Debt is one thing you want to avoid in terms of personal finance. However, can someone invest using borrowed money, aka debt? Consumptive lifestyles often tempt people to spend more money than they can. It makes various loan facilities very tempting. Are you one of them?

Even so, not always harmful debt. Debt for consumptive needs is certainly dangerous for your finances. But, there are also types of debt that can actually make financial conditions more healthy.

That is good debt, namely productive debt that can add assets. For example, owe money to do business. If the installments and interest that need to be paid can be covered by turnover, this type of debt can be good debt, aka productive debt.

The double risk owes for investment in the capital market

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Keep in mind, loan money is not free money. There is interest as well as administrative costs (excluding installments) which must be calculated carefully.

On the other hand, investment, especially in capital markets such as mutual funds and stocks is not without risk. Without the right strategy, losses can be unavoidable.

For investors, especially novice investors, using borrowed money to invest means to bear multiple risks at the same time.

First, the risk of paying the loan with interest, secondly the risk of investment losses that may be borne.

Therefore, it is not recommended for novice investors to borrow to invest. Because of the investment fails, the capital is lost but the debt needs to be paid. Has fallen down the stairs anyway.

The psychological impact of owing to investment

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Billionaire and global investor, Warren Buffet also appealed not to borrow money to buy shares.

According to him, no one can predict stock movements accurately. There are many factors and conditions that can make stocks plummet in a short time unexpectedly.

This condition can be threatening news for investors. For investors who use borrowed money, the anxiety they feel can be far greater. According to Buffet, this uneasy mind makes it difficult for people to make good decisions.

Debt for property investment  

Debt for property investment  

There is no definite answer allowed or not to invest in property using debt. Property investment does look lucrative, but it does not mean to be 100 percent risk-free.

First, make sure first whether the benefits derived from investment property is proportional to the cost and interest on the debt.

For that, you also need to make sure the location factor of the property (land, house, or other) you want to buy. Is it strategically located? Not flood-prone and easily accessible?

Second, also take into account the price factor. Property prices generally always increase but don’t forget the maintenance costs and the risk of building depreciation that may occur.

If after careful calculation it has been proven that the property selected can provide a profitable passive income, it is fine to owe it.

Conclusion

Investing using debt should not be done unless the investment yield has a margin that is greater than the loan installments.

If not, you could be threatened by digging a manhole cover to cover possible risks.

After all, you can still invest without having to borrow money. At present, there are many investment facilities with minimal capital that can be followed by hundreds of thousands of dollars.

Begin to set aside investment funds from monthly income or save some time before the investment capital is adequate.

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