Buying expensive products on EMI regularly can sometimes make things go out of hand. Here are certain simple steps which can change this attitude.
A common trend that is emerging among millennials today is the easy availability of credit that has led them to borrow more. However, buying expensive products on EMI regularly can sometimes make things go out of hand.
Let us take an example of Arjun. He is a gadget freak and upgrades his phone whenever a new version hits the market. He is keen on buying a new phone but does not have enough funds for it. So he decides to opt for the 12-month EMI option to satisfy his instant gratification. In this scenario, Arjun is not realizing that for a Rs 50,000 phone through the EMI route, he will end up shelling out an additional Rs 4,000. The obvious reason here is that he did not have enough savings to meet his desire.
There are certain simple steps which can be helpful in changing this attitude of ‘buy everything on EMI’.
Save before you spend
If you are well aware about your spending patterns, then instead of resorting to the last-minute expenditure – you can plan it in advance and create a separate fund for it. If the amount of corpus is large, you can also opt for an SIP. This way you end up earning an additional interest on your fund and the options for your expenditure are well thought through.
Bucket Your Budget
EMI can be a trap for most of the people as they do not categorize their expenditure before making it. If you do not have a structured plan in place, realistically speaking you will not know where your money is going. If you are looking for a solution than bucketing your budget can be a good starting point. You can focus on classifying the after-tax income, by spending 50% on needs and 30% on wants while allocating 20% to savings. It is important to remember that the allocation of percentage of your income will again depend all on your current financial scenario.
This method can help you avoid all the unnecessary or frugal spending and can help you by focusing on what is important.
Spread Out Your Expenses
One of the major advantages of using a credit card is to accumulate reward points. These points can be reclaimed on a later date via offers or incurring no charge in availing a facility. Hence, if you are inclined on using your credit card, it is better to go about the smart way. It is advisable to categorize your expenses in a manner that they are equally spread out between your credit card and your income sources. This can help you to keep a track of all your expenses and make the most of it. This method is extremely useful in case you have a single source of income, as you avoid overburdening it.
To conclude, please remember that when you avail any leisure on credit, it is the first indicator that your finances are not in order. It is always better to plan smartly to savor your indulgences, without having to spend additional cash on them.
(By Rahul Jain, Head-Personal Wealth Advisory, Edelweiss)