Welcome to LendItToMe.us! As a loan officer at a popular bank (I won’t say which one), I often times see people making terrible financial decisions. Sometimes it’s people who want to borrow more money than it’s obvious they will be able to pay back, or sometimes it’s people wanting to make terrible investing decisions. As a loan officer I can offer my advice in a professional manner, but each loan we offer is business for our bank, so I am often instructed to not discourage our members from taking out a loan that they qualify for.
Due to the constraints of my job, I am restricted from telling people what I’m really thinking inside, and what they probably need to hear. This happens on a daily basis. For this reason I have created this blog. For those of you who are easily offended you may want to leave now. Not that I will be using profanity or vulgarity, but I will calling things as I see them. If a financial practice is stupid, I will explicitly say so. If you’d love some free advice investment advice from someone who has been in the business a while, I invite you to stick around.
So, just what topics will we be discussing here?
Regardless of how risky it is to go into debt, let’s face it, sometimes loans are needed. As a general rule there are certain situations where getting a loan is fiscally appropriate and any other reasons (with a very few exceptions which we can discuss later) just do not make sense.
MORTGAGE LOANS - Most people cannot pay for their house right up front in cash. Buying a home is an investment. Obviously you want to purchase a property that will most likely appreciate in value over time and that you won’t end up pouring pocketfuls of money into for repair (unless you are getting a killer deal and renovating was part of your investment strategy). Also you always want to limit that amount of interest you will end up paying on your home. The best way to do this is to qualify for a 15 year mortgage loan instead of a 30 year loan. If you can afford the 15 year monthly payments, you will end up saving cutting your interest payments by more than half. You can see what these savings mean for you by using this mortgage calculator. Also by putting down a sizable downpayment and putting a little more money each month towards extra principal, you can work to whittle away at the interest you will end up paying.
AUTO LOANS- You’ve probably heard this before, but just in case you haven’t I’ll say it again. NEVER purchase a car brand new. The only exception to this would be if you are insanely rich and have more money than you know what to do with. But for the rest of us peasants who have to budget to meet ends meet, a brand new car is never the way to go. A new car depreciates by 11% the very minute you drive it off of the lot, and then in the first few years it depreciates an additional 15% – 20% each year. Yes an auto loan is another example of when it may be appropriate to use credit and go into debt, but do not overspend on a car. Buy a vehicle that is not fancy, but stable and that will get you from point A to point B without breaking down.Once again go for the minimum number of payments that you can afford so you don’t pay as much money for interest. Remember interest is just money that you are throwing down the toilet.
BUSINESS LOANS- You won’t go very far in life with taking risks some of the time. When you do take risks they should be calculated, and you need to make sure that you are prepared to deal with worst case scenario if they you do fail. There principals apply to the risk of taking out a business loan as well. You need to be certain that there is a market for your business. Have a plan of how you will be marketing, and have realistic expectations for how much business you will be doing your first year, your first month, and what your ultimate goal is. Have every detail planned down to the tee. If possible test drive your business as much as possible, before taking a risk and going into debt for it.
CREDIT CARD LOANS- These are by far the riskiest kinds of loans. More people fall into bankruptcy because of these than any other type of debt. Interest rates on these cards are intentionally ridiculous and designed to keep you from being able to to pay them off in an acceptable amount of time. As a general rule most people are not disciplined enough to use credit cards wisely and should avoid them like the plague. That being said, there are some acceptable uses and best practices to follow with credit cards. Most businesses will have a company card which they pay off at the end of the month so that a vast amount of interest does not accrue, this can be done with a personal credit card as well although it does take discipline. I’ve also seen people, myself included actually make money off of using credit cards. Once again this is only for the very financially disciplined, but rewards cards without out a yearly fee can be used to accrue points that can be redeemed for prizes or cash. If you pay off the balance before your cycle hits you can avoid interest, but still get points thus “making money” off your cards. Also some credit cards come with offers like $500 in Amazon gift cards after you spend a certain amount. A couple of years ago my wife and I paid for an entire $1000 worth of Christmas by signing up for a similar promotion, paying bills, paying off the credit card balance immediately and reaping the rewards. After a couple of months we cancelled the cards, because they did have a yearly fee but we ended up profiting about $900 off of credit cards in this instance. I am a little hesitant to share this because most people don’t handle credit cards correctly, but if you’re reading this blog and interested in being fiscally savvy, then you probably do not fall into that category.
Investment and Savings
In addition to loans, we’ll discuss different investment and saving opportunities. Keep in mind that no one ever reaches their financial dreams without investing and saving. Most people are familiar with the concept of trading their time for money. They go to work 8 hours a day, 5 times a week, and at the end of that period they know to expect a certain hourly rate for each hour they worked. While this is an important part of meeting ends meet, this should only be part of your financial strategy. Investing is putting you money to work. So that not only are you personally making money from your job, but the money you have invested is also making more money for you on the side.
Since investing (like most things) involves taking a risk, saving money helps to buffer against such risk. When things do take a turn for the worst that money is there as a fallback until you get your income streams flowing again. You should plan on having a savings account with enough money to pay all your bills and sustain your needs for 6 months. This may take time to do, but you should start working towards this goal today.