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      Loans - To Take or Forsake? 0

admin to Investments, Wealth Management — Tags: , , , , ,  

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.

      Credit Cards: Sign or Sigh? 0

admin to Wealth Management — Tags: , , , , , ,  

How do you manage your growing stack of credit cards?

A number of us own a credit card or two, while many of us own one from each major bank. Each card provides a different set of benefits, we say. Do we really need that many cards?

What makes you and I go through all the hassle of credit card application for so many cards? The convenience of having the extra cash when you need it? The little gifts you get to exchange for with the points you clocked with your purchases? The pack of discounts that accompanies each card? Or the display of social status when you flash a Platinum card?

Whichever your reason for having those plastic cards in your wallet, if they are causing you financial problems, it is time to face reality and bid (some of) your plastic foes farewell.

The Power of Convenience
For the masses who keep credit cards for convenience sake, you are playing with fire. Convenience means you conveniently sign away your savings and conveniently purchase big ticket items that you do not need. Yes, it is very convenient to have a credit card, especially when you are overseas and have run out of cash. But doing that makes you feel wealthier than you really are, and gives you a false sense of financial security. It’s easy to plant your signature above the dotted lines, but paying for that signature is far from easy.

Points for Gifts
Credit card companies do have a way to make us sign, sign and sign. They bribe us with point incentives for making hefty purchases so we don’t feel too guilty about it. But think about it, how many of us actually managed to exchange the points for something decent after a year of card flashing spree? We have so many cards that the points are spread so thin, they either expire after some time (since it’s too little to exchange for anything from the catalogue), or you reluctantly use up all your points to exchange for some dining vouchers that you might not use or eventually forget. If you managed to exchange for some decent products, you are probably spending too much?

Seductive Discounts
Since points can only be materialised into products (regardless of quality) after purchases, credit companies came up with discounts that you get to enjoy while using the card - 10% off your dining bill, 5% off your petrol, 1% rebate and the list goes on. Personally, I do find discounts more attractive than point incentives, especially if the restaurants that I frequent are in the list. I’m sold. But many times, we find that we tend to visit more of these restaurants every month now that wow, we have a discount card! And we end up spending more than we should!

Platinum Status
So, does flashing a platinum card make you look more prosperous or poor? Yes, it would have shown that you are earning a significant sum to be able to own that card. And yes, well, you are also telling the world that you now need more credit from the banks. Credit cards are literally instantly approved loans from the bank, yet you are feeling proud of yourself for having borrowed a greater amount than your companion. An irony?

Unlock the Secret
Then, are we supposed to cut up all our credit cards and fall back to cold hard cash? The answer is a simple No. Though misuse of credit cards may land you in financial troubles or even bankruptcy, they do come with benefits too. For example, you could actually save a few dollars with the discount schemes provided or pay for your meals when you are cash strapped in a foreign land. The secret is for you to amplify the advantages of the card and mute the disadvantages.

So how do you do that?

The 3 Golden Rules
1. Never swipe out of convenience. Always ask yourself if you really need the item. Or are you simply buying on impulse? Personally, I wouldn’t buy the item on my first visit, especially big ticket items. I would wait for a week or so and see if I still want that item. Most of the time, I simply forgot about it or simply too lazy to travel back to that same shop to make the purchase. It works for me all the time. Try it out.

2. Make full use of the discounts, but never buy something just because you have a discount. Only use the discount when you need to buy something, not the other way round.

3. Try to keep to one or two credit cards at most. It is simpler to track your spending, plus you consolidate all your points into just two cards (so you get to exchange for that decent looking vacuum cleaner) and you would not forget to pay your credit card bills and end up with hefty fines and interests.

Credit cards are only plastic cards with a magnetic strip at the back. They do not have the power to drive you to debts. You are the one who approved of all your debts by frivolously leaving your signature on clusters of paper. Think about your financial status before you sign anything from now on!

When your next credit card bill arrives, make sure it doesn’t make you sigh.. If it does, make sure you are heaving a sigh of relief, not remorse.