When Should You Borrow Money

Fast: what’s the easiest thing to do today (financially speaking)?

If you answered ‘borrowing money’, then go to the front of the class because you are obviously a sharp student and a citizen of the world.

Unlike those days when borrowing money has been tough, today, everyone wants to provide you money. Banks, finance companies, bank cards, cooperatives, pawn shops – all of them want to lend you money. So that they send in pamphlets, flyers, letters, emails and even pre-approved loans with connected cheques to you. All you need to do can be say ‘yes’, sign the form as well as the money will be in your bank account speedy.

So much so that I think the only certification that one needs to borrow money today is to have a heart beat! Even people with bad credit report or are in the ‘black-list’ can still borrow money. Simply log on to the websites of some cooperatives, and you will see that they proudly display that ‘people in the blacklist may apply. ‘ In short, if you are well, then you can borrow!

So again, you can find no shortages when it comes to people offering you money.

But should you take up the particular offer because it’s right in front of you? Should you grab it because it is generally there? After all, it is fast, easy and convenient. And most of all, it is m-o-n-e-y.

Today while there are a lot of fun things you can do using the money, being someone who wants to develop a better financial life (why else would you be reading this magazine? ), the answer may be no . Firstly, you are not going to borrow the money just to enable you to blow it on some gadgets, trinkets or toys. (Those who intend to do so should be reading Stuff publication instead! )

You are going to borrow only if you can generate more money with it. In other words, you borrow only when the return in the investment you are going to make is greater than the interest charged for the loan. For instance , the return is 10 percent and the interest is 6 percent.

Certainly, you would not do so when the scenario is the other way around, i actually. e. when the return from the expense is lower than the interest charged for your loan. If you say that you cannot discover an investment that gives a higher return than the interest charged, then the answer is just not to borrow!
Should you have almost any issues relating to where and the best way to use https://newspicks.com/news/4744178, you can e mail us at our own page.
Wait until you can find one that gives a higher return. I could assure you that there are plenty of great investments if you look hard enough.

But of course , life is not that straight-forward. While the math says that you should lend when the return on investment is 7. 5% and the interest is 6. 25 percent, what is missing from the equation will be the risk involved. Now if both return and interest are set, then it is not an issue, go ahead and borrow. However , often times, both are not fixed, which means they can go up or down. And this being life, it is the come back that always drops and the interest that always rises!

This is why you should only borrow when the return exceeds the interest by at least 5 percent. For example , if the attention is 6 percent, the come back must be 11 percent or higher. By doing this, you are building in a safety margin to cater the fluctuations of the rates.

You will no doubt realize that it is not so easy for the above situation to happen. It is rare for the return from an investment to exceed the mortgage interest by 5 percent. In fact , it is rare for most investments to give a regular double figure return.

This is why you need to borrow money only on two occasions; (1) to buy properties, and (2) to expand your business. Naturally , provided that you have done your research and know what you are doing. Buying the 1st property you see is a sure recipe for disaster.

This brings us to the most important point of them all; when you borrow money, don’t forget that you have to pay it back, plus interest! And let me more remind you that the people who lent you money do not have a sense of humour – they always want their own money back! And some of them will take several extreme steps to get their money back.

To summarize, do your homework before borrowing cash. If you cannot make more money with the borrowed money (while taking a reasonable risk), then do not borrow. Let the people who failed to read this article take all the risks instead!

Leave a Reply

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