Five Things You Need to Do Before Borrowing Money

You can't just borrow money blindly. Ignorance and lack of planning can be very expensive when it comes to your finances. If you're considering to get a loan, read these insights first.

Define your reason for borrowing money - Are you borrowing money just to satisfy an immediate desire or to support a budget shortfall? Borrowing money to solve any of the two won't be beneficial for you. You will end up with unnecessary interests and into a cycle of debt respectively.

Define your capability to payback - Can you make periodic payments later? Even though you're going to use your loan for business purposes or to make more money, you must make sure that you will be able to pay or else you will have an outstanding debt.

Be aware of all the costs of borrowing money - How is your loan going to be calculated? What about the interest rate? If you don't know the answers to these questions, you will be surprised that you could be paying more than you expected.

Study the loan terms in your contract - Don't sign your contract until all of its contents are clear to you. Your finances will be jeopardized if you do so. If you don't understand the words used in the contract, consult a lawyer or a professional who can help you out. Don't be embarrassed to make changes if you think the contract doesn't include the things you have agreed about. Keep a copy of the loan contract for your protection.

Check other options besides borrowing money - Borrowing money will definitely mean a debt which you must payback. For example, consider getting a second or third job to extra and save money for the small business that you're looking forward to build. It might take you a couple of years or more to save but you will spared from a debt with interest.

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Drawdown is a word that is feared and hated by every trader, but it is an inevitable part of playing the markets. It is simply how much your account loses from its peak. Suppose you start with $10,000 in your account, and after a succession of losses the account goes down to $7000. That means you have lost $3000, or 30% of the original starting $10,000, and therefore your drawdown is 30%. Drawdown is relative to where your account peaks, so say you had a good run and built the account up to $12,000, then lost $3000 again, bringing it down to $9000. Your drawdown this time would be $3000 from $12,000, or 25%. Maximum drawdown corresponds to the lowest your account ever hits. Sometimes you will see trading strategies detailing how much maximum drawdown is expected to be when using them – usually the more risky strategies will anticipate a greater drawdown while expecting a higher profit on average. Drawdown is particularly dangerous because, the way statistics work, you ...

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Saving One Income