Quick: what’s the simplest action to take today (financially speaking)?
In the event that you answered’borrowing money ‘, then go to the front of the class because you are obviously a sharp student and a resident of the world.
Unlike days past when borrowing money was tough, today, everyone really wants to lend you money. Banks, finance companies 借錢, charge cards, cooperatives, pawn shops – all of them want to lend you money. So that they outline pamphlets, flyers, letters, e-mails and even pre-approved loans with attached cheques to you. All that’s necessary to do is say’yes ‘, sign the shape and the amount of money is going to be in your bank-account in the blink of an eye.
So much to ensure that I do believe the only real qualification this 1 needs to borrow money today is to own a heartbeat! Even individuals with bad credit report or have been in the’black-list’can still borrow money. Just log onto the websites of some cooperatives, and you will see they proudly display that’people in the blacklist can apply.’ Simply speaking, if you are alive, then you can borrow!
So again, there are no shortages in regards to people offering you money.
But should you use up the offer because it’s right before you? In case you grab it because it is there? All things considered, it is fast, easy and convenient. And most of all, it is m-o-n-e-y.
Now while there are a lot of fun things you certainly can do with the amount of money, being someone who would like to develop a better financial life (why else could you be looking over this magazine?), the solution may be no. Firstly, you are not going to borrow the amount of money just so you can blow it on some gadgets, trinkets or toys. (Those who plan to do this should be reading Stuff magazine instead!)
You are likely to borrow only when you are able generate additional money with it. Put simply, you borrow only once the return from the investment you are likely 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 would not do this when the situation is one other way around, i.e. once the return from the investment is less than the interest charged for the loan. In the event that you say that you can’t find an investment that provides an increased return compared to the interest charged, then the solution is never to borrow! Wait until you’ll find one that provides an increased return. I can assure you that there are plenty of good investments if you appear hard enough.
But needless to say, life is not too straight-forward. While the math says that you ought to borrow once the return on investment is 7.5 percent and the interest is 6.25 percent, what’s missing from the equation is the risk involved. Now if the return and interest are fixed, then it is easy, proceed and borrow. However, sometimes, both aren’t fixed, which means they could rise or down. And this being life, it is the return that always drops and the interest that always rises!
This is why you should only borrow once the return exceeds the interest by at the very least 5 percent. For example, if the interest is 6 percent, the return must be 11 percent or higher. This way, you are building in a security margin to cater the fluctuations of the rates.
You will undoubtedly realize it is not too possible for the above mentioned situation to happen. It is rare for the return from an investment to exceed the loan interest by 5 percent. In reality, it is rare for most investments to provide a consistent double figure return.
This is why you should borrow money only on two occasions; (1) to buy properties, and (2) to expand your business. Of course, provided you’ve done your homework and know what you are doing. Buying the initial property you see is a certain recipe for disaster.
This brings us to the most important point of them; whenever you borrow money, don’t forget that you’ve to pay for it back, plus interest! And i’d like to further remind you that individuals who lent you money do not have a sense of humour – they always want their money-back! And a number of them can take some extreme steps to get their money back.
So to summarize, do your research before borrowing money. If you fail to earn more money with the borrowed money (while having a reasonable risk), then do not borrow. Let individuals who did not read this informative article take most of the risks instead!