Whether you are borrowing your friend’s stilettos for a wedding or your mother’s mixing bowl for a party, we live in a culture that embraces the culture of borrowing.
There are certain rules involving this act such as dry-cleaning the suit that you borrowed. But, do you know the rules involving money? Here are just some commandments to get you started!
#1: THOU SHALL NOT BORROW BEYOND YOUR MEANS
Your hard-earned income must not revolve around debt repayments. Exhaust your resources to borrow an amount that is within your means. If you cannot afford an item then, skip it first! Save enough money and direct it to completing a purchase.
Many financial experts recommend that you maintain a Debt-to-Income ratio of 20%. How do you calculate this? Simply add up your monthly debt categories (i.e., excluding mortgage) and divide the total amount by your net monthly income. Ask for your partner’s help, if necessary.
#2: THOU SHALL NOT PAY LATE
There are several reasons why Japanese citizens uphold the value of time. For starters, paying on time is one of the vital rules of borrowing money.
It goes without saying that late fees or increased interest rates add insult to injury. Not to mention, being late can dramatically lower your credit score. In the long run, your bad track record will be reported to the credit bureaus.
#3: THOU SHALL NOT BORROW FRIVOLOUSLY
Borrowing money is an act built on a strong purpose and an intention of repayment. For debt categories that yield a sense of profit such as for education or for business, loaning money makes sense. The same ideal applies to loaning items that you will use for a long period of time (e.g., a car).
However, you must contemplate on loaning money for fleeting pleasures. Do you really need the latest gadgets in the market? Is attending an international music festival a crucial part of your life? Are you willing to spend thousands of dollars on a wedding anniversary weekend? Lastly, is a designer bag better than a functional one? Aim to borrow money for the right reasons.
#4: THOU SHALL NOT BE FINANCIALLY PRESSURED
Close your eyes and envision the last time you experienced social pressure. Was it your first day at a new workplace? Or, does it go way back in your secondary school days? At a certain degree, all of us felt pressured to do something we do not want to. It exists in all forms including financial situations.
In said challenging times, a deperate move that people make is to borrow money. You get trapped into a situation that unable you to make smart financial situations. Combat this by creating an emergency fund. Cushion your financial problems and continue to cultivate this fund even when you are experiencing debt. Please do not borrow or lend money to friends or relatives, if you are solely pressured into doing so!
#5: THOU SHALL NOT COMPARE LOANS CARELESSLY
Upon entering a new field, my basic instinct is to do my research about the company. Before travelling to a new country, my basic instinct is to do my research about their culture. What basic instinct do I apply before taking on a loan? Well, research of course! I recommend that you do the same thing too.
Comparing loans is more than the mere act of scoring the lowest interest rates. You must carefully read thru the essential elements such as penalties and add-ons. For instance, some insurance companies include costly add-ons such as specific life insurance. The extra elements will increase the interest rate of the money that you borrowed. Thus, you must approach everything with extreme caution.