The struggle in availing LOANS

Once you have entered the corporate world and you are exposed to various types of people and various types of culture, you will observe that majority of your co-workers are in debt. Probably, most them have availed majority of their loans during their adulthood, the time where they are confident that they can still work and are aiming to have their own properties. Majority of them availed a housing loan while some even went far to get a car loan and end up struggling financially for the following reasons:

  1. They complain and feel robbed on the monthly amortizations – this the most common thing I have observed, once you availed a loan, you will have to pay it for at least a couple of years to three years for a car loan and at least twenty (20) years to thirty (30) years in the case of a housing loan. The sad thing though, most of those who availed the loan never realized that the bulk of what they pay goes to interests. If only these people would just know opportunities like bonds, mutual funds and various securities, they would not be paying up interests but rather they would earn interests. Interest is a painful expense if you are an employee and relying on your pay check to cover such expense because you are earning a fixed amount of pay check, and the interest you incur does not give you additional income but only gives you self-entitlement to a property that you would want to get rid off after a few years.
  2. They did not realize that they would also be incurring additional expenses through insurance – another aspect that every property owner should have if he gives value to the property he invested in is insurance. A simple scratch on a car diminishes the sale price, and a house built on a fault line does the same. If you are a property owner and spent your lifetime earnings through a house or a car without ensuring it, would you be able to save your properties once a calamity through forces of nature and acts of God have damaged your properties substantially? Another waste of money you would be incurring is insurance, like it or not, you would like to have something in return once your investments has been washed up by a flood or wrecked by a typhoon, thus, insurance is a necessity.
  3. They would want to get out of debt but are hesitant that they may end up holding nothing once they get rid of their properties – many of them only values real properties as assets. They do not see the value in holding up a multi-million worth of shares of stock that does not need insurance and can be easily kept in a bank’s safe. They only gives value to real properties, properties that can be stolen, damaged and does not give them additional income. They think that owning such properties gives them an edge over others but did not realize that if they had only invested in debt and equity securities available earlier, they may obtain their dream house and car without having to incur interests and insurance throughout the life of the debt.
  4. They do not have anymore the financial flexibility they once had – since they start to be on debt because of the properties availed, they did not thought that their financial flexibility would be affected substantially, leaving them with little to no breathing room at all for their necessities. Failing to plan financially results to this scenario, and once a calamity comes to the family, they end up having no savings that would prompt them to do number 5:
  5. They avail new loans on top of their outstanding long-term loans in times of contingencies – this has been the common scenario in every person who have availed a loan and failed to set aside a contingency fund. Having a contingency fund for calamities and tragedies makes up a little breathing room and allow you to have a little financial stability.
  6. They end up having no financial freedom – after undergoing the above reasons, this would be the end result. Those people who have worked majority of their lifetime end up not having any financial freedom at all. It is ironic but it is really happening. They failed to plan financially, thus end up having to work the rest of their lives and some would not be able to pay out their loans once they retire and depend on their retirement pay to cover such loans. And if worst comes to worse, they end up spending their retirement pay to non-earning expenses and end up relying to the Government for help until they die.

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