Understanding Debt

There are three classes of people the poor, the middle class, and the rich. Money for these three classes represents three different realities. Poor people means people who do not earn enough money to maintain their life, they are always having difficulties paying even for the essentials, and they even have debt. When you are in this position, the only thing that will come to your mind is how to earn a little more so that you can easily pay for food, rent, etc. Rich people have the liberty to invest money, the middle class has the leverage to save money, but the poor people do not have enough money to save or invest. Therefore, their entire thought process is focused on how to buy enough food and how to pay rent, and things like those. They are only focused on essentials, they cannot think of wants and wishes, or even saving and investing.

Reasons Why People Have Debt

One of the major reasons for accumulating debt is high expenses. If you are always spending money, chances are there that you are spending for unnecessary items. Spending on unnecessary items will result in debt. Another reason why you can get into debt is by not living under your means, in other words, spending more money than you are actually earning. There should be a balance between how much you earn and how much you spend and you should always be spending less than you earn

The biggest debt mistake that I see a lot of people making is they use debt for liabilities instead for assets. In other words, instead of using debt for business, investment or income generating projects, they use debt to buy luxury. If you are using debt for things that does not give you any kind of financial reward, you are making a huge mistake with your finances. You should never use your debt to buy liabilities. You should always use debt for building wealth like like billionaires.

How to Reduce Debt

The golden rule of reducing debt is make more money and spend less. If you make more money you will have enough money to pay your bills so you do not have to borrow money to manage your expenses. When you spend less, your expenses will reduce and you can easily manage your expenses with what ever you have. You need to work extra hours to earn more and you need to minimize your lifestyle to spend less.

The fastest way to get out of debt is by selling your assets (land, property, gold, stocks, etc.) and pay off your debt. If you are earning 5 percent interest or return on your assets but you are paying 7 percent interest in your debt, selling assets to pay debt can be wisest decision. If you do not want to sell your assets, you will have to work hard to make more money and cut your expenses drastically to pay off your debt. But this method can take very long time to pay big debt.

The primary aim of debt consolidation is to get a low interest rate. When you consolidate your debt, your new interest rate should be lower than what you were paying previously. This is the most obvious benefit of debt consolidation. However, sometimes, you might end up paying higher interest. Another benefit is when you consolidate your debt it will be easier to pay your loan as you will be focusing on just one loan instead of multiple loans. There are two reasons why people go for debt consolidation, one, instead of paying half a dozen loans, it will be easier if you have just one loan to pay off, and two, you reduce your payable interest rate. The main point of debt consolidation is the interest you were paying previously should come down. Let's say you had 5 different debts and you were paying 7 percent interest rate on average. After debt consolidation, your interest should be below 7 percent.

Why You Need to Address Debt to Prioritize Financial Security

There are a lot of things that will create problems to your journey towards financial security, and the most dangerous one is debt. When you have debt, it will always hinder your financial security and create uncertainty in your life. You will have to give importance to debt repayment in order to build a financial safety net and achieve financial stability. When you don’t have debt you can have complete control over your finances and plan for the future. One of the biggest issues in life is related to money, if you have scarcity of money in your life, your life will be completely shaken. The issues of money is usually created by debt. Even when you are able to repay your debt regularly, a large amount of your income goes into debt repayment, and you will not be able to use your own money to rebuild your finances. When you have debt, you cannot save money, invest money, buy property, and enjoy life.  Do not take debt no matter what. If you are not financially strong, do not even borrow money to invest or start a business, if your finances are bad, borrowing to earn profits can also make your life hard of it does not turn favourable.

When you have debt, you will not only have to pay your principal amount but also the interest on your debt. If you are in debt for a long time, you will end up paying a lot of money as interest. Sometimes you might end up paying as much money as the principal amount. This is the major issue of staying in debt for a long time. Another major issue is when you have debt your entire focus will be in paying debt and you cannot focus on saving or investing

Getting a Personal Loan

Your lender will analyze your credit score in order to determine your loan eligibility, however, before you apply for a personal loan, you need to check a couple of things. The first question you need to ask yourself is do you really need a loan, don’t you have other options available? Getting a loan should always be the last resort. The second question you need to answer is the purpose of your loan. Loan should be always used for things that will give you returns, if you don’t get return, you need to think twice before getting the loan. You also need to make sure you can pay your loan. You need to check your income to debt ratio to check if you can actually pay the loan. You should always avoid buying liabilities with your personal loan and never get a new loan until you pay back your old loan entirely. You also need to get ready to cut your expenses.

Is It Really Bad to Borrow Money

A lot of people tend to believe that borrowing money is very bad for personal finance. It is true that when you borrow you incur debt and when you have debt it is not good for your financial wellbeing. However, there is not the case always. Borrowing money isn't inherently bad always, for instance you can borrow from friends and family and usually you do not have to pay any interest when you borrow from your friends and family. This can be a great option for those who have business ideas or want to invest but do not have funds for those causes. You can use your borrowing to earn profits from business and investment, and later return to your friends and family. Well, when you borrow money and you have to pay back the principal amount along with interest, there is a certain degree of risk, as you will be paying back additional amount. But what if you use it for business or investment? Let’s say you borrowed on 5 percent interest but your profits from business or investment is 10 percent of your invested amount, wouldn’t be that great? Borrowing to make profits is good and there are multiple ways to minimize the risks.

What is Good Debt

How can debt become good? Well, there is something called good debt and bad debt. Bad debt is when you used your money to buy liabilities, in other words, you used your money on things that is not giving you any returns instead making you spend more money, one perfect example is car loan. Good debt means you used your debt to invest in the market, build a business or invest in something that is giving you returns, one good example is using debt to invest in property

Debt can be good. Yes, it is true. Now, you might be wondering how can debt be good debt. Is there a such thing as good debt.

Yes, debt can be good debt or bad debt. Before I explain what exactly is good debt first hear me out about bad debt. You borrow money and use the money to buy a car. Your car does not generate you any income, instead it spends your money for fuel or maintainence. This is bad debt. When you use your money on things that does not generate you return and on things that make you spend more money, that is bad debt.

Good debt on the other hand is when you use your borrowed money on things that generates you money. Let’s say you bought a car with loan and now you are using the car to work for a ride sharing company. Your car is generating you income. You used debt to build profits. This is good debt.

Good debt is one of the standard practice used by big businesses and entrepreneurs. People like Elon Musk borrow money to invest in businesses. They use return on their investment to pay the debt and in few years, they will be able to multiply their wealth.

Risk of Burrowing Money to Invest Money

When you earn a return on your investment, you can use that money to pay back your loan. I will give you some examples, you burrow to buy shares, your shares will earn you dividends that you can use to pay your loan, or sell the shares when the price increases and use the money to pay back on and keep the remaining money as profit. However, when you are burrowing for the purpose of investment, you will have to look into a couple of things, for instance, you need to calculate how much interest you will be paying on borrowing and how much profit you will gain from the investment. If you have to pay more money on interest than the return on investment, borrowing is not a good idea. You will also have to abstain from borrowing in you do not have any ways to clear your debt in case your investment turns wrong. Do not invest if you cannot afford to lose.

How to Enjoy Life Without Worrying About Money

Money is important in life and one of the main reasons why you need to make money because you can enjoy life. But sadly not many people can enjoy life even when they are making money. Do you know why? Well, they are living pay check to pay check. In other words, they wait for their pay checks to pay their bills, they do not have other sources of income. Well, most people work for a paycheck, plain and simple. However, if you are tired of not having enough money and are always praying for more money like poor people, you need to do something about it. If you want to enjoy life, here's a tip: make your money work for you. That happens when you start investing.

• Praying For Money Vs. Working For Money

Some people are so much stuck with lack of money that they end up praying for money. People end up praying for money because they don't know how to make money. They are so much wrapped up in everyday activities that they are unable to learn how to make more money, or even when they know how to make more money they do not attempt it because they are do not try to improve skills and knowledge. If you lack money in your life, you need to work for money. If your existing skills are not helping you generate enough, you should boost your skills.

• How to Reduce Your Food Expenses By 50 Percent

If you want to improve your personal finance, you need to cut your expenses. One of the highest expenses you can incur is food. Food is essential so you might not be able to cut it, right? Well, that’s not true, you can even cut your food expenses. For instance, when you eat out, you will spend a lot of money but when you eat at home, you save a lot of money. For instance, the average meal in a US restaurant costs around $15, when you cook the same meal at home, you can reduce your cost by 50 percent. You can cut your expenses on other areas as well.

• How to Cut Your Monthly Expenses By 50 Percent

Now, this might come as a shock to you but cutting your expenses by 50 percent is actually possible and when you do that you can start saving or investing more. Let me give you a simple example. If you buy $1 on coffee and drink 3 cups every day, you will be spending $90 per month on coffee. However, if you drink just one cup, you can save $60 in a month. Instead of buying, if you making your own coffee, you can save even more money. Or, why should you buy expensive shoes for $50 why not buy unbranded or less common brands for $20.

• How to Save Money By Downgrading Your Lifestyle

If you are earning well, you might enjoy your life with lavishness, but if you are in tight budget or if your earning is small, you should downgrade your lifestyle to save money. For instance, do you really need to live in 2BHK apartment when you can live in 1 BHK apartment? Downsizing your living space could save you on rent. Well, it certainly feel nice to spend money on fancy restaurants or designer clothes, but if you are not easily affording, why now try living frugally to save money. When you save money you can invest for your future and build a better life down the road.