If you are not married yet, then sooner or later you are probably going to get married. After that you will probably going to go in for a house. After that you will probably go in for a vehicle. Then you might want to go for a long vacation. Then you might want to buy a buy a bigger house. Then you might fall sick and have a big operation.
Why are we saying all this? These are events that occur in almost everyone’s lives. All of them are “big buys”! They take up a huge amount of money. If after a few years you randomly decide to do one of these things, then arranging the money for this suddenly will be a problem. If you have a salary of Rs.10-20 thousand and you have to arrange for Rs.2.5 lakh next month, then will you be able to do so? Probably not.
You might say, that now-a-days, loans are easily available. I will just take a loan! I will just buy on credit! BAAAAD IDEAA!! BAD IDEA!!!!
Why is taking a loan a bad idea?
Obvious reason: Assume you have to make a “big buy” of Rs.15 lakh (Like a house etc.) Now, when you take a loan for making the purchase, you will not only have to pay the Rs.15 lakh. You will also have to pay the interest. So you might end up paying Rs.18 lakh for something that actually costs you Rs.15 lakh. 3 lakh more!!!!
If for some reason you think that 3 lakh is a small amount and it is okay to waste it, think not only about the 3 lakh. Think about the earning power of the 3 lakh. The 3 lakh can be invested in an asset that makes around Rs.2,000 each month!
If you told you, “Would you like an extra Rs.2,000 each month for free, for doing nothing?” what will you say? I bet most people will not throw it away. Then why throw away 3 lakh?
Besides this, the other problem with credit is that once you buy something on credit, you get into to habit of taking a lot of things on credit. Now, this point is a little hard to appreciate. However, there are a lot of people out there who get into the habit of buying everything on credit because credit makes it so easy for you to buy things. People love the “Buy now. Pay Later!” idea. They get hooked to it.
There are people who buy a big house, a big car, a big T.V. etc. all on credit. Because of this, they have to pay their monthly installments for all these items and their monthly installments alone take up half of their salary. The rest of their salary, is taken away by basic things like food and other necessities. If any part of the salary remains it goes into the maintenance of the big TV, big house or the fuel for the big car.
These people can forget about investing and creating assets. They live a hand-to-mouth existence. If for some reason they loose their job, or fall ill and are unable to work, then they will not be in the position to pay their monthly installments and all their big T.V., big car, big house etc. will be taken away from them. In case they expire, they leave the credit burden for their family to bare!
So, do you want to live this way? If you do not then “good financial planning” and “good investing” is the key! In case you forgot the original pint, you need to invest so that you can make the “big buys” that you need to make!