Top 5 Myths About Debt
Jon Hanson wrote a great book : Good Debt, Bad Debt. He made a creative and easy to understand connection with his audience using some common sense advice on how to manage personal debt. He makes the subject fun to read by using basic logical reasoning
The following list a just a peek of his priceless wisdom. Enjoy!
Myth Number 1: All debt is bad.
Reality: Debt can be a tool when used wisely to gain lasting value with a margin of safety. Its like a two edged sword used properly it can be used to acquire assets. An example is taking out a loan to make a down payment on income generating real estate. However ,if used improperly it can hurt you. Sometimes the problem with debt is not the debt per se, but a value problem —what people owe for is worthless (or at least worth less than they owe.)
For example , if you use your credit card to purchase a titanium golf club that looses half its value when you tee off. You effectively lost 50% of value and put yourself in a financial hole.
Since debt is a tool, the goal is to one day put away your tools, and have your life debt free.
Myth Number 2: Debt is just about money.
Reality: Debt takes more than just your money. Debt takes your freedom, time, cash flow and opportunities. On top of that, if you get burned from bad debt, you may fear borrowing money
Bad debt makes cowards of us all. Debt is a form of leverage, You want to be the one applying leverage. Not vice versa.
Myth Number 3: Debt is a payment for goods or services.
Reality: Debt is not payment at all; it is a claim on future earnings. It is a mortgage on your future and your time. Essentially you’re already paying for money you’ve yet to make. This puts you at a disadvantage because you might be giving up income that can be used for profitable investment opportunities. Ninety days or zero interest is not the same as CASH.
Myth Number 4: Debt is a painless route to instant gratification.
Reality: It is only painless for a season. Debt takes the waiting out of wanting, but not the sting out of repaying. Eventually you pay in cash or reputation. The insidiousness of debt is that in the beginning it gives its victims temporary pleasure. Once that “honeymoon” period is over you’ll eventually be forced to “face the music”. When that happens be ready to be in a world of pain.
Myth Number 5: I'll quit using debt later when I make more money.
Warren Buffett , the world's most successful stock market investor said : "The chains of habit are too light to feel until they are too heavy to be broken." If you have poor spending habits at a 1,000Php income, it's unlikely they will be any better at 200,000Php a year.
If you earn more money, you might just find yourself deeper in debt.
Earning more money only means more debt for some people. If every increase in income is met with new expenses, you will never be free. Parkinson's 2nd law states, "Expenses always rise to meet or exceed income."
Jon Hanson wrote a great book : Good Debt, Bad Debt. He made a creative and easy to understand connection with his audience using some common sense advice on how to manage personal debt. He makes the subject fun to read by using basic logical reasoning
The following list a just a peek of his priceless wisdom. Enjoy!
Myth Number 1: All debt is bad.
Reality: Debt can be a tool when used wisely to gain lasting value with a margin of safety. Its like a two edged sword used properly it can be used to acquire assets. An example is taking out a loan to make a down payment on income generating real estate. However ,if used improperly it can hurt you. Sometimes the problem with debt is not the debt per se, but a value problem —what people owe for is worthless (or at least worth less than they owe.)
For example , if you use your credit card to purchase a titanium golf club that looses half its value when you tee off. You effectively lost 50% of value and put yourself in a financial hole.
Since debt is a tool, the goal is to one day put away your tools, and have your life debt free.
Myth Number 2: Debt is just about money.
Reality: Debt takes more than just your money. Debt takes your freedom, time, cash flow and opportunities. On top of that, if you get burned from bad debt, you may fear borrowing money
Bad debt makes cowards of us all. Debt is a form of leverage, You want to be the one applying leverage. Not vice versa.
Myth Number 3: Debt is a payment for goods or services.
Reality: Debt is not payment at all; it is a claim on future earnings. It is a mortgage on your future and your time. Essentially you’re already paying for money you’ve yet to make. This puts you at a disadvantage because you might be giving up income that can be used for profitable investment opportunities. Ninety days or zero interest is not the same as CASH.
Myth Number 4: Debt is a painless route to instant gratification.
Reality: It is only painless for a season. Debt takes the waiting out of wanting, but not the sting out of repaying. Eventually you pay in cash or reputation. The insidiousness of debt is that in the beginning it gives its victims temporary pleasure. Once that “honeymoon” period is over you’ll eventually be forced to “face the music”. When that happens be ready to be in a world of pain.
Myth Number 5: I'll quit using debt later when I make more money.
Warren Buffett , the world's most successful stock market investor said : "The chains of habit are too light to feel until they are too heavy to be broken." If you have poor spending habits at a 1,000Php income, it's unlikely they will be any better at 200,000Php a year.
If you earn more money, you might just find yourself deeper in debt.
Earning more money only means more debt for some people. If every increase in income is met with new expenses, you will never be free. Parkinson's 2nd law states, "Expenses always rise to meet or exceed income."
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