This is one of the biggest questions today. When should you borrow money? Another bigger question….Is borrowing a good idea? Is it good never to be in debt? The youth in India expect these answers and we will give them to you.
Many youths in India find it tough to meet their expenses within their income. Borrowing becomes a habit and then the debt trap. Then some good advice….Never Borrow….But is this the right advice?
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There are some assets you simply must own, like say a house. Most citizens cannot fund the purchase of a house with savings alone. They must borrow to meet the requirement.
The value of the house/property keeps rising, and if you are staying on rent, the rent also rises. So, borrowing especially from a bank/NBFC becomes necessary. Borrowing per se, is not harmful and in the case of some assets, is very necessary. So when should you borrow?
Rule 1: Does the loan improve your standard of living?
If you are a farmer who needs money to buy seeds in the right season (Kharif/Rabi), then you must avail a crop loan. You will soon enjoy a good harvest and a crop loan availed at the right time is a must.
You have scored good marks, secured a seat in a reputed college and need money to pay the fees. An education loan can help you with the college fees and make sure you get a good job and enjoy a great career.
A home loan may be required if you want to purchase a house/property. A house gives you a roof over your head and the value of the house appreciates with time.
SEE ALSO: How To Calculate Two Wheeler Loan EMI?
Yes, you might have to borrow, but can you afford the EMIs? I am not talking about your loan eligibility…I am talking about how much money is left…after you pay back the loan EMIs. Borrowing to buy a house/car alone is not enough. You must save and invest. If you don’t have money to save and invest after paying loan EMIs and spending, you are borrowing too much.
You must save/invest at least 20% of your income, after spending and paying back loan EMIs.
SEE ALSO: Tips For Home Loan EMI Repayment
If your borrowing creates a big obligation, it's best that you avoid making this borrowing. I’ll give you an example. Many citizens on the verge of retirement or VRS, look to share trading to make some quick money.
The money for share trading comes from margin financing. In margin financing, you borrow from a stock-broker to purchase stocks. Soon this form of borrowing becomes an addiction.
Now consider this. What if the stock prices do not go up as intended? What if you fail to book losses in time? The losses you suffer can ruin your family.
So what do you learn from the article? Borrowing is not bad, but make sure you avail a good loan.
Be Wise, Get Rich.
Mr. C S Sudheer is the founder and CEO of IndianMoney.com – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.
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