“Thank you for banking with us, based on your account, you qualify for a loan of xxx amount. I will also give you a very good interest rate” the caller said. You may have received such calls from the banks. I remember asking one of them what I would do with the loans and he said I could renovate my house, furnish the house or start a business. “Do you have a business idea I could start with?” Of course he had none! If one is not careful, one could get into a #GreeceCrisis. Let us learn Greek, the lessons that is:
Do not borrow what you cannot repay!
For the salary earners, all your loans should not be more than 50% of your take home. Before you take on a loan, you can first calculate how much the monthly installments are going to be. Make use of the inbuilt loan amortization schedule in excel. This also helps you to create various scenarios using different interest rates and repayment periods until you come up with a manageable scenario
Do not get yourself into a debt trap!
Many borrowers take loans to repay existing loans. This ends up into a vicious cycle. Most of the debts acquired are sometimes not necessary. Bad debts are those acquired for consumption purposes, good debt are those acquired for facilitating generation of more income.
Do not borrow against future expected income!
The future income may not materialize as expected. If you borrow expecting a salary raise of say 20% and you get 5% or none what happens? Remember what happened to the Safaricom IPO and those who borrowed to buy the shares?
Track all your liabilities!
Even if you do not like to keep records (the only record we are not to keep is a record of wrongs) you should have a place where you rack all your liabilities (the things you owe). Otherwise how will you know how to prioritize the various obligations? If you list all your creditors and they many, why not consider consolidating them to only a couple of them that you can easily track and monitor?
Live within your means!
Am yet to hear someone who died of lack of luxury. If luxury is not within your means, accept and be happy to meet your basic needs. Living within your means requires simple disciplines like having and maintaining a budget. If you put together a budget and it is a deficit one (i.e. expenses exceed income), at that point you make the tough choices of cutting of some expenses from your budget or looking for ways to increase your income (loan is not income). But if you live on a deficit status day in day out you are headed for a #GreekCrisis.
The #GreeceCrisis is largely due to unsustainable debt as result of consistently operating on a budget deficit. This is not Greek to anyone, it is that simple! The above lessons are both for the individual and the businesses alike.
To your success!