Wealthcare Investments

Less is More!!

In the series of “Less is More” Today we will discuss “More Credit Limits”

Need for writing on More credit is relevant today than ever before! I am getting at least 3-4 SMS, emails and calls daily enticing me to take quick (and easy) loans, credit cards etc. The case will be no different for you also👍 . Having access to money makes you think about (irresponsible)spending so not having excess credit is boon😊. Recent fall in market by  20% is another interesting time to write on credits.

People relate higher credit limits as social status, credibility, comfort and confidence booster of having money(credit line) as disposal👍 . Its absolutely perfect and justified feeling😊 .

However, how much do you talk about that in social circle? What kick do you get by talking about it?

Higher credit limits be it in personal finance (higher credit card limits, Personal loan, Home loan or loan against securities) or business (Term Loan or Working capital loans) have to be used with extreme caution. Remember that it’s a LOAN WITH INTEREST THAT NEEDS TO BE REPAID, AND NOT A GIFT. In olden days, one could get away without paying up or part paying the dues but now the scenario has changed completely. Your defaults makes it difficult, if not impossible, to borrow anytime in future. Therefore, exercise extreme caution 🙏.

This is a personal finance forum so we will keep business borrowing aside and focus on personal borrowings. Loan against Property and shares are also being taken by Investors for making quick gains. They pay heavy interest on the borrowed money and take undue risk to outperform the borrowing costs. Since Wealthcare Investments’ inception, I can imagine only 2009 and 2013 as the only period where you could have generated returns over the interest cost😊. But I would not advocate Investing with borrowed money!! Problem with borrowed money – You are investing in products that have uncertainty of return whereas the Interest meter is working daily. Net result, your patience is tested. Most often than not, you will break before the market breaks out (market rises). Even today, after about 20% fall across indices, there are Investors (sorry traders) who have taken these loans and trading to make returns in stock markets/commodity market. Looks like good margin of safety in trade currently, but not sure how many will be winners at the end. My best wishes are with them.

What I enumerated so far are the perils of available credit limits. If you don’t borrow, you don’t have credit available to venture.

Lets examine what excess credit does to financial wellbeing of a person? Investments are discussed above. Now lets talk about undue borrowing for consumption. Practically everyting is available on easy credit today. Days are not far that you will get to convert your food bill also on interest free EMI.

Not sure if all Interest free EMI offers are really interest free or you sacrifice spot discount for it. Even if its genuine interest free EMI, you are better off with paying upfront/credit card. As you are not allowing irresponsible credit consumption culture in you😊 .

Excessive credit card limit is even more dangerous, this is more apt and relevant to Millienials who believes in SWIPE culture. They fail to realize that any preponement of consumption today leads to sacrificing many consumptions tomorrow 😢.

I strongly suggest everyone to see the Marshmellow test in below link. It was conducted by Standford university in 1970 https://en.wikipedia.org/wiki/Stanford_marshmallow_experiment

I personally do not buy product or service just because its available on credit. Even my daughter is trained in similar fashion. I don’t even look at cash back or offer which are temptation to indulge in consuming. Most of the time, I buy with spot payment instead of consumer credit (even if its genuinely interest free). This is just to stay clear from habit of credit.

In Technology enabled world, there will many smart and innovative products and services available to us that will make us feel “Must have”. Social pressure will also play its role to force us to consume! In such times, self descipline and restrain will help us to consume whats needed and not reckless. Once you put self restrain, you are sure to not get indudged into reckless credit.

Responsible Credit is good for individual and economy, but reckless credit is bad for individual but still good for the economy!! You have to decide😊 .

What should you do?

1)      Avoid entertaining such calls unless you are in need of it.

2)      Don’t pay attention to advertisements/ hoardings. They are impulsive.

3)      Spam such emails and SMS so that it doesn’t hammer you continuously.

4)      Check you credit card spending everytime. Also pay attention to cash flows v/s EMIs.

5)      In investing, resolve to not take any credit at all. You are fine investing without borrowed money.

6)      Don’t forget excessive credit has drown nations/companies and individuals. You are no great personality.

7)      If you are already burdened by credit, try to reduce it by cutting some corners and pay off.

8)      If you cant pay off, look for alternate cheap source of funding.

If you need to know more about money wisdoms, feel free to contact me. I am available at 9833778887 or wealthcarein@gmail.com

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Author –

Bhavesh D Damania

Founder - Wealthcare Investments

EduPrenuer, TV show panellist and Blogger

You can reach him at 9833778887 and wealthcarein@gmail.com

"Risk comes until you know what, where and why you are Investing"

Disclaimer: We respect all individual approaches. Sole objective of this series is to burst a few myth in Investing. There could be genuine reason/experiences and “less is more” may not be appropriate. Investor must consult own advisor to figure out right approach before adopting any of these suggestions.