In a world where traffic seems to be multiplying faster than rabbits in spring, two-wheelers have become our trusty companions for moving on bustling Indian roads. It’s no surprise that India ranks as one of the world’s largest two-wheeler markets. With their affordability and convenience, motorcycles have captured the hearts of many, especially the middle class. Yet, buying your dream bike or any two wheeler isn’t just a walk in the park; it’s a significant financial decision that requires some savvy savings strategies.
1. Slash Unnecessary Expenses:
If you’re yearning to own that sleek bike or a two wheeler, it’s time to take a closer look at your expenses. Tracking every rupee you spend may sound tedious, but it’s the first step to identifying where you can cut back. Reducing frivolous spending gives you the breathing room to save for your dream bike. Remember, the mantra here is to save first and spend later.
2. Credit is King:
When it comes to buying your dream bike, credit is your best friend. Not only does it grant you greater bargaining power, but it also means no stress over last-minute EMI or down payments. Cashback and reward points can also find a new purpose in helping you reach your goal faster.
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3. Explore Mutual Funds:
Investing in mutual funds can be a smart alternative to traditional savings accounts. Debt mutual funds, in particular, offer higher returns than fixed deposits and pose less risk than equity funds. Look into ultra-short duration and short-duration mutual funds for your short-term goals, like saving for a bike or a two wheeler. These funds are liquid, providing both returns and flexibility.
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The Big Question: To Loan or Not to Loan?
The decision to save or take a loan depends on your circumstances. If you’re itching to get on the road and don’t have sufficient savings, a loan might be the way to go. Loans offer manageable monthly payments and can even help boost your credit score if paid on time. However, the burden of EMIs and potential hidden costs can’t be ignored.
Taking out a loan can indeed be a more cost-effective financial strategy if the borrowed funds are invested wisely. Let’s delve into this concept with a numerical example.
Imagine you’re considering buying a bike, and you have the choice between taking out a loan or using your savings. Let’s say the bike costs INR 80,000 and you have two options:
Option 1: Using Savings
You could use your INR 80,000 in savings to buy the bike outright. In this case, you wouldn’t incur any interest costs, but you’d deplete your savings.
Option 2: Taking a Loan and Investing
Alternatively, you decide to take a bike loan at an 10% interest rate for the same INR 80,000 bike. You invest your INR 80,000 in a diversified investment portfolio, which you expect to generate an average annual return of 12%.
Now, let’s compare the two options over five years:
Option 1 (Using Savings):
No interest expenses incurred. No investment income.
Option 2 (Loan + Investment):
Initial Loan: INR 80,000 + Investment: INR 80,000
Loan interest at the end of 5 years: INR 48,241
Investment return in 5 years: INR 60,987
At the end of five years, here’s where the two options stand:
Option 1 (Savings):
You have INR 0 savings (no savings, no interest paid).
Option 2 (Loan + Investment):
The net outcome in Option 2 is calculated by subtracting the remaining loan balance from the investment balance: Net Outcome after 5 years = INR 48,241 – INR 60,987 = INR 12,746
In this scenario, taking a loan at 10% interest and investing the initial amount in a portfolio with a 12% annual return results in a positive net outcome of INR 12,746 after five years. This means that, with this approach, you could potentially have INR 12,746 more than you started with, even after paying off the loan with compound interest.
However, it’s crucial to remember that the performance of investments is not guaranteed, and they come with inherent risks. Loan terms and interest rates can also vary. Before deciding to take a loan and invest, carefully assess your financial situation, the specific terms of the loan, and the expected returns on your investments. It’s essential to have a well-thought-out financial plan and consider the risks and potential rewards associated with this approach.
On the other hand, saving up and paying for your bike or maybe for a two wheeler in cash means no loan-related stress or interest expenses. It does require patience and diligent saving, but the peace of mind can be worth it.
Hidden Costs of Bike Ownership:
When you set your sights on that gleaming new bike, don’t forget to factor in some hidden costs:
Insurance: Mandatory for all two wheeler owners, insurance can set you back anywhere from Rs 1,000 to Rs 2,500 annually. But, with PickMyWork you can earn back on the insurance you bought, check out: https://pickmywork.page.link/acko
RTO Charges: Registering your two wheeler with the Regional Transport Office can cost 9-11% of the vehicle’s value, and this doesn’t include additional registration charges if you move to a different city.
Maintenance: Regular servicing is a must, and costs increase as your bike or a two wheeler ages.
Depreciation: Bikes lose 10-15% of their value immediately and continue to depreciate by 10% every year for five years.
All these hidden expenses can quickly add up and catch you off guard.
Wise Tips for Your Bike Purchase:
Now that you’re equipped with savings strategies and an awareness of hidden costs, let’s look at some savvy tips for buying your dream bike:
Timing is Everything: Automobile companies offer generous discounts during specific months to boost sales. Think festive seasons, year-end clearance sales, and even monsoon months for potential savings.
New vs. Second-hand: Consider the pros and cons of buying a new or second-hand bike. New bikes come with warranties and lower maintenance costs. Second-hand bikes are budget-friendly but may require more TLC.
Skip the Add-ons: While the allure of extra accessories may be tempting, remember that each one adds to the overall cost. Cutting down on these add-ons can lead to substantial savings.
Shop for Insurance: Dealer insurance premiums can be high. Shop around for third-party insurance options online with lower premiums.
Service Accessibility: Make sure the brand you choose has a well-distributed service network for easy access and lower maintenance costs.
So, whether you’re riding the mutual funds wave, or cutting back on unnecessary expenses, your dream bike or any two wheeler is within reach. With some clever financial planning and a dash of patience, you’ll soon be cruising down the open road, the wind in your hair, and a grin on your face. Happy savings and happy biking!