Let me give you a simple example.
Imagine two people.
Both borrow ₹25 lakh.
Both have similar incomes.
Both get similar interest rates.
Both have similar EMIs.
Nothing appears different at the beginning.
But Borrower A uses the ₹25 lakh to expand an existing business.
The money buys equipment, increases capacity and helps serve more customers.
The business already has demand. The additional capital has a defined purpose. If things work as planned, the additional cash flow helps service the debt.
Borrower B uses ₹25 lakh to upgrade his lifestyle.
A bigger car.
A more expensive celebration.
A luxury purchase.
Nothing wrong with enjoying life.
But the money has not created an income-producing asset or additional earning capacity.
Both have debt.
But only one has a capital-creation thesis.
That distinction is often missed.
A loan is simply a financial tool
Think about a hammer.
A hammer can build a house.
It can also damage one.
You wouldn’t call the hammer good or bad.
You would ask:
Who is using it, for what purpose and how?
Debt is similar.
Borrowed money can potentially help you:
- acquire an asset;
- expand a business;
- increase productive capacity;
- fund working capital;
- create rental income;
- increase earning capacity;
- bridge a temporary cash-flow requirement.
But borrowed money can also finance:
- lifestyle inflation;
- unnecessary consumption;
- speculative behaviour;
- purchases you cannot comfortably afford;
- existing financial problems disguised as new borrowing.
So perhaps we have been asking the wrong question.
Instead of asking:
“Is taking a loan good or bad?”
Ask:
“What is this loan going to do for me?”
Follow the money
This is one of the simplest tests I use.
Whenever somebody tells me:
“I can get a ₹30 lakh loan.”
I am not particularly impressed by the ₹30 lakh.
I want to know where it is going.
Because loan eligibility is not wealth creation.
Suppose you borrow ₹30 lakh for a business expansion.
Ask:
What additional revenue can it generate?
Then:
What margin will that revenue produce?
Then:
When will the cash actually come in?
Then:
What will repay the loan?
Now the borrowing decision becomes an economic decision rather than an emotional one.
Compare that with:
“The bank has offered me ₹30 lakh, so I thought I should take it.”
That is not a financial strategy.
That is simply credit availability creating demand for credit.
And lenders, understandably, are not going to make that distinction for you.
Three kinds of borrowing
I find it useful to put borrowing into three broad buckets.
1. Debt that creates an asset
A home loan is the obvious example.
But even here, don’t automatically label it “good debt”.
The property price, location, financing cost, tenure, affordability and your overall balance sheet matter.
An expensive house bought with a dangerously stretched EMI is not suddenly a brilliant financial decision because it is called a home loan.
2. Debt that creates earning capacity
This is where borrowing can become interesting.
A business loan.
Productive equipment finance.
Working capital.
Expansion capital.
Education that materially improves future earning capacity.
The common thread?
The borrowed money has a job.
It is expected to do something.
3. Debt that finances consumption
This is where tomorrow’s income is brought forward to pay for today’s lifestyle.
Again, consumption is not immoral.
You work to enjoy your life.
But be honest about what is happening.
If ₹5 lakh is borrowed for a lifestyle purchase, it may give you immediate enjoyment.
But your future salary will have to pay for yesterday’s enjoyment.
That is not necessarily wrong.
It simply isn’t wealth creation.
The danger of leverage
There is another side to this conversation that is equally important.
Leverage magnifies outcomes.
That is precisely why it is powerful.
And precisely why it is dangerous.
If ₹20 lakh of borrowed capital helps create ₹30 lakh of additional economic value, leverage may have worked in your favour.
But if the business fails, the lender doesn’t say:
“No problem. We understand.”
The EMI continues.
Interest continues.
And if the loan is secured, the collateral remains exposed.
So never think of leverage as free acceleration.
It is acceleration with an obligation attached.
The Borrow Smart™ Test
Before taking a significant loan, I suggest writing down just five things.
1. How much am I borrowing?
Simple enough.
2. What is the all-in cost?
Don’t look only at the advertised interest rate.
Look at the actual borrowing cost, applicable fees and charges and the repayment period.
3. What will this money create?
This is the most important question.
Will it create:
an asset?
cash flow?
earning capacity?
productive capacity?
Or simply:
consumption?
4. What will repay the loan?
Salary?
Business cash flow?
Rental income?
Sale of another asset?
Something else?
Be specific.
5. What happens if things don’t go according to plan?
This is the question optimistic borrowers conveniently forget.
What if revenue is delayed?
What if your job changes?
What if the property remains vacant?
What if interest rates change?
What if the business needs more working capital?
A borrowing decision should survive a bad month—not just a good presentation.
Credit availability is not an opportunity
This is perhaps one of the biggest lessons I would like people to take away.
Just because a bank or NBFC says:
“You are eligible for ₹50 lakh.”
does not mean you need ₹50 lakh.
Eligibility is a lender’s assessment of your borrowing capacity.
It is not a recommendation for how much debt you should carry.
Your question should be different:
“How much capital do I actually need, and what will it create?”
That is a much more powerful question.
From Income to Ownership
This is where the philosophy of Income Beyond Salary begins.
Most of us are taught:
Earn → Save → Spend
I want to add another dimension:
Earn → Save → Borrow intelligently where appropriate → Acquire/Create assets → Generate cash flow → Build ownership
The objective is not to become highly leveraged.
The objective is to understand that capital can have different sources.
Some capital is earned.
Some is saved.
Some may be borrowed.
But regardless of its source, it must be deployed intelligently.
Because wealth isn’t created by merely having access to money.
Wealth is created by what money ultimately becomes.
The uncomfortable question
So, the next time somebody asks:
“How much loan can I get?”
Pause.
Don’t start with the bank’s number.
Start with your own purpose.
Ask:
Why do I need the money?
What will it create?
What cash flow will it generate?
What will it cost me?
What happens if I am wrong?
That is the beginning of financial maturity.
Not knowing how to borrow more.
Knowing when borrowing deserves a place in your financial strategy.
The Bottom Line
I am not suggesting that everyone should borrow.
Far from it.
I am suggesting something more fundamental:
Stop judging debt merely by its existence. Judge it by its purpose, cost, deployment and consequences.
A ₹20 lakh loan used to create productive capacity can potentially be very different from a ₹20 lakh loan used to finance consumption.
Same bank.
Same borrower.
Same ₹20 lakh.
Different purpose.
Different economics.
Different future.
That is why I believe:
Debt is not the enemy. Bad debt is.
And this is the first principle of Borrow Smart™.
Before you borrow, don’t ask:
“How much can I get?”
Ask:
“What will this money create?”
— Joydeep Bagchi
Borrow Smart™ | Income Beyond Salary
A note from Joydeep
This article is intended for financial education and thought leadership, not personalised financial, tax or legal advice. Loan pricing, eligibility, charges and regulations vary by lender and product. Always review the current loan terms and your own financial circumstances before borrowing.
