When it comes to buying any asset – I am using the word loosely there is a tendency to borrow. Borrowing actually helps you immediately by allowing you to buy beyond your means. The problem with most things we buy is that once we buy it, it ceases to hold any attraction for us. That is psychological. Borrowing – putting your  TO BE earned income to risk is fine, but with jobs being so uncertain you need to assess that risk regularly.

My simple philosophy is not to borrow – AT ALL. In case you wish to buy a MP3 disc, you do not borrow. In case you need to buy a simple TV or washing machine you may not borrow. However if you wish to buy a Rs. 3L television set, you might be tempted to borrow and pay in installments.  Clearly, the real rich do not borrow for consumption. They borrow for investing.

That you may! However with rising interest rates and the markets heating up so fast even borrowing to buy assets does not make sense.

However, if you do borrow for say buying a house – most people do – do not be in a hurry to repay the loan. Take a loan at a young age and keep it on for the whole period. You are repaying cheaper money – inflation ensures that. However the money “saved” by not pre paying should be invested either in direct equities (if you have the skill) or in a good mutual  fund scheme like the ones managed by Naren Sankaran of Icici Prudential asset management company – good performance without the media hype!