I could have easily adopted the text book method of defining wealth – and there are many available. Instead let us look at mindsets.

It starts from the basic question of “Why do we borrow?”

Most of us will today not need to borrow to buy a VCD or a television (did you note we have now stopped saying color television?). However some of us will have to borrow money to buy a small car, many of us will have to borrow to buy a big car, and most of us will have to borrow to buy a house.

If you have to borrow for consumption, you are not wealthy.

Let us say you need to buy a house for Rs. 10 million – and you do not have that kind of money, but you have a good job – so you borrow. That means you are not wealthy.

However, you wish to buy a house for Rs. 7 million, and you have Rs. 300 million in equities, mutual funds, unit linked plans, etc. and you take a call that since your portfolio is growing at a rate much above 9% p.a. you borrow and buy the house. In this case you are wealthy. Simple.

When a person has a Ferrari, it does not mean he is wealthy. It means he is willing to spend, that  is all. And that could come from borrowing. A sign of wealth is seen on the face – there has to be contentment. Wealth seen in the bank is not wealth, wealth seen on the face is wealth – funny is it not?

What are the reasons that we borrow?

1. Consumption – long term and short term
2. Investing

Your short term consumption stories are many – a vacation, medical emergencies, regular consumption, buying a car, etc.

Long term consumption – house

Investment – buying shares, Loan against property, Business needs, educational expenses, etc.

If you have the money to buy all that you need – not worrying about the future cash flows that you can (may) earn, you are wealthy. If you have created that much of wealth, you are now past requiring life insurance – unmindful of what your insurance agent tells you. However, if you are still borrowing to buy things that you need, you need life insurance to cover all the loans, and the money that your family will need if you are no longer with them.

Related Articles:

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

  1. another interesting way of looking at the loan or not issue is to borrow a little over the amount such that the emi *12 covers the 1.8 lac deduction limit (post PPF 70,000). Plus a less than 25 lac loan will be at 1% lesser interest. 🙂

    On the other hand, banks will possibly not offer 9.75% for lesser amount.

  2. Dear sir..I am really happy to have gone through your blog. I am D.Manivannan, a Senior Business Associate of LIC. I am in the job of recruiting, training and developing people as financial planners. I always long to impart quality education to my agents. As a trainer and teacher, I believe, you can impart quality difference in my agent’s mind about personal finance. I am an all india topper in the industry and would like to be associated with you. I would like to buy your book also. Please let me know your mobile number – D.Manivannan (9003177722)

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>