Continued from yesterday here: i am beginning to see that this is going to require up to four or five parts. Please drop your comments below so i can get feedback from all and sundry and know where to address. God bless you.
For the purpose of clearly educating us, I will term the two types of borrowing as:
Our personal balance sheet consists INCOME, EXPENSE, ASSETS & LIABILITIES; true wealth is a situation where the income (passive income) from your assets, is large enough to take care of your living expenses. But for many, they are not even thinking in that direction, sadly many aren’t even at a position where their income is greater than their expenses. They are truly the poor, because the poor is focused on income, and are unintelligent about spending – expenses. It is the reason a lot of people find themselves going into what i term impotence-borrowing or impotence-debt! It is a situation where you borrow money for a purpose that has no capacity to return cash to you, it is simply a result of emotion. And i learnt from a good friend of mine, that “when emotions are high, intelligence is low”. This is where most people find themselves.
Because of the need to support their expense column which their income cannot support, they resort to impotence-borrowing on things that have no future income value. Things like cars, personal home, home appliances, vacations, feeding, school fees, etc. In this type of borrowing, you are simply borrowing from your future to brighten your present, this clearly means that your present will be brighter than your future. It places you under, makes you a victim. It is no place for a successful person to be. And trust me on this when i say, even if you are making a lot of money today, you need to know, note and learn to understand this because tomorrow, money can come and go but financial intelligence is permanent.
The second type of borrowing is what I term LEVERAGING or LEVERAGE-BORROWING. Remember in the last paragraph, i mentioned that our personal balance sheet consists of INCOME, EXPENSE, ASSETS & LIABILITIES. We need to take note of these four factors. While the poor focus on income just so they can spend and hence end up spending more than they earn and end up borrowing to cover the deficit, the rich focus more on ASSETS and LIABILITIES. They are more concerned about how much passive income their assets can generate, because their core paradigm is freedom! They want to be free from working for money, they would rather the freedom of having money work for them.
This sort of paradigm is essentially what informs their borrowing choice. They leverage. Leverage-borrowing is a situation where you borrow money for something that has a future capacity to bring you income. Things like borrowing to invest in a business, property for rent, land for lease, cars for hire, shares, etc. Its basically borrowing from the future to invest in the future. It is a skill that turns the tide in your favour.
If you want to get out of debt, these two concepts of borrowing must be clear in your mind, with their attendant pros and cons.
I like what my mentor taught me, with respect to borrowing. I lost a couple of millions in some transactions last year and it really shook and tested all parts of my life, from my relationships with people, friends and family and the way I began to see the world, my spiritual life and character was tested too. Of course most people wouldn’t believe this because you could never tell from interacting with me. I am sure, a lot of you here can relate to how much being in a difficult financial position affects many areas of your life. The experience was not pleasant but I am grateful and excited that I went through it and deliberately learnt a lot. What did my mentor teach me? Among many other things he said, “borrowing got you into trouble, but borrowing is what will bring you out”.
All of what I share in these posts, are lessons I learnt before, during and after being in the throes of that experience. The lessons continue tomorrow. Don’t hesitate in dropping your thoughts in the comments section and please share with friends, family and enemies. god bless you!