One of my friends recently contacted me asking for a loan. I haven't spoken to him in the last 2 years or more. But 10 years ago he was a good friend and a common friend of my other friend. It was sad to see him getting stuck to some financial need and it left us awkward when he asked for financial help. He promised to send the funds back to me in one month.
This is when I thought about the burden that high EMIs can create on loans.
Why high EMIs?
The best explanations given to this is that people want to close their loans as soon as possible. There is something where you can increase the tenure and you can increase your monthly EMI if you want to close of the loan soon. It can sometimes become a huge burden but people still do it. This friend had set a high EMI to close off his loan as soon as possible. He is paying almost 80 percent of his salary as EMI. This is a risky thing because he is not having enough cash flow.
To increase the cash flow additional sources of income should be opted. In his case, he does not have good financial discipline because he is into gambling in the share market. When I asked him why he opted for a high EMI, he mentioned that he wanted to close of his Home loan as soon as possible because he is not having a longer tenure to close the loan off.
Risk of not having a proper cash flow
Cash flow is very important and we need to have enough money in hand to take care of emergency needs. That's very important. At the same time, we have to also plan our expenses in such a way that we can manage our expenses without lending money from other sources. This friend has a problem with that. I think he is unable to manage his expenses with the high EMI that he is paying and because of that, he ends up asking everyone for money. This is not a good thing I should say.
Rotating the money is a high risk because one person might be okay with that and lend the money but ultimately it becomes a habit and we keep asking for money from people and find it hard to manage our finances. Ignore the emergency need. There can be instances where we might need some normal expenses to be done. If we don't have enough funds available to take care of those expenses we might lose respect in our family.
Financial discipline
Financial discipline starts with how we manage our finances. It is not only about our finance but it is also about how we handle the financial discipline of others. We shouldn't be in a position to ask for money from others. It is very easy said but practically there can be tough instances where we might need some money. Having a good cash flow can help us during such instances.
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