Money Warning!

The sales season has begun as you read this. Newspapers are covered head-to-toe with advertisements proclaiming big time sales on homes, interiors, e-com sites offering deals, grocery chains offering discounts, and restaurants offering deals on vrat ka khana. Some would attribute all these indicators to signs of economic recovery and some friends in the sales world would harp about making up the deficit with festive sales. The FM radio too is blaring with sales offers and some being quite unbelievable.

I heard one which mentioned free LED, AC and lucky dip prize of an Audi for a project which will be ready in two years. There was also the mention of a 12 per cent return till possession and then for the next 12 years if one let out the place. There was an offer of 50 per cent discount if one purchased goods from a particular mall for Rs 1 lakh. I am sure these are all very enticing and you too would have heard of some such offer going somewhere.

Many Indians in fact plan car purchase and home purchase to time with these auspicious occasions for sentimental and traditional reasons. So, in a way perhaps sellers use the emotional spiel to entice people to splurge by buying things. It is a different issue that we are actually grappling an unimpressive economic condition, which is propelling a consumption driven revival. Enough data is available which indicates as to how our savings rate has gone down over the years to settle close to the high 20s figure or just brushing at around 30 per cent.

About three decades ago, this was about 70 per cent; you can interpret the rising consumerism based on this fact. In our pursuit to chase our consumption dreams, people who need a 3BHK, go in for a 4BHK or penthouse. Likewise, those who don’t need a new TV set go in for one to replace their perfectly working existing set, because they feel they got a deal in the exchange offer. I am not berating consumption, I just feel people ought to be less impulsive with their finances, and this festive season could be the start.

Beware of the loan trap

Use the next 9 days to start thinking about financial planning, how you could benefit from compounding and embark on the process of getting your financial life in order. Low interest rates and high disposable income will be very tempting to make that purchase on your credit card or convert it into an EMI. In case of real estate, the tax breaks make the deal ever more tempting. People who are completely risk averse start taking home loans for 20 years and more without realising the repayment consequences. Many do not factor in the delays in possession and the fact that they may not be employed that many years, given the retrenchment rate in many industries.

A few days I was in the company of 150 odd MBA students of a well known private university and figured that about one-third of the class had an iPhone, of which about half were keen to upgrade to the new iPhone X, as soon as it is launched. Instead of learning about time value of money, these kids were keen to splurge, because their parents could afford it. This bad influence of getting hooked to an EMI early in life is akin to substance abuse.

Sadly nobody learns even from other’s mistakes. It pains to understand the plight of those who booked a flat in Jaypee Wish Town. They have been paying rent and EMIs and waiting to move into their dream homes for years now. When it comes to buying real estate, as much as a project may seem tempting, it is best to buy a house when you need it and from a readily available inventory than booking something in the hope of possession. For those servicing EMIs, as much as the concept is convenient and convincing, they should not forget that they are actually paying more for what they got.  

I am not dashing your festive spirit; I will leave you to ponder over what Warren Buffet had to say: “If you buy things you do not need, soon you will have to sell things you need.” I don’t want you to be in a situation like this and hence, urge you to go easy this festive season than go mindless with your money. 

nk@outlookindia.com