My friend needs $1000 right now, I tell him, “I’ll give you $1000 if you give me $1100 next year”. This is the idea behind a loan or a credit card. It sounds like a bad deal, but according to the time value of money it makes sense. An amount of money right now is worth more than the same amount of money in the future. So, if I have $1000, in a year it is worth $1100. This is bad for the people who need money immediately, in order to get money immediately, they have to pay more money in the future.
The time value of money teaches us that you want to have money available. Never spend more money than you make. If you spend more money than you make, then you end up needing money immediately and your only choice becomes using a credit card or taking out a loan.
If you have money now, it has the potential to be more money in the future. If you spend money as soon as you get it, you end up needing money and paying $1100 for $1000. Loans disguise themselves as easy to pay off by requiring monthly payments, but in the long run you end up paying much more than you received in the first place.
Know your limit. Know how much money you can spend and keep extra just in case, because money is more valuable right now than it will be in the future.
Mission Saksham 