Quick: what’s the easiest thing to do today (financially speaking)?
If you answered’borrowing money ‘, then head to the leading of the class because you’re obviously a sharp student and a citizen of the world.
Unlike those days when borrowing money was tough, today, everyone wants to lend you money. Banks, finance companies, charge cards, cooperatives, pawn shops – they all want to lend you money. So they really outline pamphlets, flyers, letters, e-mails and even pre-approved loans with attached cheques to you. All you have to to accomplish is say’yes ‘, sign the proper execution and the money will be in your banking account in the blink of an eye.
So much to ensure that I think the only qualification this one must borrow money today is to own a pulse! Even individuals with bad credit report or have been in the’black-list’can still borrow money 借款. Just log on to the internet sites of some cooperatives, and you will dsicover they proudly display that’people in the blacklist can apply.’ In short, if you should be alive, then you can certainly borrow!
So again, you can find no shortages as it pertains to people offering you money.
But should you take up the offer because it’s right facing you? Should you grab it because it’s there? All things considered, it’s fast, easy and convenient. And primarily, it’s m-o-n-e-y.
Now while there are a large amount of fun things you can do with the money, being someone who would like to produce a better financial life (why else can you be looking over this magazine?), the clear answer might be no. Firstly, you’re not planning to borrow the money just so that you can blow it on some gadgets, trinkets or toys. (Those who plan to take action must be reading Stuff magazine instead!)
You are going to borrow only when you can generate additional money with it. In other words, you borrow only once the return from the investment you are going to make is higher compared to interest charged for the loan. As an example, the return is 10 percent and the interest is 6 percent.
Obviously, you would not do this when the problem is the other way around, i.e. once the return from the investment is lower than the interest charged for the loan. If you say that you cannot find an investment that gives a higher return compared to interest charged, then the clear answer is to not borrow! Wait until you will find one that gives a higher return. I can assure you that there are lots of good investments if you appear hard enough.
But obviously, life is not that straight-forward. As the math says that you need to borrow once the return on investment is 7.5 percent and the interest is 6.25 percent, what is missing from the equation is the risk involved. Now if both return and interest are fixed, then it’s no problem, go ahead and borrow. However, often times, both are not fixed, meaning they can increase or down. And this being life, it’s the return that always drops and the interest that always rises!
This is why you ought to only borrow once the return exceeds the interest by at least 5 percent. As an example, if the interest is 6 percent, the return must certanly be 11 percent or higher. In this way, you’re building in a safety margin to cater the fluctuations of the rates.
You will undoubtedly realize that it’s not so possible for the aforementioned situation to happen. It’s rare for the return from an investment to exceed the loan interest by 5 percent. In fact, it’s rare for most investments to provide a regular double figure return.
This is why you ought to borrow money only on two occasions; (1) to buy properties, and (2) to expand your business. Obviously, provided you’ve done your homework and know what you are doing. Buying the first 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’ve to pay for it back, plus interest! And allow me to further remind you that the folks who lent you money do not need a sense of humour – they always want their cash back! And a number of them will take some extreme steps to get their money back.
So to summarize, research your options before borrowing money. If you fail to make more money with the borrowed money (while taking a reasonable risk), then do not borrow. Let the folks who did not read this information take most of the risks instead!