When making a large purchase, there are two options: save the money, or borrow the money. Deciding between the two can sometimes be a very clear and personal decision… other times there may be no choice at all. These are some situations where there are reduced choices:
- In these cases, saving may not be a good option:
Saving the money may not be possible due to circumstance or timeline – when a sick parent suddenly needs to be cared for, and an additional bedroom is required. There isn’t time to put away extra money every month until a larger place can be paid for.
- In the long run, borrowing may be less expensive than saving – renting an apartment over the many years could be more expensive than a mortgage as rent increases but fixed-rate mortgages stay stable.
- The cost of a missed-opportunity while saving and waiting may be too high – when there’s a fantastically-paying new job, but it requires a car. The immediate increase in income due to the job could more than compensate for the expense of a car loan.
In these cases, getting a loan may not be a good option:
- Borrowing is not available – especially with businesses needs, sometimes it’s just not possible to conventianally borrow money for that purpose
- Credit rating problems – lenders either won’t participate due to credit rating, or the interest rate makes the loan unaffordable.
- Can’t afford the item – even with the available down-payment, there’s not enough room in the budget to make the required payment each month.
Sometimes an immediate purchase cannot be made because borrowing and saving are both impossible. This is not a situation anyone wants to find themselves in during an emergency. When trying to be prepared, some of these exclusions can be avoided and others cannot. To be in the best possible situation during an unknown emergency, here are some general rules to follow:
- Maintain good credit – some expenses are predictable and others are suprises, this can be critically important during an emergency
- Have an current budget, updated with all expenses – to determine what is comfortably affordable
- Keep to an emergency fund – to buy non-financalbe items, or use as a down-payment to achieve an affordable monthly payment
- Save money every month – this allows room in the budget for the unexpected
Your individual circumstances should be taken into account when these decisions are made. If necessary, consult a financial advisor to help navigate these choices.