While we commemorate our 76th Independence Day, let’s ask ourselves if our wallets are as free as our country. In a world where purchases and expenses often hold us back, especially during these sales, there’s another kind of freedom we should consider – the freedom to be financially secure.
Unfavourably, for countless individuals, the burden of debt casts a shadow over their ability to lead a life on their own terms. The pursuit of financial independence necessitates understanding the intricacies of the debt cycle.
With the compelling advertisements touting enticing loan options and claims of “lowest interest rates,” it’s easy to succumb to the charm they cast. However, it’s crucial to recognize that lower interest rates don’t necessarily translate into reduced tax burdens.
Let’s get to the bottom of this concept through a real-life example.
The ongoing financial debate that has sparked countless discussions across the internet revolves around the age-old question of whether to ‘own’ or ‘rent’ a house. Recently, the research team at FundsIndia provided a comprehensive overview of this debate, effectively settling the matter.
Among the insightful findings of this study, what particularly captured my interest was the concept of the loan repayment cycle they highlighted.Imagine opting for a loan of Rs. 50,00,000, spread across 20 years at the lowest interest rate of 8.5% per annum. This choice would entail a monthly EMI of Rs. 43,391. Which in terms of the current economy is a huge commitment to an average salaried individual.
Remarkably, after five years of dutiful payments, you’d have contributed Rs. 26 lakhs, a whopping 50% of the principal amount. However, it might be astounding to learn that, by the end of the same five years, merely 12% of the principal amount would have been repaid.
This fact underscores that a substantial portion of your EMI primarily caters to interest repayment, highlighting the significant interest burden.
Zooming out to the entire 20-year loan tenure with the 8.5% interest rate, the aggregate amount paid sums up to Rs. 1.04 Crores. This figure encapsulates both the principal sum and the accumulated interest over the loan’s tenure.
This intricacy of EMI payments and loans is one we can’t ignore. While EMIs and loans hold a prominent place in our financial lives, understanding their nuances, equips us to make informed decisions.
But how do we break free from the relentless cycle of debt?
Financial independence is the gateway to living life on our terms, unshackled by creditors. It empowers us to pursue dreams, embrace calculated risks, and seize opportunities without the weight of debt obligations. By acknowledging the repercussions of debt, we elevate the significance of striving for financial freedom.
Let’s quit the editorial answer and pen down the definitive steps involved.
Step 1: Assess Your Debt
Understanding reality is the first step to conquering it. Compile a comprehensive list of debts, noting interest rates, due dates, and monthly payments. This clarity is the foundation of your journey toward financial liberation.
Step 2: Craft a Budget
A meticulously crafted budget guides your journey to financial freedom. Distinguish between essential and discretionary expenses, embrace financial discipline, and allocate funds strategically. This budget is your compass for informed financial choices.
Step 3: Tackle High-Interest Debts First
‘Prioritize wisely’ – Debt forever has been a game of numbers, and focusing on the right ones actually saves you. High-interest debts, like credit card balances, accumulate compound interest rapidly. Channel resources toward eliminating these debts, saving money in the long haul.
Step 4: Invest in Financial Literacy
Resources are everywhere and all you need is a quick search to gain what’s most needed. Empower yourself with financial knowledge to navigate personal finance complexities, sidestep debt traps, and build a secure future. A commitment to continuous learning and acquiring insights into concepts like compound interest, investment options, and risk management is pivotal.
To conclude – as we celebrate this Independence Day, remember that genuine independence transcends political boundaries. It encompasses financial autonomy – the ability to shape our destinies, unburdened by debt. By embracing the ‘Pledge for Financial Freedom,’ let’s initiate a journey towards a prosperous tomorrow. This Independence Day is an opportunity to break the chains of debt and embrace the liberating realm of financial independence.