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Sunday, 29 September 2019

How to Buy an Electric Bicycle for Free!



I've always wanted to have an electric bicycle & finally with some planning and plotting I could realize that ambition.

This blog post is a descriptive article of the economic planning & feasibility studies that I performed before the acquisition of this kind. I must accept that I was a bit hesitant towards this move as EVs aren't that mainstream and convincing parent that you're putting a comparatively high amount of money for purchasing a "bicycle" seems is discouraging. While all the other people of my age group were getting into debts for new Car or a Bike, I decided to play smart and opt for an investment to decrease my expenses on conveyance. 

So I now had to buy Hero Lectro Ezephyr which after getting quotes from different dealers from Pune was around Rs.18000, now I had to find a way to finance and get this item at my disposal. I opted in for a loan, there were different forms of loans available for the purchase of such commodities. Most people use services such as Bajaj Finance, Home Credit, their own credit card or even personal loans from banks. I sourced my funding from one of the above options.

I found a dealer in Pune near Phadke Houd and he helped me in getting an interest free EMI plan for the purchase of the bicycle, the plan was 9 installments out of which I had to pay the first 3 as a down payment.

So here's the math,
Cost of Commodity: Rs. 17812/- 
I got a discount as there was some kind of Govt. subsidy to promote the use of EVs

Applicable EMI: Rs. 1980 for 6 months
Down Payment: Rs. 6550

So by paying the down payment the, I got the possession of the bicycle, here's where things become interesting...
Keep Reading!

Cash-flow Calculations
I was discouraged by many people and too many people asked me to get a bike (Petrol) instead of purchasing a bicycle that could potentially limit my use to a radius of 25km. Even I had almost agreed and it was not until I read, "The CashFlow Quadrant" by Robert Kiyosaki and learned that to have a sustainable growth and financial liberty it is essential that the cash-flow is positive and this key learning is what inspired me to think of debt as a means to improve my conveyance budget that way actually taking a lot of money out of my pocket.

I did a study of the cash flow during and changes that the adoption of this bicycle could have on my monthly cash-flow:

1st We have to account all the expenses:
  1. EMI
  2. Operating Cost - The cost of charging the bicycle
  3. Maintenance 
  4. Insurance
  5. Alternative riding costs: I'm certain that I may need to spend on fuel at certain times during the month.

2nd the Income:
This is where most people will say that how is that a debt liability generating income, here's where the logic of positive cash flow comes into the picture.

Positive Cash Flow:
Before the acquisition of the bicycle, my monthly expense on commute was a median value of Rs. 1500 per month and sometimes I even had to bear heavy maintenance costs such as tyres, servicing, PUCs, etc. So I assume that this median value of Rs. 1500 will be the stead income source that I shall get every month by using the bicycle. This concept will be more clear when you see my calculations spreadsheet below:

Let us build the balance sheet
Please note that I'm not a commerce professional and might use terms in a way that doesn't makes sense to professionals, feel free to comment below and let me know about the mistakes! 🙂 

Here's a spreadsheet that I used to formulate all computations, it really becomes easy to simulate the scenarios during the service life of the asset.

In the first sheet, I calculated all the expenses and income that will be applicable, you can check out the spreadsheet below:

Now I had an idea of the monthly expenses and the cashflow from this shift of conveyance plan but I wanted to have an idea of the ROI or how much time will it take for me to have this bicycle Free! or in other words in what time will I have it generate positive cashflow that'll put money in my pocket. To answer this I formulated a sequence of this spreadsheet wherein I made a table of monthly cashflow accounting all the expenses and income sources. But there were two ways to tabulating the cash flow. as you saw there were expenses that were based on frequencies such as every month, every 4 months or even on an annual basis. The general practice will be to divide the expense by its frequency and then create a monthly average expense but I decided to check in both ways and see for myself how the cashflow will look like. The following spreadsheet shows the uniform distribution of cashflow where every expense is considered on a monthly basis.




This might look confusing but using graphs makes it's actually more simple to understand, just as I had mentioned before I had also done a calculation for the differential frequency-based expenses and the following graph will actually make it easier to understand.

As seen from the above graph the investment made in the purchase of the bicycle will be recovered by month 29 when a uniform expense method is considered while at the same time with a differential expense rate the recovery is attained within 20 months and the bicycle then works for free! creating a positive cashflow.

I had also considered the depreciation for the bicycle and found that by the end of 5 years it will have a salvage value of around Rs. 2000/-

You can check out the complete spreadsheet by clicking here

Thanks for reading!
-Shadaab SAYYED

P.S.: The costs and expenses mentioned in the post may differ based on your region.

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