How EMIs destroy your dreams!

Abhishek Agarwal, co-founder of CreditVidya.com, takes a controversial view on how our dreams are being mortgaged by EMIs we keep paying month after month.

Fixed costs? Zero.

Risk-appetite? High.

Can pack bags and change countries tomorrow? Yes.

Value on freedom? Priceless.

High on life? Absolutely!

The thought of compromising on my dreams to invest in an asset class (say a home on EMI)to increase my net worth in the future makes me want to throw up in my mouth.

To my parents' dismay, who wanted a typical obedient son, I am going to take a controversial view on how our dreams are being mortgaged.

A typical middle class Indian Hero

We are told to dream big, spread our wings and fly. We are supposed to take risks, innovate, build and change the world we live in.

India is supposed to be the frontrunner of the IT revolution; we have the engineers, the sharpest of minds and yet we managed to lag behind in innovating great global products. Some say we need better infrastructure, some lay blame on lack of governance and some on the non-conducive ecosystem.

However, the primary villain of my story is: The Equated Monthly Installments (EMI) -- a fixed overhead cost -- taking away our risk appetite in lieu of a stable future. An entire industry, called consumer finance, is being built to rip our dreams off!

The IT boom in India is often given credit for the rise of the middle class in India and justifiably so. It was around the same time in the early 2000, one additional industry was taking shape -- retail banking industry. Higher income gave banks and other financial institution the opportunity to lend to individuals so that they can achieve their financial goals. "Owning a house", which used to be a distant dream, became a reality then.

Fast forward: Today home loan teaser eates and 0 per cent financing are enticing us to flock to lenders for newer and bigger houses, bigger cars, bigger phones... the list could be endless. We were paying price for our freedom and creating a circle of debt as lenders are raking in money to grow their retail book by 20 per cent compounded annually, year after year.

Getting access to credit became easier and we slowly started falling into the trap of higher "fixed costs". An innovator in us is getting killed every day because we choose to mortgage all those traits into this villain called the 'EMI'.

Young blood, fresh out of college, who should ideally dream of building products that would change the way we live, started getting trapped into servicing their EMI payments and now looked for job security. Not only that but the lure of an Infosys job or at a top MNC job that gave them the ability to own a house, drive a nice car and show off to peers/relatives/family/friends was all too enticing. It became a rat race -- after all our social status is gauged by the asset you own -- and 'house' as an asset has a special social status above all other financial assets.

We started succumbing to the jobs that do not offer us growth or career paths that we are least interested in because we now have a fixed cost (EMIs) to service. The monster called EMI has become so big now that taking your family for a vacation would just become an afterthought despite the manifold growth in your purchasing power.

I wonder why?

Is our decision to buy a house (having a fixed overhead cost for the next 20 years) more of an emotional one or a sound financial one?

Can we put a price on our freedom?

What is the marginal happiness that I get from the financial gains of owning a home for which I am sacrificing my present?

I struggle with these questions -- this is not just about owning a house, but it's about adding a high fixed cost on a monthly basis.

Could we not just live in rented apartments closer to workplaces, with freedom to explore career opportunities and take paths less travelled?

Can we get rid of all the fixed overhead expenses and live life on a variable basis -- just spend as necessary so we can take bigger risks in our lives?

Can we be more accepting of failures?

I will draw examples from my life where the lack of financial burden (thankfully, my parents are self-sufficient) allowed me to grasp opportunities that helped me advance my career.

At 16, I had just finished high school. No one in my family had completed college and I wanted that coveted degree so I left everyone behind and moved to the US.

I was now 23 and had a good career with Thomson Reuters. I had heard NYC was where the action was. I would rub shoulders with the best in the business. This time I sold everything I owned in Minnesota and drove myself to NYC.

I was now in the Big Apple and was loving life. MBA called and this time again I sold everything and drove myself to Los Angeles and then to London for six months.

Upon graduation, I decided that I wanted to live in India and be part of the growth story. This time I sold everything to move back to the motherland.

I now run a start-up Creditvidya.com along with my co-founder Rajiv Raj. We have learned from our experiences and kept a low fixed cost structure for our start-up.

Flat organisation structure, outsourced support functions, cloud services, all of which has helped us keep our fixed costs low. It does have its own set of challenges but gave us flexibility to keep the business running when the revenues weren't trickling in.

Whether in my personal life or in my professional life, I have benefitted in keeping my expenses (fixed) to a minimum. Everyone indulges once in a while and that's okay. But one does need to take a hard look at finances and question the absolute necessity of fixed overhead expense.

Illustration: Uttam Ghosh/Rediff.com