By your question, I think you are trying to understand how much you should allow yourself to borrow. Before anything else, be sure you understand that borrowing creates an obligation to pay now and in the future. You should therefore never borrow unless you have a source for repayment.
Without knowing your Statement of Assets and Liabilities and Net Worth (SALN), I want to give you a few pointers on how to manage your borrowings or debt. However, you really have to make your SALN, if you have not yet done it.
In general, your borrowings as a person would probably be these types, although I am sure there could be more depending on your situation:
• “lista” if you are a regular customer of a store that knows you and don’t have the cash on hand. Or sometimes, this is the term that could use for short borrowings from people who know you.
• installment loans (usually from appliances and credit cooperatives)
• housing or house repair loan (probably Pag-ibig or a financial institution)
• car loan (probably from a financial institution or from your company)
• credit card (however, this is very bad loan that you should avoid because it has the highest interest rate)
Loans can be categorized as those that need to be paid in full on a specific date and if installment, on specific dates for each period required by the agreement.
Company or business borrowing is a different type of borrowing altogether. These types of loans are based on the capacity of your business to pay off the loan. Financial institutions will not lend businesses without a complete study showing the company’s background, the particular reason for the loan and how the company will make money to pay off the loan on time.
As a general rule, you should consider each of your personal loans like a company loan. Consider yourself as your company. You need to make an analysis of the reason for the loan and you should only borrow as much as you can comfortably pay without causing a disruption in your daily living expenses. Of course, to be able to answer the question of what is “comfortable”, you need a personal budget.
You should still always still following the rule: “Income minus Savings equals Expenses”
If your Loan is for a house or a car, you could consider all or part of the installment as part of your “Savings.” Note, that I say “part” because the house could possibly increase in value in the future and could be considered as an investment. This is only possible if your title to your house can allow you to sell it eventually. You need to study this carefully. Otherwise, your house installment would only be another expense that will take the place of your rental expense.
For your relatives and friends in Manila, we have a new very affordable seminar every Wednesday at 7-9pm at our Shaw Blvd, Pasig City office. You could help many of your relatives and friends with their personal financial education and opportunities to earn income. Call +63 2 6373731 or +63 2 6373741.
----
Francisco J. Colayco is an entrepreneur, a venture developer and financial advisor. He is the Author of Seven Bestsellers in the Pera Palaguin Series, the latest of which is now available in bookstores: “Wealth Reached. Money Worked. Pera Mo, Pinalago Mo!” Find his works and catch him on TV and radio. Check out: www.colaycofinancialeducation.com, www.franciscocolayco.com, www.kskcoop.com, FaceBook and Instagram.
