Avoiding bad loans is the focus of one of the chapters in ‘The 250 Questions You Should Ask to Get Out of Debt,’ by David and Marcia Rye (www.vivagroupindia.com). A bad loan, as the authors explain, has interest rates that exceed the prevailing rates by 20 per cent or more and loan terms that include unreasonable late payment penalties, prepayment penalties, or loan costs. “Bad becomes worse if you have saddled yourself with payments that you’re struggling to meet each month.”
Is there, then, any loan that can be called good? Yes, debt that can do good things to your financial future, say the Ryes. “For example, a mortgage used to acquire a home provides you with a place to live in an asset that historically increases in value… An educational loan can boost your (or your kids’) income over time. Good debt offers you a favourable return on whatever is you are financing.”
One of the questions, in a chapter on creating a savings plan, reads, ‘Where am I going to find any money to save?’ If you are like most people, you spend money on things that you really don’t need and the money you make is just enough to cover your expenses, say the authors.
Your first challenge, as they see it, is to get control over your spending habits and establish a monthly budget for everything you buy. “You’ll be amazed at how it will help you save on the little things that will add up to big dollars over a relatively short period of time. That is where you’ll find the money to save.”
A ready takeaway from the chapter is this example, which you can tailor to your situation: “Suppose you and your son have season tickets to baseball. If it costs the two of you $15 to eat at the game, you’re spending about $200 on food during the season. Suppose you made sandwiches and carried them to the game at an annual cost of $50, thereby saving $150 a year. If you invested the $150 into a mutual fund that averages 10 per cent over 20 years, your $150 will be worth $10,000.” Making such minor adjustments in your spending and investment priorities can lead to a substantial contribution to your financial future, the authors advise.
In the final answer, they remind that making, saving, and investing money the smart way takes discipline, time, and patience. “If you’re not willing to do that, you’ll never achieve financial independence. The irony is that it really doesn’t take much effort to become financially secure if you are willing to practise self-discipline now, for future peace of mind and prosperity.”