How to Borrow Money, Part 1

Despite the media's constant harping about the evils of debt, borrowing (using other people's money) is an essential tool for achieving financial security. In our society, you can borrow to acquire just about anything, but there are very few things that are worth going into debt for. Here's the caveat in seven words: Never borrow to buy a depreciating asset. In other words, don't borrow for something that isn't going to provide you with lasting and ever-increasing benefits in the future. That pretty much leaves out most things that people borrow money for. Most people borrow to finance either current spending or to buy something that loses value over the years, like, dare I say, a car. A home. While the majority of homes in this country are owned free and clear, most of them didn't start out that way. A home is the perfect example of why borrowing can benefit you in the future. You borrow to buy a home, work assiduously to pay off the mortgage, and forever after enjoy owning a mortgage-free domicile. All the while (well, at least most of the time), the value of your home is appreciating. Anyway, this scenario works so long as you resist the temptation to use your home as a personal piggy bank to borrow for stuff that depreciates in value. Education. Education for your kids or yourself is an expensive propositionone beyond the immediate resources of most families. Despite your best efforts to secure scholarships, grants, or gifts from wealthy aunts, you may have to borrow to pay burgeoning college costs. Education is a great reason to borrow, because your return on investment not only is high, but should last for decades, long after you've paid off those annoying student loans. Sensible home improvements. Home improvements fall into two categories: the sensible and the preposterous. The acid test is not how good the improvement makes you feel; rather, it's how good the improvement will make the future buyer of your home feel. Worthwhile improvements add substantial value to your home and, therefore, are worth borrowing for, particularly if the alternative is to move into a more expensive manse.

  No Comments.
Discuss this item on the forums. (0 posts)

< Prev		Next >