Quick: what’s the easiest action to take today (financially speaking)?
In the event that you answered’borrowing money ‘, then head to leading of the class because you are obviously a sharp student and a citizen of the world.
Unlike days past when borrowing money was tough, today, everyone really wants to lend you money. Banks, finance companies, charge cards, cooperatives, pawn shops – they all desire to lend you money. So that they send in pamphlets, flyers, letters, e-mails and even pre-approved loans with attached cheques to you. All you want to do is say’yes ‘, sign the proper execution and the cash is likely to be in your bank-account in the blink of an eye.
So much to ensure that I think the only real qualification any particular one must borrow money today is to own a heart rate! Even individuals with bad credit report or are in the’black-list’can still borrow money 借款. Just log on to the internet sites of some cooperatives, and you might find which they proudly display that’people in the blacklist can apply.’ In a nutshell, if you should be alive, then you can certainly borrow!
So again, there are no shortages in regards to people offering you money.
But in case you occupy the offer because it’s right in front of you? In case you grab it because it’s there? After all, it’s fast, easy and convenient. And primarily, it’s m-o-n-e-y.
Now while there are certainly a lot of fun things you certainly can do with the cash, being someone who would like to create a better financial life (why else would you be scanning this magazine?), the solution may be no. Firstly, you are not going to borrow the cash just so you can blow it on some gadgets, trinkets or toys. (Those who plan to take action must certanly be reading Stuff magazine instead!)
You are going to borrow only when you can generate more money with it. In other words, you borrow only once the return from the investment you are going to make is higher compared to the interest charged for the loan. For example, the return is 10 percent and the interest is 6 percent.
Obviously, you’d not do so when the specific situation is one other way around, i.e. once the return from the investment is below the interest charged for the loan. In the event that you claim that you cannot find an investment that gives a higher return compared to the interest charged, then the solution is not to borrow! Wait until you can find one that gives a higher return. I could assure you that there are plenty of good investments if you appear hard enough.
But obviously, life is not too straight-forward. While 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 easy, proceed and borrow. However, quite often, both aren’t fixed, this means they can go up or down. And this being life, it’s the return that always drops and the interest that always rises!
This is the reason you should only borrow once the return exceeds the interest by at the least 5 percent. For example, if the interest is 6 percent, the return must certanly be 11 percent or higher. In this manner, you are building in a security margin to cater the fluctuations of the rates.
You’ll no doubt realize that it’s not possible for the above situation to happen. It’s rare for the return from an investment to exceed the loan interest by 5 percent. In reality, it’s rare for many investments to offer a consistent double figure return.
This is the reason you should borrow money only on two occasions; (1) to get properties, and (2) to expand your business. Needless to say, provided that you’ve done your homework and know that which 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; whenever you borrow money, don’t forget that you’ve to cover it back, plus interest! And allow me to further remind you that the folks who lent you money do not need a feeling of humour – they always want their cash back! And some of them will require some extreme steps to obtain their money back.
So to summarize, do your homework before borrowing money. If you cannot earn more income with the borrowed money (while having a reasonable risk), then do not borrow. Let the folks who did not read this article take most of the risks instead!