Taking a loan is as tempting and easy as making decisions to buy something. Even if it means purchasing something needful, a loan, in any form, should be taken mindfully. There are certain dos and don’ts before you take a loan. However, the same rule may not necessarily apply when you set out to buy few things. In other words, while buying some things may be a requirement, a loan to finance your needs, may not be.
We discuss few such things, which you need, yet you can manage them without the need for a loan. Investing your money regularly in ULIP plans and similar instruments allows for a growth in your wealth, which you can use towards acquiring these assets rather than a loan.
You need a personal vehicle to commute, travel within or outside the city. A car, suiting your budget, is a near-necessity for personal convenience and mobility. At the same time, this single asset has a lot of aspirational value attached to it. We sometimes extend our budget to buy the car we desire and use the auto loan.
However, it is always important to remember that car is a depreciating asset. No matter what it's present value is, it is not expected to fetch you a return on investment. Therefore, always buy a car without loan so that you can pay for what you exactly require. Calculate the high rate of return you need to pay on a car loan and then, compare it with the depreciating value of your car- from the first year onward. It will be easy to arrive at a logical conclusion then.
Furnishing your house as per your personal desires and aspiration is no longer a distant reality now. With so much available in the market, it is easy to stretch your imagination and end up buying something extravagant. No harm, if you can afford it in real time purchase value. Taking a loan to buy a furniture piece is a bad idea.
It means investment in an asset, which may stay with you for long, but with no return on sale. It too is a depreciating assist, that too with a risk of losing its relevance in fast-changing fashion world and sensibilities. You may need the same furniture piece any time sooner than you expect it to be.
- Mobile Phones
This is perhaps the trickiest item on our list. We know smartphones are a necessity, we practically cannot do without it. Latest mobile gadgets on the market can be both attractive and alluring. Since we know that there are technology upgrades happening then and now, we may need to be prudent and wise in our buying decision of mobile phones. Taking a loan to finance your high-end mobile may be wrong.
One, by the time you end up paying your EMI or clearing your loan, your phone may well be stamped outdated. Alternatively, there are so many options available today that you may end up buying your tech-loaded phone within your budget. Search for your options carefully and with patience.
- Household Electronic Gadgets
From big LED screens to the smart refrigerators, there are a plethora of options on this front. However, a general piece of advice is to invest in as much as you require it. Even if you are looking for the latest model in the market, be wary of the fact that it may not remain the latest by the time you finish clearing your loan. You may only end up paying the extra interest amount plus the fancy value for the up-to-date in technology.
Technology has a value equivalent to its real-time usage. After which, it only gives you a depreciating return in the real sense. So always invest meaningfully and mindfully. Choose wisely from the multiple options. Like, replace one brand with the other to accommodate the cost factor in your present budget.
- Wedding Shopping
A personal wedding is always an extravagant affair and can be made as extravagant as you may want it to be. The wedding market is flooded with options. Many brilliant ideas can be given to host that perfect big Indian wedding. But, attached to it is a heavy cost you need to pay for personally. There is no return on investment anyhow.
Therefore, the best way to approach a wedding is to start with a budget. It should ideally not exceed your set budget. And the thought of taking a loan to finance your need, only to host a lavish wedding to impress, should not even cross your mind. You will only end up adding to your emotional and financial burden, with a loan. Instead, plan your wedding to honeymoon travelling keeping in mind your exact affordability quotient. It will give you emotional and mental peace. For, happiness is all you need to make your wedding day a success.
It is an investment norm in India. You may need to accessorise yourself with the best jewel piece personally, or you may invest in gold in anticipation of good returns. However, as strategic as jewellery may sound like a personal investment, it must not be bought on loan. A good way to work out your budget and map your return on investment is to compare the interest amount against the appreciating value of gold.
For example, only the higher value of gold will give you higher returns, which means a higher loan value too. If you plan to make gold a family heritage property, then too, you need to map your loan expense against no real (tangible) value returns. Therefore, be mindful of spending on jewellery as an expense or investment both.
Invest in SIP Instead of EMI
The following two reasons should compel us to use investments like ULIP plans and mutual funds to fulfil these needs:
- Once you acquire one of these assets you are left with less money
- When you use the loan, you are giving up on saving the same amount for next few years
Regular investment in ULIP plan can offer your money safe exposure to equity markets along with tax benefits under section 80C.
Even when you are investing only in fixed income funds through ULIPs, your tax deductions continue same as equity funds, including for the maturity value. This makes ULIPs more flexible and attractive for long term investments than even the best mutual funds.
More than that, nowadays, you can invest in ULIP plans directly through the insurer, completely online.