Are you facing a debt-like situation? Are you in a debt? How deep are you in the debt pit?
These questions are important to analyse periodically as debt acts like a leaked tap in your financial tank. You may not even realise that you’re in a debt trap until the situation becomes severe and the effects of it are displayed clearly. Most people generally evaluate their level of debt based on the money that they owe to someone else for after all this is the basic definition of debt. However, there’s more to debt than that meets to the eye.
“DEBT IS A STATE OF MIND. You are in debt if you feel that you’re at the end point, if your state of mind is not active”.
Let’s take a case study of two friends: Ram and Shyam.
The two friends had purchased stocks worth Rs. 1 lakh. The market crashed on account of which the value of the stocks purchased went down to Rs. 60,000. Fearing that the value would fall further, Ram sold his stocks without even analysing; on the other hand Shyam sought professional guidance and took advices from his peers and decided against selling the stocks. Soon, the stock value was bettering and it even went beyond Rs. 1 lakh.
The point to be noted here is that, we all take advices before making an investment decisions, but unfortunately most of us fail to discuss or even take advices when we face a financial crisis or a financial loss.
Ram took it as a loss which reflected his mind-set; whereas; Shyam reached out, sought guidance, advices and then took an informed decision. The debt mind-set is similar to this.
(P.C: Google Images)
Debt mind-set is also revealed when situations become unfavourable.
For example, let’s take a hypothetical situation where by you wish to start up your own business. For this purpose you take a loan with the intention that your business would generate favourable returns on account to which you’d be able to generate income. Based on your calculations, the business was supposed to do well. However, unfortunately the weather of the market changes and your business had to be stopped which resulted in mounting of debt for you. Considering this hypothetical situation, what action steps do you think you’d be taking to overcome the debt? Would you take more loans to repay this debt or would you search for other avenues for loan repayment?
Think about it…
Many at times, people take loans with an intention to make money out of it similar to the above hypothetical situation. However, once they fall into debt, they stop to look at opportunities of raising money for income generation. Why is that!?
Rather than stopping the activity of looking at income generating opportunities, one must in fact look more vigorously at ways to make their money work back for them. If you borrow to repay your previous debt, in that case given the circumstances, you’ll again have to borrow to repay the previous debt and so on and so forth. By the time you’d realise the trend, you would already have fallen into another debt trap of borrowing to repay. So how can you get out of this?
- Pre-plan your borrowing by noting down your cash flow for the next few years and also the potential obstacles that may arise against the loan or debt taken like change in interest rate, destruction, inability to repay etc and the possible solutions to them. You need to formulate and draft your cash flow sheet exclusively of all the probabilities and possibilities. This’ll help you to understand your monthly requirements, help you to know the cash flow gap and plan your lifestyle and other expenses/ commitments accordingly. Without being aware or without knowing the cash commitment, you’ll only be going forward towards debt trap. Without this, slowly you may realise that your commitment month on month is suddenly increasing. Preparing and reviewing your cash flow month on month will go a long way in securing your finances along with helping you take conscious financial decisions helping you either come out of debt or may help you to increase your net worth.
- THUMB RULE: Debt as far as possible must not be focussed for repayment of interests or lifestyle expenses.
(P.C: Google Images) - Before taking loan for the purpose of wealth creation, do this simple calculation. Money/Capital-Interests-Other Expenses=______. Through this, you’d be able to calculate if you’ll truly be making profits or you’re just taking a plunge in the dark.
- Upon falling into a debt trap, start having a complete control on your cash flow and ensure that even during times as these your purpose of borrowing should be for wealth generation and not for repaying your existing loans.
(P.C: Google Images)
Therefore debt first is a state of mind which if moulded the right way shall go a long way in ensuring that you attain a life of financial freedom at the earliest. Before involving yourself in a debt likesituation, make sure that you’ve entered into it with the purpose of generating more money and not for repaying previous debts or for incurring lifestyle expenses. One of the best ways to counter a debt trap is by forming a community of like-minded people who’re interested and focussed towards enhancing their overall wealth and who discuss share income generating opportunities. Such platforms of intense discussion make the world of finance not only exciting but also fun as you’ll be able to find new doors, new alternatives that’ll help you to take informed financial decisions. People usually discuss before taking any investment related decisions but they forget to do the same when they fall into a debt trap. Talking about financial struggles with the right and informed people can help you overcome those struggles in lesser time and with much ease.
LET’S TALK MONEY. LET’S MANAGE DEBT. LET’S ACHIEVE FINANCAL FREEDOM
(P.C: Google Images)