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Email L. Henry Platt, Jr.
  Henry Platt

WHEN TO BORROW - OR NOT

Benjamin Franklin is well remembered for this advice: "Neither a borrower nor a lender be," and as a candlestick maker this was a beneficial business practice, but there are times when borrowing money is appropriate.

To discuss borrowing it is important to define what really is borrowing in middle America in the twenty-first century. There are situations where "beneficial" borrowing does help people to grow and prosper, but there are also times when borrowing can be a millstone around the neck.

Profligate borrowing can easily be worse than profligate spending.

It is usually reasonable to borrow 75% of the purchase price of a home if you have the income to make the mortgage payments. It is much less reasonable to purchase a second home with less than 50% down payment. Usually it is acceptable to finance a new car if income is sufficient to cover the monthly payments for four years - two years if you have two cars.

Credit cards can destroy any savings program, and everyone should have a savings program. A good credit card plan might look like this:

alpha card - food and household expenses - paid in full - monthly

beta card - automotive - gasoline & repairs - paid in full - monthly

lowest interest card - major purchases or improvements - pay 10% of the high balance - monthly

If you budget 20% of your income for entertainment, charity and savings, these may be easy line items to raid if times get tough.

Even if the bank is only paying 1% interest on your savings account, it's still far better than paying 20% on a credit card.

Save your money for your vacations rather than worrying how to pay for them after you get home.

Never, never borrow money to buy cigarettes, alcohol, or recreational drugs. Never borrow money to gamble or buy lottery tickets.


 
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