Everyone dreams of reaching a destination, which is financial independence. Don’t confuse financial security and financial freedom. Some people get satisfied when they feel financially secure in their nine to five jobs. Unfortunately, they end up broke and disappointed. Conversely, an entrepreneur aims to become a free person at the end of the day. However, that entrepreneur might find himself or herself in the same shoe with the salary earner if he or she fails to inculcate the attitude of saving. Before I continue, I would need to define debt. According to one Sanmi Akindipe in his Personal Finance column in Success Digest Extra! Of Monday, November 1, 2010, debt is something owed or something one is bound to pay to or perform for another person. Debt occurs when one enjoys tomorrow’s sweat today for instant gratification.
There are two types of debt. They are good debt and bad debt. A debt could be said to be good under certain conditions. If you borrow money to acquire an asset or investment, it is a good debt. If it is properly managed, chances are that it would increase your financial power. An asset brings money into your bank account. Examples of good debts are loans meant for investments in real estate, stocks, to purchase merchandise for immediate disposal to make good profit. Decision taken by an investor to obtain a loan is a product of financial intelligence.
Bad debt arises out of a situation in which one borrows money to acquire liabilities like purchase of an automobile. I agree that it is a necessity like a transistor radio or refrigerator. But it can come only when you must have made at least one business investment. Obtaining a loan in order to plan a wedding is suicide! Borrowing money to plan a naming, birthday, burial ceremony or death remembrance is foolishness! Borrowing to spend is the height of recklessness. Most people who are guilty of any or all of the above mistakes belong to the show-person category. They borrow to impress the society, but it is a costly blunder, which is capable of leading someone to an early grave.
There is no hidden secret about being in good debt. It is a matter of decision and personal will. It is a very simple task to perform. Do you want to be wise? If yes, then consider these. No investment, no financial future. Your investment of today will be your wealth of tomorrow. Fail to invest and you invest to fail. Watch less movies, read more wealth creation books. Play less video games, attend more entrepreneurial seminars. I have attended one and plan to attend more. Never be others, but you.
Which one do you prefer? Good debt or bad debt? If you do not want to be poor or even poorer, my advice for you is this: stop borrowing to purchase liabilities. Borrow to buy assets. The choice is yours to make. I have made mine. I have settled for good debts.