9 Things you should never borrow money for

 

Written by R. A. Stewart

There are some things which you should never borrow money for because they are considered to be bad debt. The reason why they are considered to be bad debt is that they do increase your wealth but rather decrease it. The value of the item which has been purchased with borrowed money decreases over time. 

Another thing which you should not borrow money for is risky investments which may or may not make you rich but also have the potential to send you to the poor house if the value of the investment plummets. Purchasing crypto currency is a classic example.

Here is a list of items you should never borrow money for.

  1. Cryptocurrency

Only discretionary spending money should be used for purchasing cryptocurrency because of its volatile nature and that nobody really knows what the future holds for crypto. The problem with borrowing to invest is that the liability (the loan) is sometimes more than the value of the investment. This occurrence is on the cards if you borrow to purchase Bitcoin and then the price of Bitcoin crashes.

It is exactly what happened to a lot of investors after the 1987 sharemarket crash. One man in our town borrowed money for shares using the equity in his home and when the market crashed in 1987 he was left with a debt.

  1. A wedding

A wedding is something you should never borrow money for. If a couple cannot even afford to pay for their own wedding you have to question whether they can afford to get married at all. A debt is a bad start to a married life that couples can do without.

  1. An overseas holiday

This is just dumb debt! Taking a holiday with someone else’s money is just irresponsible. There is nothing to show for the money apart from a debt which will be made to get ahead.

  1. A wedding ring

Another thing which is a no go area for borrowed money. If a person cannot even save for a wedding ring then getting married is not a wise decision. If the recipient of the ring expects something expensive then you have to question her motives. This is something that needs to be discussed between the families involved. 

  1. Gifts

Thousands of people go into debt at Christmas time and most of it is spent on buying gifts for others.  Advertisers encourage people to spend, spend, and spend more money and very often it is borrowed money that is being spent. No one should be pressured into spending money in this way or anything else for that matter. If you are then you can always plead poverty to your family.

  1. A new car

Borrowing for a new car is a complete no no because once you take possession of the car its value has dropped considerably and the vehicle is worth less than the amount owing on it. This is called “Dumb Debt.” If you cannot even save for a vehicle then you have to ask yourself this question, “Can I afford to run a vehicle?” The costs of keeping one on the road will drain you of your finances like nothing else will.

  1. Electronics

This is a complete No No as far as borrowing money for. Electronics such as TV sets, radios, smartphones and the like are stuff that you only buy with your discretionary spending money. Follow this rule, “If you don’t have the money you don’t buy it.”

  1. Hobbies

This is something you only do with your own money, not someone else’s money. Some hobbies can pay for themselves, such as stamp collecting. If you are able to swap with other collectors or even sell some surplus stock it can at least be self funding. Other hobbies can cost you an arm and a leg and be a hindrance to your financial goals.

  1. Vet bills

Keeping pets is not cheap and becoming too attached to them can be costly. Many people have spent a fortune on vet bills for their cat or dog when the sensible thing to do is to have it put down.

“If you don’t have the money you don’t buy it” is a good rule to live by. It is called “Living within your means.”

About this article: You may use this article as content for your blog/website or ebook. Feel free to drop me a message and give me other things which you should never borrow money for. Read my other articles on: www.robertastewart.com

 

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Dumb Debt is costly

The quickest way to a financial mess is to borrow for stuff that loses it’s value. You not only pay more for such items but the item is worth less than when you acquired it because it is no longer new once you take possession of it and therefore you will receive less than what you paid for it. This is called “Dumb Debt.”

Avoiding Dumb Debt at all costs

Written by R. A. Stewart

Everyone has seen the television commercials with slogans such as “Buy now pay later,” and the like.

You do not need to save your money to buy that new car, a wide screen TV, that latest smartphone, or a holiday in a tropical island when you can have all these things now. 

Instant gratification is a very expensive habit; one that will lead you to a life of financial challenges.

There have been misleading statements in some of the advertising; one I saw read, “Helping you to get ahead.”

That kind of slogan suggests that the finance company is doing borrowers a favour which is far from the truth.

Loan sharks and finance companies thrive on financial ignorance; a person with even a basic grounding in personal finance will avoid loan sharks as if they had tested positive for covid.

One should ascertain whether the item is a want or a need before signing on the dotted line. 

Many people go into debt because they want to live a champagne lifestyle on a lemonade budget just to impress their friends. They are not happy with living modestly. 

An expensive lifestyle is costly in the long run. 

The parable of the prodigal son is a perfect example. Here was a young man who blew his inheritance on wasteful living and ended up living in poverty due to his lifestyle.

He not only blew his inheritance but was most likely living on credit.

It is borrowing that really kills off a person’s chances of financial success. That interest rate is dead money; it is the cost of borrowing.

Paying interest on stuff you have bought on credit adds to the cost of it and the value of a lot of stuff bought on credit is worth less as soon as you take possession of it.

“If you don’t have the money you don’t buy it,” is a simple philosophy to adopt.

What you think you cannot live without is something others have learned to live without. 

It all comes down to the choices we make.

There are some circumstances when it may be wise to borrow such as when the value of the item you are purchasing is going to make it financially worthwhile such as a student loan. This may or may not mean you will get a good paying job but you must be absolutely clear that it is what you want to do otherwise the course will be a total waste of money.

ABOUT THIS ARTICLE

Feel free to use this article as content for your website, blog, or ebook. Check out my other articles on www.robertastewart.com

Disclaimer: The information in this article may not be applicable to your personal circumstances therefore discretion is advised. I may receive a small commission if you make a purchase from any of the links you click on.

Liabilities: what they are

Liabilities: what they are

Written by R. A. Stewart

A liability is when you have a debt to pay. You are responsible for that debt until it is paid. The opposite of a liability is an asset. It is something which provides some kind of value to you.

An example of a liability is when you have borrowed money from a finance company to purchase a car. You pay a certain amount to the finance company each week or fortnightly. It is a liability because it takes money out of your pocket and reduces your wealth.

An example of an asset is an investment with a finance company which lends out money to car buyers. This is an asset because it puts money into your pocket and increases your wealth.

Borrowing money is not the only type of liability which can reduce your wealth.

Others can be, keeping pets, smoking, drug taking, drinking, hobbies, and so forth.

Have you ever heard of dog owners spending thousands of dollars on vet bills when for just $50 they could have had their pet pooch put down. I know of some people who have spent $1,000 on a vet bill for their cat. If that is not financial stupidity I don’t know what is.

Emotional spending is very costly in the long term.

Borrowing for something which does not give you anything in return is a drain on your future financial welfare. Paying for a holiday is a perfect example. This is something you can do without. If you don’t have the money you don’t go on holiday. It’s as simple as that.

Hobbies can be expensive; have you ever seen those news items on television where some collectors have spent thousands of dollars on their items. Whether it is a doll collector, model train collector, or whatever, these people spare no expense in getting their hands on the next item to add to their list.

Becoming an investor rather than a consumer will help you to be better off financially in the long run. By minimizing your consumer purchases and investing that money instead you will build up an investment portfolio, whether that be in the share market, property, and the like. Stuff doesn’t last long and it loses its value over time.

Investing in yourself will pay dividends in the long run if you apply what you have learned. It is just a matter of applying whatever is applicable to your own life. There is a lot of investment advice on the internet and in books but not everything you read will be applicable to your personal circumstances. Having the ability to discern which advice to follow takes experience.

What you spend your money on today will have an effect on your future lifestyle. It is all about making the right choices in life. Politicians talk a lot about achieving different outcomes for certain groups of people. Personally, I think that it is choices which people need to take responsibility for because the only reason why there are so many different outcomes is because people make different choices.

About this article

This article is of the opinion of the writer and may not be applicable to your own personal circumstances therefore, discretion is advised. You may use this article for content for your website, blog, or ebook.

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When is it a good time to borrow?

Written by R. A. Stewart

Are there circumstances when taking out a loan of some kind is justified?

The short answer is “”Yes” but only in exceptional circumstances.

Here is my list of things when borrowing can be justified.

  1. Buying a house

This can be the best investment you make. Can be because if you are not smart about

this then it can financially cripple you. At the peak of the covid crisis interest rates were

so low that house hunters took out huge mortgages but once interest rates rose it

affected their ability to service the loan. House hunters need to do their homework and

factor in the possibility of interest rate rises.

Purchasing a house is a major commitment which can lead to financial trouble if you do it

wrong. You have to do your homework before even considering purchasing a house

and work out how much you can afford to pay off each week. There will be rates and

insurance to pay as well as the mortgage and interest.

  1. Pay off a loan with a higher interest rate.

This is a good move. The savings you make here can go towards paying off your debts.

Dumb debt tends to have the highest interest rates so if you have some of that then you

need to question whether you really need to purchase stuff on credit.

  1. Purchasing a car

It is strongly advisable to purchase your car with as little borrowed money as possible. It

is also advisable to not pay more for your car than is necessary. Purchase from a

reputable retailer and not from some random individual. Taking out a loan to purchase a

A motor vehicle can be a necessary evil if the car is needed for your work or business. In

In the case of a business, any costs associated with the car are tax deductible.

If you are a responsible person you will have developed the savings habit you will have

some cash that can go towards the car which reduces the amount of borrowed money

needed to purchase the car. If you cannot even manage to save for a car then can you

even afford to have one? The running costs of a car are expensive with the rising fuel

costs, insurance, and parking costs. The question of whether yu can even afford to have

a car and whether there are other options available to you must be carefully considered.

 

  1. Purchasing a business

What do you need to consider when taking out a loan?

Here is a list of things to consider:

  1. How much can I afford to pay per week to service the loan?
  2. Can I obtain cheaper credit elsewhere?
  3. Is it really necessary to take out this loan?
  4. Will this loan help me achieve my financial goals?
  5. Taking out a student loan

Upskilling can pay off in the long run therefore, taking out a student loan can be

financially worthwhile if you choose the right course. You need to make sure that you

absolutely know what you want to do with your life because if you do not make use of

your qualifications then it can be a total waste of time and you will still be lumbered with

your student debt.

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