Financial planning deals with optimization of the CashFlow.
Optimization can be done in different ways some are making wise investment decisions , parking money for opportunity in right kind of instrument as well as taking benefit of the credit facilities available.
Yes what you are guessing is right i am talking about Loans. Loans can be used as a CashFlow optimization tool .
The loans are taken as it gives a facility to have money today & payback it in installments, surely not for free But with Interest. Actually the main business of Financial institutions is of Borrowing & lending.
Banks Borrow money from people & use them to Give loans, it is their business. It means that when you are making a FD in bank, you are lending money to Bank. :), Banks main profitability depends on the spread between the rates of Borrowing & lending.
Loans : In old days when any body is taking a loan was presumed to be a bad sign ! But now a days buying anything directly through Cash may be a bad sign , May be you are not aware about the facilities available in the market like that......................... so the time is changing & if there is any benefit to us we should change !
Taking loan is not a bad sign, not always . the decision about loans should be taken on the basis of Financial position & Debt Income ratio.
Debt income ratio will advice you about how much loan you should take or you can afford.It is calculated in multiples of Yearly income . at the starting phase of the career you may afford to have higher Debt Income ratio however as you move on in your career travelling toward retirement this ratio should go down.
In my opinion one should not have more than Debt equal to 5 multiple of yearly income. i.e. if you are earning Rs.600000/- pa your Loan amount ( Debt ) should not exceed 3000000/- at any point of time. however this multiple should go down as per the progression to retirement & should become Zero at the time of retirement.If it is above this limit you should think of prepayment or increasing your income :).
We will discuss other aspects of Debt in next post.
Optimization can be done in different ways some are making wise investment decisions , parking money for opportunity in right kind of instrument as well as taking benefit of the credit facilities available.
Yes what you are guessing is right i am talking about Loans. Loans can be used as a CashFlow optimization tool .
The loans are taken as it gives a facility to have money today & payback it in installments, surely not for free But with Interest. Actually the main business of Financial institutions is of Borrowing & lending.
Banks Borrow money from people & use them to Give loans, it is their business. It means that when you are making a FD in bank, you are lending money to Bank. :), Banks main profitability depends on the spread between the rates of Borrowing & lending.
Loans : In old days when any body is taking a loan was presumed to be a bad sign ! But now a days buying anything directly through Cash may be a bad sign , May be you are not aware about the facilities available in the market like that......................... so the time is changing & if there is any benefit to us we should change !
Taking loan is not a bad sign, not always . the decision about loans should be taken on the basis of Financial position & Debt Income ratio.
Debt income ratio will advice you about how much loan you should take or you can afford.It is calculated in multiples of Yearly income . at the starting phase of the career you may afford to have higher Debt Income ratio however as you move on in your career travelling toward retirement this ratio should go down.
In my opinion one should not have more than Debt equal to 5 multiple of yearly income. i.e. if you are earning Rs.600000/- pa your Loan amount ( Debt ) should not exceed 3000000/- at any point of time. however this multiple should go down as per the progression to retirement & should become Zero at the time of retirement.If it is above this limit you should think of prepayment or increasing your income :).
We will discuss other aspects of Debt in next post.
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