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Nowadays, availing of personal loans has become convenient because of the completely paperless online applications, pre-approvals, and excellent offers on interest rates. However, you need to be very cautious when applying for a personal loan.
If you do not do the due diligence, then rather than solving a financial crisis, the personal loan may create a new one.
Here are the top mistakes that you must avoid when applying for a personal loan.
Many personal loan applicants make the mistake of availing the maximum loan amount they’re eligible for. This mistake can cost you dearly since you’re borrowing a loan amount that may be much higher than you actually require. This will eventually lead to much higher EMIs that you may be unable to repay.
Instead, you should go the other way round. Prepare a budget and calculate exactly how much funds you need from the personal loan. Even if you’re entitled to more, refrain from doing that.
To calculate how much your EMI should be, deduct your monthly expenses from your total monthly income and find out how much money you have left as a surplus. If your EMI is less than this amount, then it won’t be a burden on your finances.
When a lender provides a loan offer to you, make sure you read the agreement thoroughly and carefully. If you do not understand anything, then feel free to ask the representative what exactly it means.
The loan document contains details of all charges like processing fees, foreclosure charges, loan interest rates, etc. Make a note of the charges and read all clauses carefully to avoid problems later.
Because of the abundance of lenders providing personal loans, you are bound to get multiple excellent personal loan offers if you just look at alternative lenders rather than simply accepting the first offer. Low-interest personal loans are all the rage, and you may get a better deal if you consider other options.
Comparing offers from different lenders also gives you a look at the other costs that the competition is charging. Processing fees and foreclosure charges may also vary among different lenders. Hence, it is a good idea to assess different loan offers before accepting one.
Lenders always perform a thorough evaluation of all your past loans and repayment history. Any existing loans you have are already on record, and their details are pulled out when your credit report is created.
Hiding details of your existing loans can put a spanner in the works as far as your personal loan application is concerned. Lenders become wary and doubt your repayment capacity. Thus, they might reject your loan or charge higher interest rates.
Since a personal loan is a quick and easy way to borrow funds, it can give you a false sense of security as far as your finances are concerned. At the end of the day, a personal loan is another loan and a liability.
Thus, if you’re thinking of taking a personal loan to fulfil your wants rather than your needs, then you may need to think again and give your decision due consideration. It is easy to fall into a financial trap if you get a personal loan just because you needed to buy an expensive gadget or a luxury car.
On the other hand, if you’re indeed short of funds and want to fulfil an emergency expense, then your decision to apply for a personal loan may be the right decision.
Conclusion
Because of the ease of availability of a personal loan, you can easily fall into the pitfall of overlooking basic details and making a decision too soon. Thus, leading to the above mistakes. Ensure you keep the above points in mind when applying for a personal loan and make an informed decision.
Building wealth is a goal that many people aspire to, but it can often seem like an overwhelming task. It takes time, effort, and discipline to be successful with this goal, so don’t be lured by get-rich-quick schemes and too-good-to-be-true opportunities that can send you down a dangerous path.
The good news is that there are principles and strategies that can help anyone build and preserve wealth over the long term. And, the earlier you start putting these into practice, the better your chances of success.
Below, we have outlined several key principles for building wealth, including setting goals and developing a plan, investing in education and skills, managing debt, saving and investing, protecting your assets, understanding the impact of taxes, and building a strong credit history. In this article, we will take a closer look at each of these principles and how they can help you achieve your financial goals.
Building wealth is a goal that many people aspire to, but it can often seem like an overwhelming task. It takes time, effort, and discipline to be successful with this goal, so don’t be lured by get-rich-quick schemes and too-good-to-be-true opportunities that can send you down a dangerous path.
The good news is that there are principles and strategies that can help anyone build and preserve wealth over the long term. And, the earlier you start putting these into practice, the better your chances of success.
Below, we have outlined several key principles for building wealth, including setting goals and developing a plan, investing in education and skills, managing debt, saving and investing, protecting your assets, understanding the impact of taxes, and building a strong credit history. In this article, we will take a closer look at each of these principles and how they can help you achieve your financial goals.
The first thing you need to do is start making money. This step may seem elementary but is the most fundamental one for those who are just starting out. You’ve probably seen charts showing that a small amount of money regularly saved and allowed to compound over time eventually can grow into a substantial sum. But those charts never answer this basic question: How do you get money to save in the first place?
There are two basic ways of making money: through earned income or passive income. Earned income comes from what you do for a living, while passive income is derived from investments. You may not have any passive income until you’ve earned enough money to begin investing.
If you are either about to start a career or contemplating a career change, these questions may help you decide on what you want to do—and where your earned income is going to come from:
Taking these considerations into account can help put you on the right path.
Tip A good way to maximize your earning potential is to invest in your education and skills. Getting advanced academic degrees, industry-specific certifications and training programs are all useful to build your human capital.
What will you use your wealth for? Do you want to fund your retirement—maybe even an early retirement? Pay for your kids to go to college? Buy a second home? Donate your wealth to charity. Setting goals is an essential first step in building wealth. When you have a clear vision of what you want to achieve, you can create a plan that will help you get there.
Start by defining your financial goals, such as saving for retirement, buying a home, or paying off debt. Be specific about the amount of money you need to achieve each goal and the time frame in which you hope to achieve it.
Once you have set your goals, you should develop a plan for achieving them. This may involve creating a budget to help you save more money, increasing your income through education or career advancement, or investing in assets that will appreciate in value over time. Your plan should be realistic, flexible, and focused on the long term. Regularly review your progress, and make adjustments as needed to keep yourself on track.
Simply making money won’t help you build wealth if you end up spending it all. Moreover, if you don’t have enough money saved up for your near-term obligations (like bills, rent, or mortgage) or for an emergency, then you should prioritize saving enough above all else. Many experts recommend having several months’ (e.g., three to six) worth of income saved up for such situations.
To set more money aside for building wealth, consider these moves:
Keep this in mind, too: You can only cut so much in costs. If your costs are already down to the bone, then you should look into ways to increase your income.
Important One of the best ways to be sure you are saving enough is to set a spending budget. Cut back on excess and unnecessary spending, and put that money in the bank instead.
Once you’ve managed to set aside some money, the next step is investing it so that it will grow. Money put in savings is important, but the interest rates credited on deposit accounts tend to be very low, and your cash risks losing purchasing power over time to inflation.
Perhaps the most important investing concept for beginners (or any investor, for that matter) is diversification. Simply put, your goal should be to spread your money among different types of investments. That’s because investments perform differently at different times. For example, if the stock market is on a losing streak, bonds may be providing good returns. Or if Stock A is in a slump, Stock B may be on a tear.
Mutual funds provide some built-in diversification because they invest in many different securities. And you’ll achieve greater diversification if you invest in both a stock fund and a bond fund (or several stock funds and several bond funds), for example, rather than in just one or the other.
As another general rule, the younger you are, the more risk you can afford to take, because you’ll have more years to make up for any losses.
Investments vary in terms of risk and potential return. As a general rule, the safer they are, the lower their potential return, and vice versa.
If you aren’t already familiar with the various types of investments, it’s worth spending a little time reading up on them. While there are all kinds of exotic investments, most people will want to start with the basics: stocks, bonds, and mutual funds.
Warning Before you start investing, make sure you have sufficient savings and some money set aside to handle any unexpected financial emergencies.
You’ve worked hard to earn your money and grow your wealth. The worst thing could be to lose it all due to a sudden tragedy or unforeseen event. A fire can burn down your house, a car accident can cause damage and medical bills, or premature death can mean a loss of future income.
Insurance is a key piece of building your wealth because it provides protection from these and other hazards. Home insurance will replace your home and belongings in case of a fire, auto insurance will make you whole after a car accident, and life insurance will pay your beneficiaries a death benefit in the case of an untimely death. Long-term disability insurance is another type of policy that will replace your income if you become injured, ill, or otherwise incapacitated and unable to continue working. Even young, healthy people should consider insurance products since they tend to become more expensive as you grow older. That means even if you are 25 years old and single, buying life insurance then could be a lot more cost-effective than when you are 10 years older with a partner, children, and mortgage.
Taxes are an often-overlooked drag on your wealth-building efforts. Of course, we are all subject to income tax and sales tax as we earn and spend money, but our investments and assets can also be taxed. That’s why it is essential to understand your tax exposures and develop strategies to minimize their impact.
As you build wealth, you’ll start to find it worthwhile to take on debt to fund various purchases or investments. You may pay for things with a credit card to earn points or rewards. You might apply for a mortgage for a home or second home, a home equity loan for home improvements, or an auto loan to purchase a car. Maybe you’ll want to take out a personal loan to help start a business or invest in someone else’s.
However, it’s important to manage your debt carefully—taking on too much debt could impede your progress toward your wealth-building goals. To manage debt, be mindful of your debt-to-income (DTI) ratio and make sure that your debt payments are manageable within your budget. You should also aim to pay off high-interest debt, such as credit card debt, as quickly as possible to avoid paying excessive interest charges. Be wary of variable or adjustable interest rate products like adjustable-rate mortgages (ARMs), or those with balloon payments, as changes to the economy or your personal circumstances can quickly cause those debts to become unmanageable.
Indeed, if you fall into debt, your credit score can be negatively impacted, and if you default on your debts, you could face personal bankruptcy.
Building and maintaining a good credit score is an important part of growing and preserving your wealth over the long term. You’ll enjoy a lower interest rate and better terms on your loans if you have a strong credit history and high credit score, which can save you thousands of dollars in interest charges over time.
Here are a few key steps that you can take to maintain a good credit score:
If you have high-interest debt, such as many credit card charges, it usually makes sense to pay it off before you invest. Few investments ever pay as much as credit cards charge. Once you’ve paid off your debt, redirect that extra money to savings and investments. And try to pay your credit card balance in full each month, whenever possible, to avoid owing interest in the future.
Mutual fund companies have different minimum initial investment requirements to get started, often beginning at about Rs 50000. After that, you can usually invest less. Some mutual funds will waive their initial minimums if you commit to investing a regular sum each month. You can also buy mutual fund and exchange-traded fund (ETF) shares through a brokerage firm, some of which charge nothing for opening an account.
Exchange-traded funds (ETFs) are investment pools much like mutual funds. A key difference is that their shares are traded on stock exchanges (rather than bought and sold through a particular fund company). They sometimes charge lower fees as well. You can also buy them, along with stocks and bonds, through a brokerage firm.
While get-rich-quick schemes sometimes may be enticing, the tried-and-true way to build wealth is through regular saving and investing—and patiently allowing that money to grow over time. It’s fine to start small. The important thing is to start, and to start early. Earn money and then save and invest it smartly. Protect your assets with insurance, and minimize your tax exposure.
Remember, building wealth is a journey, not a destination. Celebrate your successes along the way, and don’t get discouraged by setbacks or obstacles. With patience, discipline, and a clear vision of your goals, you can achieve financial success and build wealth over the long term.
Building wealth is a goal that many people aspire to, but it can often seem like an overwhelming task. It takes time, effort, and discipline to be successful with this goal, so don’t be lured by get-rich-quick schemes and too-good-to-be-true opportunities that can send you down a dangerous path.
The good news is that there are principles and strategies that can help anyone build and preserve wealth over the long term. And, the earlier you start putting these into practice, the better your chances of success.
Below, we have outlined several key principles for building wealth, including setting goals and developing a plan, investing in education and skills, managing debt, saving and investing, protecting your assets, understanding the impact of taxes, and building a strong credit history. In this article, we will take a closer look at each of these principles and how they can help you achieve your financial goals.
Building wealth is a goal that many people aspire to, but it can often seem like an overwhelming task. It takes time, effort, and discipline to be successful with this goal, so don’t be lured by get-rich-quick schemes and too-good-to-be-true opportunities that can send you down a dangerous path.
The good news is that there are principles and strategies that can help anyone build and preserve wealth over the long term. And, the earlier you start putting these into practice, the better your chances of success.
Below, we have outlined several key principles for building wealth, including setting goals and developing a plan, investing in education and skills, managing debt, saving and investing, protecting your assets, understanding the impact of taxes, and building a strong credit history. In this article, we will take a closer look at each of these principles and how they can help you achieve your financial goals.
The first thing you need to do is start making money. This step may seem elementary but is the most fundamental one for those who are just starting out. You’ve probably seen charts showing that a small amount of money regularly saved and allowed to compound over time eventually can grow into a substantial sum. But those charts never answer this basic question: How do you get money to save in the first place?
There are two basic ways of making money: through earned income or passive income. Earned income comes from what you do for a living, while passive income is derived from investments. You may not have any passive income until you’ve earned enough money to begin investing.
If you are either about to start a career or contemplating a career change, these questions may help you decide on what you want to do—and where your earned income is going to come from:
Taking these considerations into account can help put you on the right path.
Tip A good way to maximize your earning potential is to invest in your education and skills. Getting advanced academic degrees, industry-specific certifications and training programs are all useful to build your human capital.
What will you use your wealth for? Do you want to fund your retirement—maybe even an early retirement? Pay for your kids to go to college? Buy a second home? Donate your wealth to charity. Setting goals is an essential first step in building wealth. When you have a clear vision of what you want to achieve, you can create a plan that will help you get there.
Start by defining your financial goals, such as saving for retirement, buying a home, or paying off debt. Be specific about the amount of money you need to achieve each goal and the time frame in which you hope to achieve it.
Once you have set your goals, you should develop a plan for achieving them. This may involve creating a budget to help you save more money, increasing your income through education or career advancement, or investing in assets that will appreciate in value over time. Your plan should be realistic, flexible, and focused on the long term. Regularly review your progress, and make adjustments as needed to keep yourself on track.
Simply making money won’t help you build wealth if you end up spending it all. Moreover, if you don’t have enough money saved up for your near-term obligations (like bills, rent, or mortgage) or for an emergency, then you should prioritize saving enough above all else. Many experts recommend having several months’ (e.g., three to six) worth of income saved up for such situations.
To set more money aside for building wealth, consider these moves:
Keep this in mind, too: You can only cut so much in costs. If your costs are already down to the bone, then you should look into ways to increase your income.
Important One of the best ways to be sure you are saving enough is to set a spending budget. Cut back on excess and unnecessary spending, and put that money in the bank instead.
Once you’ve managed to set aside some money, the next step is investing it so that it will grow. Money put in savings is important, but the interest rates credited on deposit accounts tend to be very low, and your cash risks losing purchasing power over time to inflation.
Perhaps the most important investing concept for beginners (or any investor, for that matter) is diversification. Simply put, your goal should be to spread your money among different types of investments. That’s because investments perform differently at different times. For example, if the stock market is on a losing streak, bonds may be providing good returns. Or if Stock A is in a slump, Stock B may be on a tear.
Mutual funds provide some built-in diversification because they invest in many different securities. And you’ll achieve greater diversification if you invest in both a stock fund and a bond fund (or several stock funds and several bond funds), for example, rather than in just one or the other.
As another general rule, the younger you are, the more risk you can afford to take, because you’ll have more years to make up for any losses.
Investments vary in terms of risk and potential return. As a general rule, the safer they are, the lower their potential return, and vice versa.
If you aren’t already familiar with the various types of investments, it’s worth spending a little time reading up on them. While there are all kinds of exotic investments, most people will want to start with the basics: stocks, bonds, and mutual funds.
Warning Before you start investing, make sure you have sufficient savings and some money set aside to handle any unexpected financial emergencies.
You’ve worked hard to earn your money and grow your wealth. The worst thing could be to lose it all due to a sudden tragedy or unforeseen event. A fire can burn down your house, a car accident can cause damage and medical bills, or premature death can mean a loss of future income.
Insurance is a key piece of building your wealth because it provides protection from these and other hazards. Home insurance will replace your home and belongings in case of a fire, auto insurance will make you whole after a car accident, and life insurance will pay your beneficiaries a death benefit in the case of an untimely death. Long-term disability insurance is another type of policy that will replace your income if you become injured, ill, or otherwise incapacitated and unable to continue working. Even young, healthy people should consider insurance products since they tend to become more expensive as you grow older. That means even if you are 25 years old and single, buying life insurance then could be a lot more cost-effective than when you are 10 years older with a partner, children, and mortgage.
Taxes are an often-overlooked drag on your wealth-building efforts. Of course, we are all subject to income tax and sales tax as we earn and spend money, but our investments and assets can also be taxed. That’s why it is essential to understand your tax exposures and develop strategies to minimize their impact.
As you build wealth, you’ll start to find it worthwhile to take on debt to fund various purchases or investments. You may pay for things with a credit card to earn points or rewards. You might apply for a mortgage for a home or second home, a home equity loan for home improvements, or an auto loan to purchase a car. Maybe you’ll want to take out a personal loan to help start a business or invest in someone else’s.
However, it’s important to manage your debt carefully—taking on too much debt could impede your progress toward your wealth-building goals. To manage debt, be mindful of your debt-to-income (DTI) ratio and make sure that your debt payments are manageable within your budget. You should also aim to pay off high-interest debt, such as credit card debt, as quickly as possible to avoid paying excessive interest charges. Be wary of variable or adjustable interest rate products like adjustable-rate mortgages (ARMs), or those with balloon payments, as changes to the economy or your personal circumstances can quickly cause those debts to become unmanageable.
Indeed, if you fall into debt, your credit score can be negatively impacted, and if you default on your debts, you could face personal bankruptcy.
Building and maintaining a good credit score is an important part of growing and preserving your wealth over the long term. You’ll enjoy a lower interest rate and better terms on your loans if you have a strong credit history and high credit score, which can save you thousands of dollars in interest charges over time.
Here are a few key steps that you can take to maintain a good credit score:
If you have high-interest debt, such as many credit card charges, it usually makes sense to pay it off before you invest. Few investments ever pay as much as credit cards charge. Once you’ve paid off your debt, redirect that extra money to savings and investments. And try to pay your credit card balance in full each month, whenever possible, to avoid owing interest in the future.
Mutual fund companies have different minimum initial investment requirements to get started, often beginning at about Rs 50000. After that, you can usually invest less. Some mutual funds will waive their initial minimums if you commit to investing a regular sum each month. You can also buy mutual fund and exchange-traded fund (ETF) shares through a brokerage firm, some of which charge nothing for opening an account.
Exchange-traded funds (ETFs) are investment pools much like mutual funds. A key difference is that their shares are traded on stock exchanges (rather than bought and sold through a particular fund company). They sometimes charge lower fees as well. You can also buy them, along with stocks and bonds, through a brokerage firm.
While get-rich-quick schemes sometimes may be enticing, the tried-and-true way to build wealth is through regular saving and investing—and patiently allowing that money to grow over time. It’s fine to start small. The important thing is to start, and to start early. Earn money and then save and invest it smartly. Protect your assets with insurance, and minimize your tax exposure.
Remember, building wealth is a journey, not a destination. Celebrate your successes along the way, and don’t get discouraged by setbacks or obstacles. With patience, discipline, and a clear vision of your goals, you can achieve financial success and build wealth over the long term.