decisions such as going on a foreign trip that you always wanted to go, starting your own company etc. Because, You will be bounded by the burden of EMI. In short, loans might end up in, you sacrificing your dreams. Is it really worth it? That’s the question that everyone should ask before taking a loan.
It’s acceptable to take a loan and still pursue your dream if you have financial leeway. But if you are dependent on salary for your livelihood and that is the source for EMI, then you should think twice. Loans are a viscious cycle. I have seen many of my friends struggling with it. They can’t quit their ‘bad’ / ‘boring’ jobs. They put up with their bad boss or meagre salary.
Is there a way out? Yes. You can start generating income through your investments which will buy (or at least help in buying) a house/car/bike etc. How to do that? I will write about it in next post.
P.S. I have been writing on Personal Finance 101. Do I have skin in the game? I am 27 years old now. When I first started my career, I didn’t save much but I saved. I didn’t follow any disciplined approach in saving and investment. Then I founded a startup and bootstrapped with my money. After a year and a half, we had to shut down the startup. I was totally broke staring at a very serious debt. I decided to crawl back from this rabbit hole with all energy that I could muster. After 2 years, I am financially independent. I am trying to compile my financial learning in the recent years.