Saturday, May 9, 2015

In 'Bad' Debt and He Wanted to Invest

I have quote the word 'bad' in debt because there is actually a 'good' debt. And before, all I know is that either way, debt is still bad. But then, I finally understood it's full context when I met my mother's 'kumare'. She pawned some of her jewelries to start a piggery business and all the while I thought as to why would she do that? Because, honestly, pawnshop has this big interest right? But then, with the money she got from her pawned jewelries, she was able to raise more than enough money to redeem her jewelries and still manage to continue growing the piggery business. And so, from there, I have known that that was actually a 'good' debt since she has used the money to gain more.

Debt becomes 'bad' when we use the money for something that does not appreciate or that does not bring value in the long run. Like owing money to buy luxury phones just to impress people around you who doesn't actually cares for you. When we have to borrow money just to keep up with the Joneses. When we have to swipe our credit card for brand new items just to show off. Instead of gaining something, it turns out to be a nightmare when we have to face the pile of debts which are beyond our source of income.

My office mate approached me the other day, and asked me if I am into investing of any kind. I did not actually see it coming. But maybe it is coming out of me naturally. My  current lifestyle could be attracting the same vibes I wanted myself to be so he asked me what are the investments he can dive into. I gently told him, I am not an expert and just at the starting point. 

My first question to him was if he has some debts he had to pay. And he honestly answered me with the truth - yes. I told him outright that he cannot invest if he still has debts to pay. However he insisted on knowing how to invest. I asked him again, 'Do you have an emergency fund?' And he was a little bit speechless from what I asked. He answered me truthfully again - none. All his income at this time is for the family needs and and paying off their debts.

He again told me that he really wanted to invest and even ask me where I am invested. I know the drive to invest. I know the feeling. I've been there. When you know someone that is doing something and are earning from it, all you wanted to do is join the same boat. Take the same momentum from an sprouting MLM,right? To be honest, you have this urge to join right away so you won't be left out. But, unfortunately, it is not the same thing.

I have been into the same situation before. And honestly, I can't make the two  work together - 'bad' debt and investment. So, I told my office mate that if you really wanted to invest, then pay off your 'bad' debts. Start building your emergency fund and then study the investment types and finally dip in. There is no shortcut, I told him. If you invest, with no emergency fund and in 'bad' debts, and there comes a time when you are face with an emergency situation, you will be force to pre terminate your investment. And you will have to carry the burden of pre termination fees or maybe you will be force to get the money short from your expectations or even short from the capital if you invested on high risk.

Taking on the rationale behind that is very obvious. Debts has interest and due dates. If the income is short and you have to borrow just to meet ends meet, then it not yet the best time to dive in any investment vehicles. You should increase your cash flow first.

I told him again, I am no expert on this matter, but that is what I learned from my own experience.

Note: I am grateful to all these generous financial blogger who taught a lot about financial wellness. And now I can share as well to some few interested people.

It's a long way to go. But I am positive that as we live by example, we can all make a difference.

Just sharing. Happy weekend. God Bless! :)

2 comments:

  1. Galing din ng diskarte ng kumare ng nanay mo :)
    Actually sa office namin, hindi sila interesado sa when it comes to investment topic. Binibiro nila ako lagi "sa dami raw ng pera ko hindi ko na raw alam kung saan ko ilalagay pag nagbabasa ako ng finance blog at nagshare sa facebook ng finance article", which sometimes offending sa akin dahil napakaliit lang ng sahod ko at pinipilit ko lang mag-ipon. But then, later on na-immune na ako.
    Atleast ang officemate mo, open at interesado, maigi nandyan ka, i-guide mo na lang :)

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    1. Yes, open sila and interested but like some others pa na officemates ko lagi nilang sinasabi na walang extra cash to invest pero they are living a lavish styles. Discipline at determination kasi if we really wanted to invest di ba? Discipline to eliminate bad debt. Tweaking a little from the present lifestyle to accommodate naman yung savings. And determination to pursue yung mga goals natin. Else, wala rin lang mangyayari kung hanggang sa gusto lang without any actions.

      Makikita rin ng mga officemates mo someday yung lahat ng ginagawa mo today and for sure someday they'll say sana tinularan ka nila. :) And huwag mong sabihin na maliit lang ang sahod mo. You are far more better sa kumikita ng napakalaki na wala namang savings or worse eh negative pa ang net worth kasi walang discipline sa money matters. Kaya kudos to you. You are an inspiration.

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