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In the ideal scenario, we would all have fully funded emergency funds with 6 months worth of living expenses. We would also be able to save to pay cash for our cars and homes. The glaring problem with this is that we don’t live in an ideal world, and some of us did not start our financial journey as early as others. This means that sometimes we may need to borrow money along our journey to financial independence.
Some people don’t mind borrowing from banks and they have the income and credit to do so. Others may have suffered a credit challenge, may be overextended on credit, or may have less than desirable income to qualify for a loan. And trust me, I have been on both sides. I have been turned down for loans, and I have also been in a position where the banks would give me whatever I wanted with just a signature (ask me how that got me in trouble some day.) 🙁
I want to share with you a few sources of funding where you can get a loan without a bank, and without credit approval. As you will read, two of these are sources that you have to plan for, so if these are not already a part of your financial plan, you may want to consider adding them.
Friends & Family. It is certainly not always easy to ask your friends or family for money. They reserve the right to ask you the hard questions about how you plan on paying it back, and of course, you should have a plan. If you don’t have a solid plan (and perhaps a backup plan) you probably should not borrow from friends or family. It’s a lot of pressure to owe money and it’s even more pressure when it is someone you know and you had good intentions but things did not work out (feel free to ask me how I know this). 🙁
Life Insurance Loans. There is certainly controversy over the merits of whole life insurance versus term life insurance. I am thankful that I learned a long time ago how to use whole life insurance as a financial tool, and thankfully I have a whole life policy. In case you are unaware, whole life insurance accrues cash value, which can be borrowed just for the asking. There is no qualification needed to borrow your own money. In fact, you might have heard of a few books written on the topic of borrowing from yourself. If not, I recommend reading Becoming Your Own Banker by Nelson Nash (which was the original “how to” guide for using whole life insurance as a private bank. The other book that I recommend on the topic is Bank on Yourself by Pamela Yellen.
401k Loans. If you have a 401k retirement plan, you might be able to borrow from it. Some 401k plans have stipulations that say if you borrow from it, you can’t contribute for a certain amount of time after that. And of course, you will need to pay the money back. Some 401k programs have provisions for withdrawing money for certain purchases such as buying a home without penalty, however, if you leave your job before paying the loan back, you might be forced to pay it back or take it as an early withdrawal making it subject to a 10% penalty plus a tax bill.
I hope this has given you a few ideas on how to plan for potential future financial needs. I do believe that having a 401k or equivalent retirement plan just makes sense. As you are considering such a plan, find out what the terms are for borrowing from your money, just so you know.
If you don’t have a whole life insurance policy, I encourage you to do your research. Sadly, many insurance sales reps have gotten a bad reputation for selling people high commission whole life insurance plans just to make a buck and that is where so many people get turned off. Here is an article that touts some of the merits of whole life and if you want to talk to someone who will treat you will respect and give you your options, just reach out to me and I can recommend a trusted advisor in your area who can answer some questions.
Lastly, I wish you success on your journey to financial freedom because I do believe that should be a goal for everyone. Please don’t hear what I a not saying. Financial freedom is not equivalent to sitting around and doing nothing. It means you have the time freedom to live life on your terms with those you love and supporting causes you believe in. Who doesn’t want that?