Quick: what’s the simplest move to make 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 times when borrowing money was tough, today, everyone desires to lend you money. Banks, finance companies, charge cards, cooperatives, pawn shops – all of them 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 shape and the amount of money will soon be in your banking account in the blink of an eye.
So much in order that I think the only real qualification that certain 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 貸款. Just log onto the websites of some cooperatives, and you might find that they proudly display that’people in the blacklist can apply.’ In a nutshell, if you should be alive, then you can borrow!
So again, you can find no shortages as it pertains to people offering you money.
But in case you occupy the offer because it’s right in front of you? In case you buy it because it is there? All things considered, it is fast, easy and convenient. And primarily, it is m-o-n-e-y.
Now while there are certainly a lot of fun things you are able to do with the amount of money, being someone who wants to produce a better financial life (why else could you be scanning this magazine?), the clear answer may be no. Firstly, you are not likely to borrow the amount of money just so you can blow it on some gadgets, trinkets or toys. (Those who plan to do so ought to be reading Stuff magazine instead!)
You are going to borrow only when you’re able to generate additional money with it. Put simply, you borrow only once the return from the investment you are going to make is higher than the 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 specific situation is the other way around, i.e. once the return from the investment is less than the interest charged for the loan. If you claim that you cannot find an investment that provides an increased return than the interest charged, then the clear answer is never to borrow! Wait until you can find one that provides an increased return. I could assure you that there are plenty of good investments if you look hard enough.
But obviously, life is not that straight-forward. Whilst 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’s missing from the equation is the chance involved. Now if the return and interest are fixed, then it is easy, go ahead and borrow. However, often times, both aren’t fixed, which means they can go up or down. And this being life, it is the return that always drops and the interest that always rises!
This is the reason 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 be 11 percent or higher. This way, you are building in a safety margin to cater the fluctuations of the rates.
You’ll no doubt realize it is not simple 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 fact, it is rare for many investments to offer a steady double figure return.
This is the reason you ought to borrow money only on two occasions; (1) to purchase properties, and (2) to expand your business. Obviously, so long as you have done your homework and know everything you are doing. Buying the initial property you see is a sure recipe for disaster.
This brings us to the most crucial point of all of them; once you borrow money, don’t forget that you have to cover it back, plus interest! And let me further remind you that the people who lent you money do not need a feeling of humour – they always want their money-back! And a number of them will need some extreme steps to get their money back.
So to summarize, research your options before borrowing money. If you fail to earn more income with the borrowed money (while going for a reasonable risk), then do not borrow. Let the people who did not read this information take all the risks instead!