When it comes to buying any asset – I am using it 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.

I am also saying this at the philosophical level and at the operational level. In case you want something, start saving for that – if it is a small item. If the item is something bigger and you can wait longer, Invest, for the same. This is applicable for a car or a house too. You NEED NOT borrow for a car at all – buy a car that you can afford to buy cash down. This surely reduces the size of the car.

Marriage? downsize the marriage! Is it necessary to spend far beyond your means to show the world that you are married? Gimme a break. Borrowing for expenses is so so so stupid – it is the ultimate sign of living beyond your means.

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, 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 in a low cost, zero-load, index fund with a minimum tracking error.