Financial Issues – How You Can Be Debt Free, Part 2.

  
Financial Issues – How You Can Become Debt Free, Part 2.
In part 1, I introduced the topic, made general statements of principle and shared a life defining experience for me, shaped by my Mum. Today, we want to examine tips that should keep you debt free.
By the way, if you are yet to receive my replies to your questions it must be because your correspondence details for reply are not quite right. You may wish to take another look and resend.
Now, there are several definitions for debt, but my personal definition is simple: By their nature, debts are losses acquired ahead of income! Losses because they are more than the income that comes in. Look at the definition again and you will discover my first tip.
(1) Never spend more than you can bring in! Simple right? Don’t count on it! Let’s do a small test. Your income is, let’s say, N150,000 (One Hundred and Fifity Thousand Naira only) per month. After deducting for essentials and running cost, let’s say you have a disposable income of 30% which is N45,000 (Forty five thousand Naira only). What do you do with this? I bet the reaction of some would not be to keep this locked up in savings or investment. More people than I can remember who I have counseled on finance confessed that at the end of the day, this ‘extra’ gets spent – on what they cannot even recall!
So, if you see this disposable income as just that – something expendable, then automatically remove the covering you have to weather the storm of any emergency spending that may arise. Adopt the principle that no income is disposable but extras must be banked!
(2) Never enter into a market (super or otherwise!) without a shopping list. Research has shown that any shopper who does this ends up spending about a third more than is really required! See, entering a market with a shopping list suggests that you already have an idea of how much you really need to buy and spend; and you have no business been in that market if you had not made a list! Why? A lot of impulsive purchases happen from the ‘innocent’ venture of browsing in malls and supermarket! And you end up spending more time than required. So, discipline yourself by making a list and sticking to it. You will cut down on your expenses by at least 30%. I saw my mum do this time and time again, and she corralled my sister and I to make those lists! No wonder it has never left me.
An interesting aside on making a shopping list is that many times I end up buying less than I have written down. For reasons I have not yet fathomed, I just discover that I could even do without some things on my list! Has his happened to you before?
(3) Do a direct debit for savings or investment. A wise tip is to pay yourself first out of every income that you get in. The easiest way to do this is to open a savings/investment account and do a standing order to deduct a percentage of every income straight into such account. Now, this does 2 things for you immediately. First, it grows a safety net for emergencies and/or investment; second, it gives you peace of mind that you are not vulnerable. This cannot be quantified because your mind has leverage that would allow you move on and think more of how to improve your finances.
(4) Do not borrow for consumables. Now, it is practically impossible to do some kinds of business without resorting to funding because of the vast capital outlays involved. 
However, as a private legal practitioner who is privileged to work for financial institutions, one thing I have discovered over the years is that loans and overdrafts easily go bad when same is utilized for consumables. 
Simple put, consumables are expenses that cannot pay for themselves, like salaries, emoluments, automations that do not generate direct income like status cars etc. So, never borrow for consumables. If your borrowings would not add value to you or your business in a way that it will afford a return of investment, do not take that loan or overdraft. My own principle has always been if I can’t find it, I can’t spend it. The money you take a loan or overdraft, the cost of taking that money itself already compounds what you have to pay back. 
Let me give a practical illustration. Imagine you take a loan to buy a bag of rice valued at N10,000 (Ten thou shad Naira only). The moment you take that loan, it becomes N10,000 plus the interest element applicable to the loan. This is the real cost of that bag of rice! Now, if you bought the item to feed your family, then that value is drained because it cannot amortize itself by bringing in money! So, borrowings should only be for production, not consumption.
(5) Cut down or eliminate the cost of cultural pressures. What do I Mena by cultural pressures? Activities that cost us money because we want to be part of a crowd. In Nigeria (as in other parts of Africa and the Caribbean), festive occasions put a lot of pressure on resources. Until my wife and I delivered ourselves from this menace, we have ‘wasted’ resources that otherwise would have added value to our lives! 
Let me be practical. For every wedding, burial ceremony and the like society expects you to buy clothing materials picked by the celebrant – called Aso Ebi in my Yoruba dialect. Now, if you have such ceremonies once a month (although for some this happens every week!), and you buy a piece of 6 yard cloth for N4,000 (at times as high as N25,000 or more!). Multiply that by 12 months and you get N48,000 (Forty-Eight thousand Naira only). This does not include the accessories expected to compliment the material! Do this for 10 years, and you have lost at least N480,000 (almost half a million Naira!). Consider that you invest that same amount in mutual funds! How much return do you reckon you would have made?
No matter your income band, this is money wasted! I have yet to hear a justification that removes the stench of wastage my mind now attaches to this use of resource! The honest truth is that many of us spend ourselves into financial morass unwittingly!
(6) Cut up that Credit card! There is absolutely no commercial sense to spending money you have not yet earned! None whatsoever! 
In economies where credit is liberally accessed, the ratio of users to borderline poverty is high. A study of multi-millionaires in the United States showed clearly that only 5% of the pool those surveyed use a credit card, despite been offered premium service by most card issuers. That is not even the key thing for me. The reason for this was what opened my eyes – those surveyed claimed that they never regard credit card use as Other People’s Money (OPM)! That it cyclically puts active users in debt! Rather, 65% of them preferred debit cards and coupons (say what?!) for their purchases!
So, I repeat my counsel, cut that (or those) credit cards in pieces!
In part 3, I will address how those who may have fallen into a debt trap can successfully come out of it. 
It is my wish that you succeed and prosper. If you think I may be of any help, please get in touch with me. We will share our experience and help you with tips. My contact details are below:
salvationhouse@gmail.com or +2348098445165. You can also like our FaceBook pages – SalvationHouse and Adewale Adeniji_Nation, Heritage, Self – to get regular tips on life issues and success. 
Now go and achieve!!! I love for you to succeed! 
© February 2016. Adewale Adeniji.

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2 Comments (+add yours?)

  1. howiebanner
    Apr 22, 2016 @ 04:43:44

    Another good post with helpful and clear advise.
    http://gettingoutofyourdebts.wordpress.com/

    Reply

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