Eleanor Barker – Gourmet Finance

Author: Eleanor Barker

I don’t have a maths degree, or one in finance, however, I’ve always been interested in learning how people can have a healthy, care-free financial life. I spend my days going over financial magazines and research papers that show how any individual can increase his or her income with a minimal amount of effort. Whenever possible, I take the strategies that I read about and try them out in my personal life. What I write is what I learn from my experiences. Every article and every guide comes from my own financial life, as I try to adopt constructive habits that I can use to increase my income and decrease the amount of money that I spend. In other words, I write only about what actually works.

Is it Safe to Borrow Money?

Many people do borrow money but there are some people that do not like to borrow money as they feel that it is not safe to do so. This can be for all sorts of reasons, but it is wise to think about some of these and whether they are justified.

You may not be able to repay

Many people do get worried that they will not be able to afford to repay their debt. This is something that it is worth being cautious about. However, there are many people that successfully repay their debt and so it is not impossible to achieve, but it is important to make sure that you take on debt that you can afford. This means that you need to make sure that you find out how much you will be expected to repay. Have a look into this and think about whether this will always be the amount will have to pay or whether it might change. This will depend on whether the rate is variable and can therefore be changed or whether it is fixed and will therefore stay the same. You also need to think about whether you will be able to afford this repayment amount. Examine your current finances and work out whether you will be able to afford it and also think about the future and whether you think that you will be able to continue to afford this much money or whether you might have extra expenses or lower income that could make it hard. If you do this research then you should be able to predict whether you are likely to be able to afford to repay the loan. Obviously, this is not a guarantee but it will help.

You may get into a cycle of debt

Some people worry that it can lead to a cycle of debt. They worry that you will struggle to repay the loan and you will have to get a loan to cover the loan repayments and you will end up getting loan after loan. This is not a good situation to be in, but if you plan carefully and as mentioned above make sure that you will be able to afford the repayments, then you will be able to be more confident that you will not get into a cycle of debt.

It might lead to further borrowing

Some people worry that once you start borrowing you will keep on getting loans. This though is not something that you should necessarily need to really worry about. Some loans are good and some are bad, so it is only if you keep having bad debt that you should be worrying. For example, if you get a student loan, so you can get qualifications and a better job, borrow money to buy a home which increases in value and then to start a business which is successful then debt will have really helped you. However, if you borrow money to buy a holiday and then get a loan to pay for a few evenings out and then to buy a brand new sports car, this may not be good borrowing. So, the risk of it leading to further borrowing is only a bad thing if it leads to bad debt.

It is right to be cautious about borrowing but if you are so cautious that you eliminate the possibility completely then you could find that you will actually be doing yourself a disservice. You could be preventing yourself from making improvements to your life. So think hard about whether borrowing might actually benefit you if you make the right choices and take on loans you can afford to repay.

Are Investments Better than Savings?

If you have money available and you are looking to save or invest, then it is good to be fully aware of the differences before you start. Whether one is better than the other will be a purely personal decision and you will need to make sure that you think hard about what you do. It is wise to start by getting an understanding of the basic differences.

What are savings

When you have a savings account it means that you have money put into an account. It is likely that you will be paid interest on that money by the bank of building society that you have used to put the money in. The interest varies between places. If you have the money in an instant access account, meaning that you will be able to get hold of the money really quickly, you will get paid a low amount of interest, probably less than inflation. If you are prepared to tie the money up, perhaps for several years or to give notice before you make a withdrawal, then you will be able to get higher interest on the money. You will always be able to get back all of the money that you have saved.

What are investments

Investments are very different to savings. We effectively buy something with our money which we hope will increase in value. This could be a house, piece of art, shares in a company or stocks. We hope that when we need the money back, that it has increased in value and so we will be able to benefit from it. Investments have the potential to pay back a much bigger return than savings accounts. The stock market typically has given a return of an average of about 10% over the whole time it has existed but it obviously goes up and down a lot and has crashed a few times. Houses also tend to increase in value more than inflation but there are costs in keeping them maintained. With all investments there is a risk that the value may go down as well as up. This means that you could lose some money and end up with less than you put in. You may even risk losing everything you invest, but this is rare.

So, when you are looking to save or invest you need to think about whether you are prepared to lose the money. If you need the money and you cannot afford to lose it, then you are probably better off saving it so that you are sure that you will be able to get it when you need it. However, you might be willing to take a risk with your money, or at least some of it because you hope for a good return. With a risk there is a better chance of getting a better return. This means that you are possibly going to make more money but there is a chance that you will actually lose money. It can be a tricky decision. There are some investments that are riskier than others though and many people use a financial advisor to help them to make the best decision for them, taking into account how much risk they are willing to take and how much return they would like on their money. If you do not use an advisor then you will need to do a lot of research yourself and get a really good understanding of what options you have and how to choose the right investments before you buy. It can take a lot of time and you may like to read a lot of books, look at lots of websites and spend a lot of time making sure that you feel really confident before you do this.