So you might have noticed that there’s been just a touch of bad press recently about people taking out loans and going into debt. And, in general, the bad press might have been justified.
Before the crash of 2008, banks were lending out lots of money, but the people taking the money couldn’t afford to pay it back.
Whereas then the attitude was happy-go-lucky, now it’s a lot more sober and critical.
The problem is that taking out a loan isn’t a bad thing. It’s actually an essential part of how the economy works. Without people loaning out money, it’s not possible to invest. And if it’s not possible to invest, it’s not feasible to even maintain our current standard of living, let alone get richer in the future.
That fact alone should tell us something: there are times when taking out a loan is a great idea. So what are they?
When Setting Up A Business
In the days of yore, one of the only reasons people went into debt was to set up a business. They couldn’t buy everything they needed just on their own income. So they had to borrow money from other people. The classical example involves the people who borrowed money to set up clothes factories. They knew they couldn’t pay for all the spinning machines, the factory buildings, and the workers’ wages upfront. So they looked for other options.
As a result, most new businesses went into debt. Some, of course, didn’t make it, and investors lost their money. But some companies did make it. They started selling their product to market and making money to pay for all their expenses and their debt. In fact, the successful companies made back more money than they borrowed in the first place. And the owners got a higher standard of living than if they hadn’t taken the risk in the first place.
The lesson here is that taking out a loan is a good idea if it will make you richer in the future. That’s why people start businesses and go into debt. They’re looking for ways to use resources today that will yield a big payoff further down the road.
When You Have A Job Opportunity
Once you understand the principle that loans are opportunities to make yourself better off, it’s easy to find other ways to use them.
A common scenario involves when you have a job opportunity in another city. The job pays more than your current job, but right now you don’t have enough money to cover the cost of moving. So what do you do?
One option is to go to a site like http://PersonalMoneyStore.com and get some short term finance. With that finance, you meet some of the costs of removal, solicitors and agents. Then, when you start getting paid by your new employer, you can pay off the loan and enjoy a higher income.
When You Need To Get Educated
Right now student debt is a big issue because mainstream education just isn’t paying off like it used to. There aren’t enough graduate jobs for all the people coming out of university. Plus, the debts incurred are enormous. So it might sound like you shouldn’t bother taking out a loan for a college education.
There are, however, more lucrative education opportunities, like professional qualifications, elsewhere. These are often a lot more cost effective. And they often have a near-guaranteed payoff in the future. Investing in yourself to improve your long-term productivity, means that you are investing in the future. In other words, you expect a big payoff down the road, just like if you’d bought a factory.
When You Want To Fulfill A Dream
It might seem a little strange that I’ve included fulfilling a dream on this list. Especially when you consider how much I’ve stressed the importance of getting a payoff in the future. Fulfilling a dream has no financial payoff. So is there still a role for loans here?
Well, possibly. First off, people only make investments because they want to increase their consumption in the future. Investing might sound virtuous, but it’s the consumption we’re after at the end of the day. In other words, it’s the consumption that is fulfilling, and not the investment itself. Sometimes the time is right to fulfill your dreams, but you don’t have the money to do it there and then. As long as you can afford to pay the money back in the future, it would seem silly to miss the opportunity. After all, seeking out fulfillment is what life is all about.
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