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      Loans - To Take or Forsake? 0

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Learn when to take up loans and when to forsake them.

Most of us are paying for some kind of loans. The fresh out of school kid is paying for his study loan, the guy next door is paying for his car loan and the married couple is paying for their housing loan. At some point of our life, we find that taking a loan is inevitable.

So, when do we take up one and when do we say no?

A good starting point would be to ask yourself what is the purpose of the loan. It could be for a new business you are thinking of starting, an MBA you would like to pursue, a car you are mad about, a house your kids would love or that Italian sofa your wife keeps yakking about.

For that new business
Make every effort to determine the profitability of your business (you need the profits to pay off your loan, right?). Talk to your lawyer if you are inexperienced in this. Business ventures should be made with care.

For that MBA
For the career minded, if you are thinking of taking a loan to further your studies (eg. MBA), do some planning. Determine what is the salary difference for those with an MBA and those without. You would need a pay raise to pay off that loan! Check with your employer whether they provide study loans (if they do, they usually have interest rates lower than the banks).

For that sleek convertible
For the car you are mad about, think twice I would say. If you are going to take a huge loan just to get that sleek convertible that your friends are going to wow about, forsake it. After a few months, your convertible would have lost its wow factor and you? You would be strapped with a loan that is going to take you years to repay. Not to mention the amount of money you would have saved for your retirement if you hadn’t taken up that loan.

For that house by the beach
For the house that your kids would love, talk to them. Tell them what they would have to forgo if they want that house. Be it toys, dresses or that latest mobile phone. Give them a week to think about it. Most kids would would go for the mobile phone.

For your wife
For your loving wife’s Italian sofa, offer her something else of equal value but not as useless as an overpriced piece of furniture? Say, get a comfortable normal priced sofa, but invest in a better bed (you spend more time on your bed than your sofa, right?). Still, you shouldn’t be taking loans for furniture. They would have worn out in 2 years but you would still be stuck with your loan. Discuss with your wife what you can afford and what you can’t.

The 3 Golden Rules

1. Before taking a loan, always determine the purpose of that loan. Getting a loan is the fastest way to get cash, but is it worth that long term commitment?

2. If you have taken the loan, repay it as soon as possible. Never take up a new loan to pay for a previous loan or your credit card debts. It adds on and on and doesn’t help the least bit. Seek financial advise if you are twirled in this vicious cycle.

3. Once you have repaid your loans, always think twice before taking up huge loans again.

Some loans are inevitable. Like the housing loan that we need so we can afford a shelter over our head. Take that loan but only for a decent house, not that house by the beach. You can have that when you have accumulated enough wealth to afford it.

      Investment: To Jump or Dump? 0

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“Planes are safer on the ground but they are meant to fly” by Anonymous

With some spare cash in the bank, most of us would contemplate on whether to put it in fixed deposits and earn a meagre 3% interest or to put it to greater use by investing it (but undertake a higher risk). After asking around, you find people investing in all kinds of commodities, from gold to bonds to properties.

So, what do you jump into and what do you dump?

Assuming you have limited resources (I mean cash here, and I suppose everyone has a limit), you would need to decide on what reaps the most profit, as in return on investment.

Before jumping into investments, determine how much risk you are able to undertake. Will losing half of what you invested threaten your retirement plans? Will losing 5% of your investment drive you nuts? In investments, risk and returns are almost always inversely related. Therefore, it is important that you find a balance between the two.

How fast and how much your money grows in a specified period of time depends on WHERE you place your cash. Well, you could place it under your pillow and earn zero interest with no/low risk (well, hopefully your house doesn’t get burnt down). Or you could place them in a savings account and earn 0.25% interest with low risk (hopefully the bank doesn’t go bankrupt). Or you could place them in fixed deposits and earn a relatively higher interest rate of 3% with low risk (hopefully you wouldn’t need to take out the money before the term ends and forfeit all your interest). Or you could invest them in less volatile bonds and funds and earn a non-guranteed 6% profit at low/medium risk. Or you could invest them in volatile stocks and earn a non-guranteed 20% profit at high risk.

Whichever option you decide on is mainly based on your financial goal and risk tolerance level. Placing your money in a savings account may be one of the safest places but it reduces the potential rewards that it could have generated if it had been invested appropriately.

Is this the right investment?
If you are staying up late all night watching over your investments or calling your fund manager every five minutes to check on the status (even in the middle of night), dump the investment and look for something within your comfort zone. You should be comfortable with the amount of risk involved and the returns accompanying it when dealing with investments.

The 3 Golden Rules
1. Remember that risk and returns are almost always inversely related. Look for the balance point.
2. Doing nothing about your wealth most probably means your wealth will end up with nothing more.
3. Find a comfort zone for your investments. Risking your health over financial gains is one risk you should never undertake.

      Property Investment Basics 0

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With so many properties in the market to choose from, many investors are spoilt for choice.
How do you choose the right property to invest in?

Investors, like you, look at the Return on Investment (ROI) to determine if a property is worth
investing in. What a property is worth is still reliant on the demand and supply curve.

For investors who are buying to rent out while biding time for property prices to climb, do your sums
well before committing to a property. For a start, you’ll need to determine the ROI, the demand for rental in
your district and how much monthly rental your property can fetch.

So, let’s look at how we determine the ROI in the property market:

First, we determine the purchase price of the property.
Suppose the apartment costs $500,000 and can be rented out for $2,000 a month, or $24,000 a year.

Your ideal ROI would make out to be 4.8% (24,000/500,000). However, this is the ideal value, not
the true market value. What you can expect would be something less than that. We’ll need to factor
in the taxes, maintenance costs and other expenses associated with maintaining an apartment.
Therefore, your ROI could drop to just 4% or less.

If you are satisfied with your ROI, check out the demand for your type of property in the district.
You can check the rental of similar properties and who are the people renting them. A studio apartment near
a university could command a higher rental than a big bungalow off city. Family sizes are gradually
decreasing in size and big bungalows could be of lower demand in some countries. Always check the demand before committing to a property investment. If you are unable to rent it out, or at a less than expected price, you could stand to lose in the long run.

Always spend some time to research on a suitable property before a purchase.