Man’s lifelong financial fear is to drown in debt, yet most of the time debt is a necessary evil. It goes that sometimes to increase your income from that fast growing business you need to borrow money to make more money.
Thus in our financial path we need to borrow money. Borrowing money is not essentially a bad thing especially as long as we borrow smart.
For starters, it is important to know that any money borrowed should be able to pay back itself and still be financially useful. For example money borrowed to invest should be able to refinance the loan and produce a profit without putting unnecessary financial strain on the borrower.
Many a time individuals have made an uncalculated gamble o obtain a loan from a bank to put in a quick and juicy money making ‘deal’ because their friend has assured them that within one month or so they will be five times richer, pay back the loan in full and live happily after.
But usually they end up financially broken, the loan interest escalating as the perceived friend disappears and the loan payments go into arrears.
Of course all kinds of business come with a certain level of risk but if you are investing your hard earned savings let alone expensive borrowings in a deal that has no head and tail then you may just as well be digging your way to bankruptcy.
Before you put your money in a perceived investment or deal, care to find out if it is legal, if your investment is insured or at least if the investment has a sound financial history.
However on the other side, borrowing money is a sure way of raising capital for the interesting business idea that everybody had been waiting for all their life or to expand the successful business that cannot sustain the growing demand.
Even the biggest of businesses depend on borrowing at one point to grow but most importantly, that kind is smart borrowing.
On a more personal level you can borrow money in form of workable mortgage to buy a house and convert monthly rent payments to mortgage contributions to ownership of your own house, which is a smart borrowing decision.
But to get a loan from a bank to build a house repayable in eight years with compounding interest is as good as building one house at the cost of two and spread the pain of repayment for the better part of your life.
Borrowed money is never free. Care to read the fine print when borrowing money from a financial institution, because the small interest payments that accumulate over time are hidden in beautiful financial formulas and language that most of the time you may never understand until when the time to pay arrives.
Whether we like it not, for good financial health, we need to borrow at one point or the other, but most importantly, we should care to make sure that debts enhance you instead of sinking you into more and worse debt.