Early Investment Mistake Destroys Golden Period of Life
This article is my first on finance and I’m a bit nervous as I write because I have not given anyone financial advice till date. I came up with the topic – Early Investment Mistake Destroys Golden Period of Life because I think a lot of people in my circle are not doing things the right way and jeopardising The Golden Period of their Lives. Most of the people are making a lifetime deal and choosing to work their entire life. If not their entire life then at least a good portion of their life, the portion which is called as the golden period of life. I thought of writing this article to help juniors who will be starting their career soon. In this article, I will try to portrait a picture of correct mindset at the time of starting your career.
The most often mistake that people make early in their career is to take a decision of buying a house. Let me tell you why this could be your worst decision in all ways. If you have just started your career then might come in the age cap of 21-25. This is the average age when people start their career and in addition this is the time when you have close to zero liability, zero assets and a greater risk cap. This is the neutral situation for you. You have less money, low liability, zero assets and a higher percentage of risk cap. This is a clean slate to write your future.
When you invest your money in buying a house then you are buying a liability, you are putting bucks in the liability section. How? Well, let’s see some real world numbers.
Early Investment Mistake
Suppose you are a 21-year-old fresher who has just got a job. Let assume you earn somewhere in between 3-4 lakh per annum which roughly estimates to somewhere between 20,000 INR to 25,000 INR every month (deducting PF and mediclaims). You work for 5 years with a 10-15% increment every year and save approximately 15 lakhs. Now, you plan to buy a house which is going to worth around 65 lakhs. You will pay 14% of the total worth that comes out to approximately 9,75,000 (nine lakhs seventy-five thousand). The principal amount now comes down to 55,25,000 (55 lakhs twenty-five thousand). The interest rate for home loans are close to 8.5% (taking minimum interest percent) for 30 years (max duration) tenure will approx to 42,482 INR (42 thousand four hundred and eighty-two). This could be more than 50% of your salary.
I used Home loan EMI calculator to calculate the above stats. You can refer the image below,
Okay, now I want you to open your mind and try it yourself. Quickly, navigate to the following link – EMI CALCULATOR. Now pay close attention to what I’m about to say here. You will have to set the amount, tenure period and rate of interest from by dragging the slider on that EMI Calculator.?
- Set loan amount to 30 Lakhs (30,00,000 INR)
- Set tenure period too, let’s say 25 years (an average)
- Set minimum interest rate according to current market as 10.5%
It is time for a realization. Take a look at the below snapshot,
Let me summarize the stats for you. Find it below,
- Total Loan Amount: 30 Lakhs (30,00,000 INR)
- Total Monthly EMI: 28,235 INR
- Tenure Period: 25 years
- Total Interest Payable: 55 Lakhs approx. (54,97, 635 INR)
- Total Payment (Principal + Interest): 85 Lakhs approx. (84,97,635 INR)
You see the game here. You have paid more interest than your actual loan amount. There is a lot of calculation goes into calculating this amount. This is the reason people often find themselves trapped and they cannot do much because they opted for this trap happily (unknowingly). These companies are taking a toll on your income and they are there to suck you for the rest of your life. The golden period of your life will be consumed in filling their pockets. They have not done a thing to earn the amount that you are paying them. They just gave you the money to buy a house. That is all they did and now they are sitting there to eat your hard-earned income. Wow! what an amazing world 😀
Now let’s assume the best case scenario and you get married after 3 years and find a working partner then tenure period might come down to 15 years. Quickly add 15 + 5 + 21 and you will get your present age e.g. 41. Oops, it’s 41 already. Let us not bring the kids and children into the equation which are inevitable after marriage. What did you have after spending the golden period of your life? Yes, a two bedroom apartment. YEahhhh!
This happened just because of one bad decision that you took very early in your life. You invested in for your liability whereas you should have invested in making assets. So, what is the better solution? Read the second part.