The Problem

Never make living paycheque-to-paycheque a habit. It is easy to fall into the eternal trap of believing that you can work till the last day of your life. Many people get into the habit of increasing their lifestyle expenses by living this way. They tend to borrow, because they feel they can manage the EMIs and at the same time enjoy the luxuries of life. This behaviour is so much in contrast to what you should be actually doing— investing regularly. But, there are more excuses to not invest regularly than to pick this good habit. Remember that you are earning money for the lender in this fashion, because of the interest that you pay on the loan. Reverse the move and you will be left with more money in hand.

Example

Say you start your career at 25 and keep accumulating the pleasant things in life till you are 40. Realisation strikes one day when you figure that your repayment commitments on your borrowings will force you to work till you retire. Jobs are difficult to retain in times of poor economic conditions. Adding the threat from technology and artificial intelligence, you could be staring at a self created debt trap.

Suggested intervention

Borrow wisely and within your means and only if you must. Ask yourself before you actually borrow, whether it is to satisfy a need or a want. Borrow only if it is a necessity and that too after checking for the most competitive rate. Get your free credit report to know about your borrowing capacity even before you actually get into borrowing. As much as possible, borrow to acquire assets that appreciate in value, like a house or even funding education. When borrowing to fund a vacation or a car, do so with a short repayment time frame.

Tip

Keep yourself up-to-date in your profession to ensure your job is not in the line of fire. Do not borrow when you have the money sitting in an instrument that earns lesser than the interest you service on the loan repayment.

Read: Inside the Mind of Investors

olmdesk@outlookindia.com