Being in the mid 20′s age bracket, I have a lot of friends who are just starting their career and have very low cash in hand. There are some who started saving in university, so they have ample cash in hand for personal spending but not enough to do other big things such as getting married. To those who are born with a silver spoon, they do not have any problem doing things that they want. People are born in different kinds of families, it is important that we accept where we come from and strive for a better tomorrow.
Therefore, somewhere sometime in our lives we will ask ourselves this question, “Do I need a personal loan so that I can do the things I couldn’t do without it?”. I hear a lot of opinions from others saying that getting a personal loan is bad for your finances, so today I just want to share my humble opinion on whether or not you should apply for a personal loan to finance your activities.
1. A personal loan is OK for you if after all monthly commitments are taken into account (including those which are not taken into account when you apply for personal loan such as phone, internet, satellite tv, magazine bills etc), you have about 40% of your paycheck left. This is important especially if you’re taking the personal loan for spending, not investing. The number is relative depending on the amount of commitment that you have, but 40% is a general number that applies to most classes. You don’t want to get yourself into a tough spot where you do not have enough cash for your daily spending. If this happens, you will need to make more money to keep up with your lifestyle or apply cost saving initiatives.
2. A personal loan is OK for you if you have side income besides your monthly paycheck (or monthly income for business owners) to pay for the extra monthly commitment that will incur after your loan is approved. For example you might have side income from doing freelance work such as taking pictures for events, giving talks or maybe income from investments. This extra income ensures that your monthly loan payment is taken care of, thus reducing stress of thinking about lower monthly income.
3. A personal loan is OK for you if you have a steady job with a steady annual pay raise (steady annual incremental returns for business owners). This ensures that you can take other loans such as house or vehicle loans whenever your annual income has increased. If you don’t have an annual steady income raise, it is better for you to take the minimum amount of personal loan that you need to finance your activities rather than go for the maximum amount that you can take.
4. Finally, a personal loan is definitely OK if you are going to use it to enter a high potential investment. An investment with high returns will offset the amount of money that you need to pay monthly for your personal loan. Personally, if a friend or colleague introduced you to a high potential investment, I would advise that you go for it after you have investigated all the parameters involved and found out that it is a genuine investment. Make that loan and see your money grow after you have invested in it Of course make sure you also have all the 3 points above to ensure you have a positive monthly cashflow.
There you go people! If you need further advice on personal loan, do not hesitate to contact me and I will try my best to provide some advice on how to go about it. Cheers