Personal finance consists of two important elements namely – Debt and Investment. These two factors are crucial for one to achieve his/her financial goals. While the debt allows you to increase your financial capacity through borrowing credit, investment takes on a more positive approach for achieving the desired objective. All in all, debt and investment are two such essentials between which one needs to strike an absolute balance to prevent the possibility of any financial risk in general.
WHY IS A LOAN IMPORTANT FOR YOU?
A loan may often times come in handy when you are unable to meet your financial goals for achieving your desired objectives. This however, does not imply that you avail loans for things you don’t actually need. Hence, availing a loan for the right reasons also plays quite an important role. For example, availing a home loan in your early working years serves all your financial needs considering the due probability of a high value of property value appreciation in the long run. Moreover, the very possibility of tax exemption makes it all the more favorable for signing up for a loan in the early years of your work.
WHY THE NEED TO INVEST?
Money invested is money made. As far the popular saying goes, investment certainly finds great application in cases of inflation. Consider a use case scenario, if the predicted inflation rate is going to be around 4 percent in the upcoming fiscal year, it pays to invest in the financial instruments that result in more than 4 percent of output. The period of investment may vary from short to long term depending on the corresponding applicability. Investing the right amount of money in the right instrument and at the right time can help secure huge benefits for a better financial return on the whole.
HOW DIFFERENT IS THE PAYING OFF LOAN CRITERIA FROM THE INVESTMENT?
Once a loan is availed, it is mandatory to have subsequent repayment terms calculated. Non-repayment of the loan not only renders the individual as a potential defaulter but also leads to bad financial management through significant impact on the credit scores. However, sticking only to the repayment terms is not a good idea either. A loan once availed, should benefit the individual positively by bringing in planned finances which can only be achieved through prior investment. A sample scenario that might detail into this aspect is listed below.
A monthly income of 60000 INR with a total expenditure of 25000 INR and an investment of 10000 INR implies that the individual has a repayment ability of 25000 INR. Striking a balance between the expenses and repayment solutions can help facilitate better management of the finances.
So, a complete detailed cost benefit analysis needs to be implemented before having loan or repaying planning and investing money in anything, future analysis and calculations always help you.