When it comes to taking out a loan for your house or for a car, the bank will give you an amount that they are willing to loan you. Many people mistakenly think that banks would not risk giving you too much money, and go ahead and borrow the entire amount. Too often these people later find themselves in a pinch as expenses rise or their job situation changes. Here are three areas to look at when it comes to borrowing money for expensive purchases.
1) The first area you should look at is how much can you really afford. Most experts agree that your mortgage should be more than twenty five percent of your income. You want to be able to save at least ten percent for retirement, as well as another ten percent for your slush funds or children’s college education. You should look at what your other expenses are, and see how much you have left at the end of the month. Then you can make the payment amount for less than that.
2) Next you need to consider how much you really need. Do you need the 3000 square foot home with the elevated heating and electric bills? Can your family manage with a smaller space? Or do you really need a brand new car or would a newer used car work just as well? Be honest with yourself in this process, because this step can save you a lot of stress in the future.
3) Look at other areas that you are willing to cut bank on in order to make this purchase. Again it is important to be honest with yourself. If you are going to secretly resent that you are sacrificing cable then you shouldn’t make the sacrifice there. You may find that you want to maintain your current lifestyle, which may mean cutting back your expectations.
No matter what you decide, it is important to be responsible with the money that you borrow. You should pay it back on time, and if you really want to save money early. Additionally listen to what your intuition is telling you. If you feel like the purchase might be too much, then don’t buy it. Wait until you feel really good about it.
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