There is an excellent offer for vacation in Europe by a leading travel agency. They are offering a good discount. In the absence of enough funds, I am planning to take a loan and pay back through equated monthly installments (EMIs) in the next one year. Also, I am expecting a raise in October, which will ease pressure on my finances. Do banks give loans for travel?
When we borrow money, we are spending our future income today. From the borrowed money, we first incur present expenses and repay the loan from our future earnings. Since earnings are in the future, they are always uncertain.
In my view, spending an uncertain income on something like a vacation is not very prudent. If you look around, there will be enough examples of families in distress as they borrowed aggressively in 2007 and 2008.
When the economic cycle turned in 2009, many of them had to face pay cuts, job losses. Many of them are still struggling to repay their loans.
Borrowing for a home or a car is different because you are creating an asset that can be liquidated in times of need. One should borrow only for necessities such as buying a home, education, health care, etc.
Loans for education and health are important because delaying a decision for lack of finances can prove fatal. Besides, one should try to create a fund for the future. By all means, take a vacation in Europe, but don’t do it with borrowed money.
I am a first-time investor. My friends tell me I should look at penny stocks because that will help limit my exposure. Also, I may earn good returns if these stocks do really well. What is your advice?
For starters, never take a call on any stock based on its price. When we purchase a stock, we are investing in a business. And the price of a stock depends on several variables.
Some stocks are available at a higher price because their businesses are stable. Others could be going up because of speculation or lack of enough floating stock.
Then, there are stocks with a low price because of a lower face value. If a stock price is really low, there’s also a good chance that the business is not doing well.
An ideal way to purchase a stock is to evaluate the business. If you believe the business is good, then buy the stock. Always remember, prices are like weather, which can change every day. A business is like climate, it changes slowly and steadily.
The writer is a certified financial planner. Send your queries to yourmoney@bsmail.in
