Borrowing Money- A Cautionary Tale

In Hamlet, Polonius warned, “Neither a borrower nor a lender be”. His cautionary words still ring true today. Borrowing money has become a quick way to instant gratification. You can see it, want it, and buy it now (pay for it later).

Borrowing certainly has its benefits. It's a way of being able to buy something today that would otherwise be out of reach. But borrowing should never be the first option.Before borrowing, consider the following-

Dictionary meaning: Borrow[ˈbɒrəʊ] - take and use (something belonging to someone else) with the intention of returning it.

What's the money going to be used for? Do you really need it?If yes, do you really need it right now? Maybe you can wait for your next pocket money to make the purchase. Maybe you can cut back on expenses for some time.

How often do you borrow money? If it's once in a while, it may be okay. But if it's becoming a habit and you are always a rupee short and a day late, you are heading for trouble. If you borrow money, you're only encouraging your poor spending habits.

Take your parent’s help and discuss how to save money to buy something instead of borrowing money to buy it. Remember ‘scramp and save’?

If you must borrow money, calculate the amountthat you will be able repay before borrowing any. The method is similar to what we have discussed for saving. Calculate the time it will take for you to repay the amount, let the lender (person lending he money) know about it and only then take the money. And finally, make sure you repay as per the plan.

Amount borrowed ₹ 1000
Amount returned every week ₹ 50
Time taken to return amount borrowed 20 weeks

Caution: Just about any "want" can be rationalised as a "need" in our mind. It takes discipline to keep wants and needs separate. Those who can do this are more likely to live within their means, while those who can’t are more likely to get into financial trouble.

“He that goes a borrowing goes a sorrowing.” ~ Benjamin Franklin “Before borrowing money from a friend, decide which you need more; the friend or the money.” ~ Addison Hallock
The idiom saddled with debt’ means that you are burdened with the amount you have borrowed. On the other hand ‘tighten your belt’ means reduce your expenses. This will help avoid the need to borrow. And if you cannot stay disciplined, you may have to ‘rob Peter to pay Paul’, i.e., to borrow money from someone to pay back money you borrowed from someone else!

The original credit card was made of cardboard and was created because of the embarrassment of a man who to pay for dinner but forgot his wallet.

A loan is a sum of money borrowed by a person or business that needs to be repaid sometime in the future.

Lenders typically charge interest on their loans, a percentage of the overall loan that borrowers pay in addition to returning the loan itself (principal).

The average American will now pay more than $600,000 (almost ₹ 3.60 crore) in interest over the course of a lifetime! Think about how much of that interest one could avoid by adopting the old-school philosophy many of our grandparents lived by: If you can't afford to pay for it now, you really can't afford it. (Source: Creditloan.com)

The first step to taking control of your money is to stop borrowing.

A basic rule is that it's okay to borrow for immediate needs if and only if you have the ability to repay the amount as agreed. "Wants" should be saved for.

"Wants" should be saved for.

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Ask yourself the following questions before borrowing any money:
  1. Do you really need the product/service you are borrowing for?
  2. Can you save for it yourself and then buy it? Can you earn more money or buy it later?
  3. Are you absolutely sure you will be able to return the money? And within the time you have calculated?
  4. How often do you borrow money? Is it rarely or regularly?
  5. Who are you borrowing from? Is this putting unnecessary pressure on your relationship?
  1. Always put aside a small amount every week into an emergency fund. This fund will help you meet your immediate requirements so that you do not have to borrow money to fulfil them.
  2. Make sure your emergency fund is used only for emergencies. Don’t treat it as extra money.

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