Our purchasing decisions are shaped by our emotions. Even though most people believe they are completely rational when they’re buying something, the science of psychology shows otherwise. We buy with our emotions, and then we use our intellect to rationalize the choice.
That’s one of the reasons why understanding money and how it works is crucial, especially for young people that are planning to take on a lot of debt. Aside from going to business school, there’s no place other than the internet where you can learn about personal finance.
There are no subjects at school, which leaves money matters to your family and friends. Since talking about salaries and what you’re doing with your cash is considered taboo, most people make mistakes that could easily be avoided.
The majority of individuals are poor mathematicians, susceptible to being duped by deceptive marketing practices. Almost no one is aware of the hazards that the dollar is responsible for creating. Let’s look at lottery tickets, for example. Most of the people who buy lottery tickets come from the lowest income levels. Even though they’re making less than 30k a year, they spend more than a thousand dollars on the fantasy that they could become wealthy. That’s what the statistics are showing.
Even though every financial advisor babble about having an emergency fund, these people choose to do the complete opposite and throw that money in the trash. It’s important to have enough cash on hand to cover at least three months of your expenses and then invest the remainder of the extra.
Additionally, modern marketers are using pushy sales techniques to target the people who are seeking personal loans. Spending borrowed money on impulse purchases is the easiest way to go broke. That complicates an already difficult situation. Putting yourself in that situation could help to understand that point of view.
Living from paycheck to paycheck makes them unable to afford a vacation, vehicle, or insurance. This leaves one option, which is to hope to help them live the dream. However, taking out a personal loan and buying a thousand tickets is not a valid reason to sign the dotted line.
Most people don’t make spreadsheets for tracking the stock market when they think about making spending decisions. Undoubtedly, the most important thing you need to remember is that deliberately taking on debt should always be a rational choice instead of an emotional one. Try to keep your emotions under control and talk to a financial advisor before you decide to take on debt.
Using one loan to repay all others
This is one of the best ways to use a personal loan, and it’s commonly considered a part of refinancing. It’s the most effective strategy to be saving money in the long run. Here’s a scenario that will make it clearer. Let’s say that you take 10 000 dollars, and you need to pay the loan back over 10 years, with a 10 percent interest rate.
This means that at the end of your term, you’ll have to pay 15 000 dollars due to the compounding effect, as well as all of the fees. Now, if you drop down the interest rate with another personal loan to 4 percent, you’ll only need to repay 12 000 dollars. You’ll save 3000 dollars by simple research and signing another document. You should know that Dagens Forbrukslån are much different from before. Also, when you increase the numbers and the percentages, the difference is even clearer.
Banks are institutions that have been watching their customers for hundreds of years. They’re well versed in psychology, and they make full use of this knowledge. When you’re close to your limit, it’s much better to take another loan and repay it since you never want to be in the negative. This is especially true about credit cards which have a 20 percent interest rate on average. Be careful and try not to overspend because this is the worst possible form of debt.
What about emergencies?
Emergencies are situations that no one expects, which makes them impossible to predict. In the world of business, they’re often called black swan events. No one knows when they are going to happen. No one likes to get sick or to pay for a funeral, but those things are another part of life.
When an unexpected situation occurs, it’s much better to take a personal loan as a speedy decision instead of thinking about where you’re going to get all of that money. These financial hardships, on top of your emotional ones, are going to stress you out if you don’t have the necessary know-how beforehand.
That’s why you should research financial tools before these sorts of events happen. Be certain that you’re thinking logically before doing anything. That is incredibly hard during periods of emotional distress, which is why talking to an advisor is preferable.