With great loans, come great liabilities

I like a short and sweet article in the last The Sunday Times, called Be prudent, start small.

The editor wrote about people responding overwhelmingly to Pinnacle@Duxton last week. He said that while it is truly "painless" for young couples to have $1,600 a month deducted from their CPF for the house mortgage, by the end of the 30 year mortgage payment period, the couple will likely have paid $800,000 and have nothing left in the CPF for retirement.

I also agree with the editor that the current financial crisis is evidence that things can go really bad in an unexpected way. If a worldwide scale crisis doesn't occur, a personal one like losing your job can throw your family's finances off track.

While it doesn't mean that Pinnacle@Duxton or similarly high priced homes are therefore not good purchases, the editor simply advises that we should live within our means and not gamble with assets while we have questionable cash flow. We're not talking about critical illness or disability hitting, but just merely not keeping the job you thought you can keep so confidently. Haven't we heard already that there is no longer such a thing as an iron rice bowl?

As a young individual myself, many things here are very enticing. We calculate briefly (or usually don't actually calculate at all), rationalize (read: rational lies) that we can afford something, break them down into instalments, and make the purchase. Don't forget that taking ownership of something is taking responsibility. Taking a loan you cannot afford to pay is calling for trouble.

Have I made such mistakes? Sure, I did. And I am still smarting over it today. And I can assure you still, that interesting desires will still creep out over the horizon, and you can find yourself thinking of taking on yet another loan. It is difficult to control that urge, trust me. And it is also better not to take it if there is a shadow of a doubt that you may not be able to carry that liability, trust me again.