People borrow for all sorts of reasons. In some cases, borrowers find themselves entangled with debt leaving them with little breathing space due to untidy borrowing practices. The worst case scenario is where some individuals committed suicide after failing to manage their debts. Below are some principles which help you borrow prudentsly:
1) Borrow when it is absolutely necessary
Solomon’s wisdom teaches that a borrower is a lender’s slave. It is really scary then to borrow! But you still borrow anyway. Why borrow if you have not exhausted all the available options. Ask yourself this question always before you extend your hand to borrow: Is there really no other option?
2) Borrow to capitalize and not to consume
You are sitting on a financial time-bomb if you are borrowing to consume. The pain of borrowing is accelerated when you remain holding on to a liability with no corresponding asset. Infact when you borrow to capitalize you create a collateral for that debt in the process. Meaning to say that in the worst case scenario you may liquidate the asset to repay the loan.
3) Borrow when it makes economic sense
Borrowing at an interest rate of 5% per annum to invest in a financial asset yielding 6.5% per annum makes economic sense. The economic sense of it is that by year end you would have made profit of 1.5% pending deductions of transaction costs.
4) Borrow with a repayment plan at the back of your mind
People who randomly borrow with no clue/idea on how they plan to repay will always find themselves in MORE financial problems than those which caused them to borrow in the first place. Be wise. Ask yourself how you will repay before before walking away with borrowed funds.
5) Check your financial gearing before borrowing
Financial gearing in a layman’s language is simply one’s level of debt. If your gearing is above 50% think twice before putting pen to paper. Companies collapse due to unprecedented gearing levels and individuals are no exception. Watch your gearing. If its too high it can collapse your personal finances.
6) Consult before borrowing
This is especially true for couples. Before you borrow you need his/her approval. This creates a good fall-back position for you when the deal goes wrong.
1) Borrow when it is absolutely necessary
Solomon’s wisdom teaches that a borrower is a lender’s slave. It is really scary then to borrow! But you still borrow anyway. Why borrow if you have not exhausted all the available options. Ask yourself this question always before you extend your hand to borrow: Is there really no other option?
2) Borrow to capitalize and not to consume
You are sitting on a financial time-bomb if you are borrowing to consume. The pain of borrowing is accelerated when you remain holding on to a liability with no corresponding asset. Infact when you borrow to capitalize you create a collateral for that debt in the process. Meaning to say that in the worst case scenario you may liquidate the asset to repay the loan.
3) Borrow when it makes economic sense
Borrowing at an interest rate of 5% per annum to invest in a financial asset yielding 6.5% per annum makes economic sense. The economic sense of it is that by year end you would have made profit of 1.5% pending deductions of transaction costs.
4) Borrow with a repayment plan at the back of your mind
People who randomly borrow with no clue/idea on how they plan to repay will always find themselves in MORE financial problems than those which caused them to borrow in the first place. Be wise. Ask yourself how you will repay before before walking away with borrowed funds.
5) Check your financial gearing before borrowing
Financial gearing in a layman’s language is simply one’s level of debt. If your gearing is above 50% think twice before putting pen to paper. Companies collapse due to unprecedented gearing levels and individuals are no exception. Watch your gearing. If its too high it can collapse your personal finances.
6) Consult before borrowing
This is especially true for couples. Before you borrow you need his/her approval. This creates a good fall-back position for you when the deal goes wrong.
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