Should One borrow from the real bank or from parents? Similar to all other questions, people can argue about this from both sides.
Those who support borrowing from Bank Daddy will say:” Why borrow from banks? Just get the money from your parents and pay them interests as you would to the banks. Don’t ever let the banks earn your money.”
For me, I prefer to borrow from the real bank. The reason lies in the following two facts.
First of all, when you borrow from a real bank, you get the true feeling about being in debt and will not live beyond your means. I was in the debt situation once when I changed my job. Besides the relocation allowance from my new company, I still need to pay $1500 from my own pocket to cover the moving expense. I was living by myself at that time. After rent, utilites, gas, etc., the maxim I can pay back is around $300 per month. It took me more than four months to get myself debt free. During that time, I can sure turn to my parents and say:” Could you lend me $1500?” and I am sure my parents will lend me the money without a word. Of course, in a short term I could save some interests. And probably, my parents will just ask me to to consider it as a gift and forget about the $1500.(This is very true in an Asian family) How great! I don’t even have to pay it back. But if I did that, I will never feel the true pressure of being in debt and don’t ever know how bad it hurts when you have to pay interests. Next time? I will still live beyond my means and never pay attention to my money because I know Bank Daddy will always be behind me.
Also during that time, I realized how importance it is to set up an emergency fund. If I had emergency fund at that time, I don’t have to pay the interests to the bank at all and could have had enough money to cover the expense I had. Therefore, I would not be in debt at all. Generally, one person should have 3-6 months expense saved as his/her emergency fund. For example, if your regular bill per month, such as rent, gas, utilities, is $1000 per month, you should have about $3000-$6000 floating around in your bank account to cover any unexpected expenses. I am currently following the 3 months rule and find it work very well.
So in a word, borrow from the real bank, not bank daddy. If you don’t want the bank to earn your money, set up an emergency fund for yourself.
