Our Beacon Forum

EMI
By:Muhammad Rafi
Date: Monday, 7 June 2010, 9:21 am

Excellent read!

It's an interesting article by Yogesh Chhabria.

LATELY, I have been thinking a lot about the Lehman crisis. Spending money that they didn't have and going beyond their means is one of the main reasons for their situation today. In fact, that is the cause for the current economic crisis in the US.

When I see this entire happening, I can only remember the good old days. Then, borrowing was bad. People looked down upon those who took loans. Parents would not give their daughter's hand in marriage to a man with loans.

But of course, the times have changed now. Everyone I know has a loan. The buzzword is EMI (equated monthly installment) . Today, you can buy everything on EMI - a house, a television, an i-Pod. In fact I know of someone who just bought a fancy BMW 3 series on EMI, instead of buying a cheaper car outright with cash. I mostly prefer to take public transport, but then I am an old man with old thoughts!

Anyway, coming back to what caused the crisis. Imagine having Rs 200,000 in your bank account, no regular income, yet buying a house worth Rs 6,500,000, in the hope of selling it for a higher price. Even if the price of the house fell by just 5 per cent (that is Rs 300,000), you will go bankrupt.

This is what Lehman Brothers did; with around USD 20 billion they went and bought assets worth over USD 600 billion. Isn't it suicidal and simply foolish?

I am sure things would have been different, had I been the head of Lehman brothers. But who wants an old conservative man like me to head a complex financial institution.

But there are a few lessons that we can learn:

1.Live a balanced life and avoid overspending.
2.Don’t buy things we don't need.

3.Don’t buy Branded good’s.

4.Don’t buy excess Food, Cloths, Cosmetics, Footwear, Electronics and Fashion accessories. Just think before you buy.

Tip: World still has a lot of growth ahead and the future holds immense opportunities for us. Let us make the most of it and save and invest it wisely instead of wasting our precious little on things we don't need.

5.Try to balance life with work (No one is happy to work in their professions) .

6. Don’t stress out your self. After work try to do some extra activities like swimming, yoga, walking, running where you can divert your mind from stress.

A thumb rule: Health is more important than money.

7.Try to understand each other (Wife and Husband) in financial matter’s and help each
other.

Tip: As soon as you get your monthly salary, set aside a fixed amount, usually 35 per cent, for insurance, savings and investments. You can then spend the rest.

8. Not all loans are bad. Loans that are 'need based' (home loans, education loans) can always find a place in your finances against those that are largely 'want based' (Credit cards, personal loans, car loans).

9. Borrow only if repayment is financially comfortable.

A thumb rule: Keep EMIs within 35 to 45 per cent of your monthly income

In that respect, there is one American who I really respect - WARREN BUFFET.

He has lived in the same ordinary house for over three decades, drives his own medium sized car and leads an extremely regular 'middle class' life. If that's all it takes for the richest person on earth to be happy, why do all of us need to take extra stress just so that we can get things which aren't even essential?

"If I can help somebody as I pass along, if I can cheer somebody with a word or song, if I can show somebody that he's traveling wrong, then my living shall not be in vain."