Tips on how to avoid taking a loan

LIVE WITHIN YOUR MEANS

In most cases, one tends to think about a loan when there is a cash crunch in the family. But, this situation can be avoided with some plain financial planning on your part. You can start with making a monthly budget, followed by an annual budget, detailing everything from your toothpaste to your weekly outings.

Has the pretty girl in that TV advertisement influenced you to buy the expensive colourful toothpaste, which is no different from its white but cheaper counterpart? Are you too sentimental about visiting the same restaurant every weekend where you first confessed your love to your wife? If yes, then you need to urgently get your act together.

You don’t need to take a loan for your holidays. Spend some time in researching and finding out your destination and you can find similar, or even better, facilities at a lower price. Consider this example: You take a Rs 50,000 loan for a week-long holiday at a 5-star luxurious resort in a hill station and end up paying interest to the tune of Rs 10,000 in one year. But you can enjoy this
holiday for just Rs 10,000 at the same hill station, but in some low-cost but comfortable hotel room. After all, you go on holidays not for luxuries of a room but for the scenic beauty and to get away from the daily routine life?

Don’t buy the latest electronic gadget just on impulse. Before buying that latest iPod ask yourself, “Do I really need and can I afford this $400 music player.” Also consider the cost of song downloads for an iPod that will burn a hole in your pockets.

COST SAVINGS ARE NOT FOR COMPANIES ALONE

People say it is much more fun spending money than saving it. But some simple adjustments to your spending habits can lead to a significant boost to your cash balance. Small savings made by cutting back on nonessential things could add up to a large amount at the end of a year. This money can be used to fund your needs and even luxuries. You need to just wait a bit, as compared to funding through loans. But the wait will be worth it, as you also happen to save a lot in terms of interest costs and other charges.

While you can do nothing about the spiralling petrol prices, you can certainly cut back on your travelling costs by using public transports, at least sometimes, and by arranging car-pools on your way to work. In place of buying expensive music CDs, browse the internet and you will come across a slew of less expensive or even free downloads.

DID YOU FORGOT YOUR PF ACCOUNT

Every salaried person makes a monthly contribution to his provident fund account and the employer makes a similar contribution. However, in today’s world when jobhopping has become the norm, one often forgets about this hidden treasure. One has two options with this fund, either it can be encashed or can be transferred to a new account opened by the present employer. The money accumulated in these accounts, compounded with a good interest, can come out to be nice surprise in time of need.

owever, one needs to be careful while encashing his provident fund. It is advisable to compare the overall return from the fund with the loan costs.

HIT YOUR FIXED DEPOSITS AND BANK SAVINGS

It is always better to cash your fixed deposits or money lying in savings accounts, rather than opting for a new loan. It makes even more sense in view of the low interest rate earned on the bank fixed-deposit holdings, as compared to an interest rate of more than 20 per cent that you might forego on a personal loan. However, fixed deposits must be broken in case of emergencies and one should eye only short-term deposits. The long-term deposits, despite being low interest generating, might add up to a large sum at the end of the tenure and might be of great help in retirement age and for other long-term financial needs.