When it comes to borrowing money, it’s important to know you’re doing it for a smart reason rather than a not-so-smart reason. On the surface, borrowing money might seem like a bad idea because it makes your balance sheet look worse – you’ve added debt that you have to pay back. However, when used correctly, borrowing money can be a way to create more wealth for yourself and your family in several ways.
1: You can make a large purchase that will pay for itself over time
One of the most common reasons to borrow money and take out a personal loan is to make a big purchase. In fact, this is probably how you’ve been able to afford everything from your car to your house – by borrowing money and then paying off those loans with money that would otherwise go into savings or investments.
2: You can take advantage of an opportunity that won’t come again
The world is full of opportunities to invest in things that will grow in value over time, but many of them are only available for short periods of time. If you have the money to take advantage of these opportunities, then taking out a personal loan or line of credit can help you get in when the price is right. While it’s never a good idea to borrow money simply for the sake of investing in something, borrowing money can make sense if done properly.
3: You can provide security for your family
A major life event like losing your job or dealing with an illness or injury can cause financial problems that can be compounded by high healthcare costs and lost income. Borrowing money to have a financial safety net can protect both your family and your family’s future by giving you the time needed to recover from a difficult situation.
4: You can start a business or invest in one
In the realm of entrepreneurship, you’ll often hear about “bootstrapping” your business – essentially building a company without any outside help. However, bootstrapping a company may not always be effective and it certainly takes more time than borrowing money from a bank or other lending agency that has the resources and expertise to get your company’s business off the ground. Borrowing money can provide you with a quick infusion of capital that helps your company grow and become profitable faster.
5: You can make more money
One of the most important things about borrowing money is why it gets such a bad rap: debt creates interest payments, and those interest payments can eat up your profits. However, with a good financial plan in place, borrowing money to invest in something that pays a high return can be a smart choice because you’ll make more on the investment than you pay out for the loan. For business-savvy people who know how to borrow money for a good cause, this can be the key to turning a profit.
The Bottom Line
Most people have been taught borrowing money is something you should only do in a pinch, but it doesn’t always have to be that way. If your debt is creating interest payments and getting in the way of future growth or otherwise holding you back, it’s time to re-evaluate your strategy for borrowing money. By understanding why you’re borrowing money and then finding the right loan or lending agency that can help, personal loans can be an effective tool in creating wealth and not something to be scared of at all.