Personal Finance Care

Your financial position will always stay stable and you will be able to create some savings if your monthly loan payments are below 8% of your gross monthly income. Let’s say, if you earn $3000, your monthly payments not more than $240 a month.

Another thing you need to consider while you are making monthly loan payments is that the duration of the loan should not be more than 48 months. The maximum you can stretch is for four years in case you want to keep the lower monthly low payments.

Once a new vehicle is out of the showroom floor, its value starts depreciating, and therefore the resale value will go down. If you stretch your monthly payments more than 60 months, it will be difficult to sell or trade the vehicle.

Car dealers will always persuade the customers to go for a long repayment plan. This way, they can make more money in interests. Recent analysis by the Federal Reserve shows that the average length of the auto loan was 61.1 months at 7.8% annual interest rate and the amount financed reached to $27,163. If this is the case, the auto loan monthly payments will be a hefty $540 a month.

Recent ongoing economic problems in the sub prime mortgage industry have caused many liquidity issues in the banking sector owing to foreclosures. This started in the end of 2006 in US and has triggered a global financial crisis during the year 2007 and 2008. The problem started when the US housing bubble burst out and the higher default rates in the sub prime market and other adjustable mortgage rate were made to higher risk borrowers who had lower income and bad credit history than prime borrowers.

Due to the rising housing prices and long term loan incentives, borrowers were more encouraged towards mortgages with the hopes that they will be able to get lower interest rates in the coming years. But when the housing prices started to fall in the year 2006-2007, refinancing became very difficult all over the US. The number of defaulters and foreclosures increased dramatically because the ARM rates were reset higher. In the 2007 survey, it was found that nearly 1.3 million U.S. housing properties were subject to foreclosure activity. It was 76% more than the year 2006. Economists believe that the sub prime defaults will go up to U.S. $200-300 billion mark. The sub prime crisis puts a downward pressure on the economic growth of the country.

The idea of writing this article came into my mind when I saw my brother graduating out of high school and he was showing a great interest towards upgrading his personal lifestyle. He felt right to have that kind of approach because he was working as a professional engineer in a multi billion dollar firm. Most of the boys or girls of his age have similar feelings, but I am watching my brother more closely, that’s why I am able to observe his attitude over an extended time frame. This brings me to write this article to point out something for the young generation.

Anyways, the idea of having inflation in lifestyle starts growing when there is a significant positive event in your personal life. It can start when you have graduated out of school and got a handsome paying job, getting married or after purchasing a new home or car.

According to me, it’s not bad to have lifestyle inflation. It is an essential part of life provided; you don’t go beyond your reasonable limits. You should have a proper check on your earning / spending habits. As long as your spending habit is less than earning, your lifestyle inflation is absolutely normal.

The problem arises when your lifestyle inflation exceeds your income inflation. If your spending is more than your earning, you are increasing your debt to income ratio and this is certainly not the right direction to your inflation lifestyle.

I have done some observations on the common people and noticed that people tend to spend at an increased rate when they attend to some parties, marriage, or are out to buy something attractive. If an item is attractive, it is going to cost more. You need to have a control on your temptations. And if you don’t have the money in your pocket, it is not the right move to achieve lifestyle inflation. Before you come out of the deep hole, you have already become habituated of spending more than required and it gets tough to come back to the normal rate of spending. One should be careful at such events because lifestyle inflation will start nibbling at your pockets when you are in such occasions.

It’s no harm if you want to spend more during the significant events, but you should have a good control over yourself so that you can return back to normal life on the very next day after the event is over. You can’t remain in a fancy world all the time otherwise; you will never realize when you have lost your ground. I understand that it’s easier said than done, but it has to be done like this only and it needs a lot of self control and determination to maintain inflation in lifestyle.