Shouldn’t We Be Responsible Borrowers?
I have been thinking a lot lately about the economic recession that not only hit the US, but also the world. What really caused us to get into a recession? I know that there are many factors that can be attributed to the recession, but I want to focus on one thing: Borrowing money. The US economy is pretty much run on the idea that people will borrow money to buy things that they want. We borrow money every time we swipe our credit cards. We borrow money for school, for cars, for houses, for pretty much everything. If we stopped borrowing money and thus spending it, the US economy would tank. I am not here to preach about why we should stop borrowing money, I just want to talk about how we should be borrowing responsibly and becoming better financially.
Borrow what you can afford
Like many, I have a mortgage and a car payment. These are things that I wanted and that I could afford. I chose to borrow money for them because it worked out for me. When my wife and I went in to get our mortgage, we were pre-approved for about $350,000. I initially thought that would make it easy to find a great starter home. After running the numbers in my head (which I do for pretty much every purchase), I realized that we would be instantly house poor. We wouldn’t be able to afford food, utilities, gas for our cars, or anything else. We would only be able to afford the house along with taxes.
Armed with this information, we looked for a home that was much less than the pre-approved amount. After looking for a couple of months, we found our current home and paid less than $175,000 for it. This enabled us to have plenty of money left over to afford our other luxuries, but some of the necessities. We are not house poor and were easily able to afford our mortgage through the recession. The main lesson here is only get a loan if you can afford it! Though the bank pre-approved us for a larger amount, they did not force us to get a loan of that amount. The end decision was all on our shoulders. Just because they offer you a certain amount, doesn’t mean you have to accept it.
There are many out there that want to blame the banks for having lax borrowing standards and while that is true to an extent, we are all still responsible for our finances. We, as consumers, have to be the ones that make the final decision whether something is good or bad. I caulk this up to a lack of education when it comes to money and all of its aspects. I know it can be difficult to decline when someone is offering you money with generous payment terms. I used to have that same exact mindset. I mean, why not take a large sum of money and only have to pay it back with small monthly payments? This type of mentality is what gets us in trouble.
When you borrow money, you are allowed to indulge in instant gratification. We all want it now, but we may not have a way to get it right now. Borrowing money allows us to get a gripe on this fix. The bigger issue is that we want EVERYTHING NOW! We want new cars now, we want new homes now, we want the latest laptop or tablet now. When we want everything all at the same time, we tend to borrow more than we can afford. It goes back to my previous statement about only borrowing what you can afford to pay back. You have to be your biggest advocate. You have to understand the numbers, the math, and the consequences. It is not the responsibility of any bank, credit card issuer, or personal loan shark to provide you with detailed information about how this might affect you personally. When you borrow money, you need the be the one responsible and making sure you can afford it.
So, here is my question. Shouldn’t we be responsible borrowers? Shouldn’t we make sure that we understand the terms of each loan we take out? Shouldn’t we make sure we can afford what we borrow?
Image courtesy of FreeDigitalPhotos.net