There can be many reasons why we need or want to take out a loan. There are good reasons and there are not-so-good reasons as well. The latter, more often than not, leads to problems.
However, it seems that many of us are oblivious of the troubles that result from our misjudgment of money. Maybe because there is always that pleasure associated with the purchases-that the reward system of our brain is always triggered when we obtain things that sustain our needs (which of course is reasonable) or grant our desires (which sometimes may be uneconomic or impractical unless you are bestowed with more than enough monetary supply).
Actually, debt is largely a part of people’s lives. That is why there are good debts and there are bad debts. And the bad debts or unnecessary loans are the ones that we must avoid as much as possible. So it’s good to consider the purpose for which we are taking out loans.
So when not to take out loans?
- When splashing for big birthdays, weddings, and other life events that you cannot afford. You may think this is only once a year or once in a lifetime. Life is short so we might just enjoy it. That is true. However, think if that once a year or a lifetime will weigh you down after the celebrations. Will you have enough money to pay for the debt incurred for a day of big celebration? Would the repayment come from your paycheck or from the business funds? Great memories are not always created with big expenditures.
- When going for holidays. Who doesn’t want a holiday? Who doesn’t want to have the opportunity to visit places written on one’s bucket list? Who doesn’t want a break from hard grinds at work? If given the opportunity, I guess most of us will grab it. But, it is not a good idea to just embark on an adventure when that holiday money is something you still have to loan from the bank or ask from friends and families because you don’t have a budget for it. It’s not being a dampener but you still have to raise the question every time you so desire to board a plane and fly somewhere. Can you afford it? If yes, then do it. If not, create a budget for it and wait for a time when you are really prepared to set sail.
- When putting up a business that you have no knowledge of. Many people want to give up their 9-5 job and be a boss of their own. Believe me, I am one of those people. I have no special reason why I want to quit my job one day except for the most common dream of everyone- to create a business in which I can be financially free. However, any entrepreneurial endeavor comes with a risk. The biggest risk is diving into a business pursuit without understanding it. Some people may advise you that you can absolutely start a business without prior knowledge. A lot of people have done that. But it is undoubtedly risky. It is even riskier if the money you will use for it still needs to be borrowed. A lack of business knowledge often leads to failure.
- When buying luxury items. Every day, we are bombarded with advertisements. Unbeknownst to many, it recurrently plays to our emotions. Companies always use famous people to endorse their brands because an increase in sales is a surefire. And every day, we add items to our growing lists of must haves-including luxury bags, clothes, jewelry, etc. The clout, the pull, and the influence are everywhere especially in our social media- in people we idolize like influencers, models, and actors. I am not saying these are bad. What I am saying is to keep your emotions in check. To borrow money so you can purchase a limited edition Moschino baguette bag or a Gucci distressed stockings may be quite absurd, don’t you think?
- When funding an expensive lifestyle-if you are thinking of borrowing money to fund your lifestyle, then think again. This might not the best decision that you will ever make. If your lifestyle such as driving an expensive car, constant shopping, dining out, traveling, gym membership, and paying for trainers and others would be attained through borrowing, then you are creating a recipe for a financial disaster. Simply put, if you have no funds at your disposal to keep a lavish lifestyle, then it’s time to accept that you need to change your behavior towards money to keep you from potential financial distress.
Life is short indeed so let us spare it from the hard knocks of money errors. I understand that risks must be taken at times to achieve great things, but these are not one of them.