Savings, Thrift & Investment | |
Savings, Thrift & Investment | |
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Wednesday, February 07, 2018 09.17AM / Skye Pearl /
Olajumoke Caxton-Martins
This
is the concluding part of our Dealing with debt series. You can read the first episode
here and the second episode
here. We hope this helps you begin the journey towards
freedom from debt.
“Adesuwa
dear, let me hear your pitch” said Adesuwa’s Aunty, Esosa, smiling gently at
her.
“My
pitch? I don’t understand ma” replied Adesuwa, mildly confused.
“Yes,
your pitch. When you called me that you wanted to see me, I assumed it was man
trouble. I am glad to find out it isn’t.” She replied, pausing for effect.
“Inasmuch as you have declared that you want me to borrow you money to start a
business, we have to treat it as business and put all sentiments aside. What I
need you to do now is take the next few minutes to sell your business idea to
me for me to decide if it is something I can commit money to.”
“Oh,
ok. I want to start selling costume jewellery. I need at least N500,000 to
start. A small shop would cost me about N150,000 and I would need to fit show
glasses and shelves there; that should not cost more than N50,000. The balance
would be used for purchasing stock, ma.”
“You
have not said anything that would make me invest in this business o…”
“I
just want to be doing something so that I would stop asking for money from
mummy every time. I feel bad burdening them with all my needs after all they
have gone through to pay for my education.”
“I
understand what you are saying but that is still sentiment. You know I worked
for this money, not like I inherited it. I won’t part with it until I know that
it would be safe and it can produce even more of its kind.”
“Is
it that you don’t trust me?”
“Not
at all! Why would you say that? The only problem I have is that in this
narrative of yours, you have identified how you want to spend money, not how
you want to make money. Just in case you don’t know, a lender’s first concern
is the safety of his or her funds and how he or she will get it back. What it
would be spent is important too but secondary.”
“I
understand you now ma. The jewellery I buy would be sold at a profit ma.”
“That
is usually everyone’s intention – to make profit. But, who would it be sold to?
Do you have a ready market for it?”
“Women
like jewellery ma. Diamonds are a woman’s best friend.”
“When
was the last time you bought jewellery?”
“I
can’t be the standard o… I finished school two years ago. I have not had an
allowance or a salary since then.”
“Just
answer my question.”
“Less
than two years ago ma.”
“How
many did you buy?”
“I
just bought chandelier earrings for my graduation. That was it.”
“Have
you ever heard of someone having a change of jewellery wardrobe?”
“No,
ma.”
“I
don’t think you are ready to sell jewellery Adesuwa. To get anyone to give you
money for business, your business idea must be well thought out.”
“Ok
ma.” A very disappointed Adesuwa could not understand how her mum’s younger
sister, her blood, would have N500,000 and refuse to give her to start a
business and help her become financially independent. Shouldn’t her progress be
the paramount consideration for lending her money?
STEP SIX: Contact your Creditors.
Get
in touch with the people you owe. It would not be nice for them to come after
you for repayments only to find out that you are unable to repay. So, whenever
you find that you are unable to meet your basic financial obligations in terms
of repayments, contact your creditors immediately to advise them of your
situation. Most creditors will propose a short-term solution. You are more
likely to benefit from a total change of the repayment plan if the difficulty
recurs. Therefore, it might be in your interest to request for a restructuring
of the loan altogether.
You
will never know if you would meet with forbearance if you never ask. Always
stay in touch with people you are indebted to; be it an individual or an
institution. This is particularly important for personal loans from family and
friends. Let them know you are committed to your relationship with them and you
don’t plan to sully it with the loan. They would always be your sure-banker,
your fall back option. Treat them right.
STEP SEVEN: Stop the “bleeding”. DO NOT INCUR ADDITIONAL DEBT
For
the next few months (some people may need to do this for as long as one year to
5 years in serious cases), live below your comfort level. Do without luxuries.
Pay your bills immediately. Avoid buying things on credit. Being disciplined
financially means knowing your means and consciously living below it. We all
know people who don’t earn much but are “rich”: the cab driver with 6 flats,
the cleaner who earns N15,000 per month but lives in her own house. If you
can’t afford it, then avoid it.
Don’t
try to keep up with the Joneses. Even if you can’t afford it now, let your
financial discipline and savings culture assure you that you would be able to
afford it sooner than later. Then, you would be able to enjoy it without
apprehension or fear of repayment. When you borrow money for things that lose
value easily, you are jeopardizing your financial future; mortgaging your
tomorrow for the fleeting pleasure of today.
STEP EIGHT: Increase your income
If
the ends are not really meeting on a consistent basis, you should seriously
consider making more money. It is very possible to have multiple streams of
income. Not only is it possible, it is advisable. It gets even better if the
income is passive, though passive income is discourse for another day. Did I
hear you ask how can you increase your income? Look around. What void exists
that you can fill? What products can you sell? So many network marketing
opportunities exist today that can be taken alongside full time employment and
entrepreneurship. What services can you offer? What skills can you learn? Trust
God for inspiration and get in touch with me if you need ideas by leaving a
comment below. You will be glad you did.
Good
Debt Vs. Bad Debt
Having
said all the above, I must mention that not all debts are bad. Good debts
create value, build wealth and generate income. Loans to purchase property,
finance education and for investment purposes can be regarded as good debts. On
the other hand, bad debts do not share these qualities. A typical bad debt is
incurred when you borrow to buy something that would depreciate in value
without generating income.
A
lot of budding entrepreneurs complain that individuals that they perceive as
being well to do and financial institutions are unwilling to give them loans to
start their businesses. Well, I think I should mention it here that the first
consideration in lending is not a good business idea but the borrower’s ability
to pay back. Thus, corporations and individuals who have the funds to spare
would be more than willing to loan a person money if his/her business has
proven his/her ability to generate the income that will repay the loan. This is
why it is necessary for entrepreneurs to start business with their own equity,
what they have. When you start your business with your own equity, as the
business begins to expand, you can then decide to take a loan to help you grow
the business.
Generally,
when you approach a financial institution for a loan, you would be asked to
furnish your one year bank statement, which is what they would use to determine
what you have been able to do with what you have. If you have not been able to
manage what you have well enough to multiply it, you would not be eligible for
a loan. If you have, you would be in a position to choose the most favourable
offer from a bouquet of offers of facilities.
In
conclusion, even with good debts, you need to be cautious about borrowing.
Taking on debts when there are no means of repayment is very risky business.
Never allow debt take control of your finances. Make a decision to be in charge
of your own money. Decide today to put your finances in shape. Debt is an
indication that some basic things are not in place like a budget and a pool of
emergency funds. Start dealing with your debt today by drawing up a budget.
Allocate a percentage for saving, a percentage for giving, a percentage for
emergency funds, a percentage for debt repayment, a percentage for family and a
percentage for treating yourself, as the income earner. When you do this, when
issues come up, like they definitely will, you might not have to borrow. You
would have something dedicated to catering for such.
Living
without debt definitely takes financial discipline, but I can tell you from
personal experience that it’s one of the best things you can ever do for
yourself. Debt sucks you dry financially, costing you the future in interest
and fees that could be going into investments. Simply structure your
expenditure and plan ahead for emergencies and major projects.
Thank
you.
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