Debt can change life.
Some of the features of capitalism are very interesting. A better understanding of these traits would be useful when it comes to managing our life’s finances. What we mean by life’s finances is the impact of financial decisions on our today and tomorrow.
One of the finance companies used to advertise its loans with the tagline; “jab zindagi badalni ho.” This is a very powerful statement. A loan is a good innovation for the purpose of meeting immediate expenses against deferred income. The subject of finance – be it corporate finance or personal finances – is about management of cash flows. We earn income so that we may meet the expenses we incur. With money being the medium of exchange, it is possible to manage and smooth out all the gaps in inflows and outflows. We invest the surplus and spend later, or take on debt to spend now and pay later.
Debt can change life. And that’s why the tagline of the ad was quite impressive. However, like everything else in life, debt is also a good thing if taken in moderation. If excessive debt is taken, that can also change life – on a lighter note, the ad’s tagline will still remain true.
How much is sufficient? Well, it depends on how much you earn and how much you spend. The debt has to be repaid, and is met out of one’s future earnings.
One of the main features of capitalism is that earning is becoming difficult by the day whereas spending is becoming easier. Too much competition in all areas is making it difficult for people to earn and boost their wages. It is difficult for individuals and it is difficult for companies.
As companies find it increasingly difficult to sell their goods, they make buying convenient and tempting by offering freebies and easy loans. If one succumbs to temptation too often, one could end up piling on too much debt.
This debt has to be repaid in future and that can change life. There have been many cases of people taking on too much debt and then the course of their life changes – one gets stuck in a job one does not like – one tries to enhance investment returns by taking on large risks – one tries to take short cuts in order to enhance earnings, these shortcuts may not be correct for the customer or in the eye of the regulators.
Before taking on debt, it would be a good idea to visit a financial planner and get your ability to service debt checked. The planner will look at your income, expense levels and patterns and work some numbers. This exercise is similar to what a housing finance company does before sanctioning a loan. This may not be applicable if you are taking loans against securities or against gold. It is always in your interest to get the check done.
“Badlo Zindagi” – but ensure it changes for the better. Use loans wisely.