Debt will destroy forever your chances to be financially cool (her's what to avoid)by Sal C. Curious
One of the first books on personal finance that I read after finishing my studies, was Robert Kiyosaki's "rich dad, poor dad".
I liked him at the time and found him extremely useful for a reason.
He made me overcome my atavistic hatred for the study of balance sheets, which until then I had considered one of the most boring things ever.
Without that book I would never have been interested in understanding how to invest and keep searching for the best investments.
Kiyosaki's book also pushed me to create assets that could produce wealth for me even when my time was not directly involved.
A concept that I clung on to with all my might when I was doing jobs that didn't satisfy me at all.
But despite these positive aspects, there were some things that did not convince me.
For example, the focus on real estate as a tool for making money (there are many hidden risks in real estate investments) or the distinction between good and bad debt, which I would like to talk about in this article.
Let's start with the basics.
It is better to get into debt to get a decent education than to buy a 82-inch TV.
I hope that at least there is nothing to object to that.
Because it is quite obvious that debt should not be used to finance an otherwise unsustainable lifestyle.
It would be a bad, very bad debt.
But it is on the good debt, the one made to buy productive assets, that I still have my doubts, for a very simple reason.
It presupposes that everyone thinks like an entrepreneur.
From university student to state employee, from pensioner to private employee.
And in a book that aims to talk about financial literacy, talking about debt is extremely dangerous.
It implicitly assumes that anyone who can perfectly assess how much debt they can take on and how much risk they are able to accept.
And here it turns out that good debt can do more harm than bad debt.
It is easy to call someone who has mortgaged his future to buy a Mustang a fool.
But when you buy a property to invest, everything changes as if by magic.
Justifications like, "He must have done his math" start popping up.
In reality, most people who invest in real estate or alternative investments are not even able to quantify the costs they have paid to make these types of investments.
For example, they are often not considered:
1) restructuring costs
2) the risk that the tenant will stop paying rent;
the fact that selling a property is not at all easy, especially when you need liquidity.
It all boils down to a "Mortgage is cheaper than rent, it's a bargain!!!", showing little financial literacy and little awareness of possible risks.
If things go well, so much to gain. Better for them.
But taking on personal debt (therefore as a private person and not as a company) means exponentially increasing the chances of going bankrupt.
And it doesn't matter whether this debt is good or bad.
To go and tell a person with poor financial literacy that there is a good debt and that he can use it as he likes is to say: "Can't you use a match? Try with a flamethrower, you'll see that it's easier".
Debt is a multiplier of the results obtained, both positive and negative.
That's why I am so intransigent about saying that a debt taken from private individuals is very dangerous.
Even when faced with a good debt, but done without first assessing your personal financial situation, the possibility of taking home a huge loss is just around the corner.
Does this mean that you must never, under any circumstances, incur a debt?
Obviously not, and I have defined my guidelines for taking out a safe mortgage to buy a home.
You, too, may have a particular personal situation at the moment where the debt is justified.
But remember that, as a private person, in 99% of the cases, the debt is just a subterfuge to buy something you can't afford, or to make a very, very risky speculation that could go wrong and increase your chances of going broke.
Created on Nov 28th 2020 09:44. Viewed 291 times.
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