When being in debt gives you satisfaction!

This week, I was pleasantly surprised when my dear wife called telling me she had sent me an e-mail. Curiosity, as expected, got the better part of me and I dished all I was doing to open the email box.

What did I see? She had written a Personal Finance article on my behalf. She noticed that last week, the column carried a recycled article. So, below is the article she did – all credit is due to her but to preserve my marriage, all shortfalls are mine.

Driving or walking in the streets of Malawi, you come across different types, makes and models of cars. It’s actually a nightmare for someone who has just got a driving licence, officially or unofficially, to think of driving during peak hours.

Going in residential areas is something else when you consider the type, height and shape of houses people are building—some within a period of less than 12 months. You look at the structure and tend to wonder which bank has recently been robbed since we know the salaries most people get are mostly hand-to-mouth.

Most people will have debt running their entire lifetimes. There are a few that will only have a mortgage debt and that is good for them. However, the majority of people are in debt of one form or another.

No-one ever takes out a loan with the intent to become overwhelmed by debt. But that is the nature of debt. It innocently builds while you enjoy the perks. So many people are living a future lifestyle on today’s income.

They are thinking about the 13th cheque or a salary increment they are expecting. Today, it doesn’t seem so bad. You go ahead and have whatever you want now. But eventually you will have to pay for it.

Newly weds, college graduates, those who have just landed themselves lucrative jobs or businesses, people just coming from the diaspora etc fall into this trap all the time. People stretch to build houses and buy new cars and clothes, often for pleasure and not necessity, without realising the true cost over time. When life changes, they find that they are unable to meet their previous obligation for their money. They lose their valuables.

Others simply never look at how the figures are adding up until it is too late. Have you ever looked at your financial worth statement? This is a list of what you own compared to what you owe—your assets and liabilities.

Start with listing your assets. These comprise your house, your car(s), your personal belongings with high value such as collections, equipment or livestock. Then list your debts. These include your mortgage, your vehicle loans, your student loans, and all other debts you have.

Add the two columns up. You should have more in assets than you do in liabilities. If you don’t, you are walking a financial tightrope. What would happen if your financial situation changed? If you became ill or lost your job, you could risk losing your home. You could be forced to sell your vehicles for less than you owe and defaulting on the balances. You could be financially ruined.

Part of being an adult is understanding how credit really works. You have to know how it sneaks up on you. Even people that know are often surprised with life’s turns and how it affects their debt. You have to consider your overall debt picture and not just your current monthly budget when making credit decisions. Let’s get the debt to finance our needs and not the wants.

Make it an ongoing goal to pay off your debts. Imagine how much money you would have each month if you had none of those debt payments. Keep that in mind. The freedom you would have. You could work at something you like, not just something that brings in the money. You could save more and be able to retire earlier.

Debt is a tricky thing. Everyone is bound to face it in this day and age. But the difference is that some people will learn from their experience and of others to use debt for financing needs – for example spending on assets that appreciate in value, such as buildings. This is debt you can be proud of.

Fools on the other hand accumulate debt financing wants, such as having holidays in the Caribbean when they don’t even have a house. Which one are you?