Confessions of a Shopaholic (Code for: "Utangera"/Serial Borrower)
BC (Before Choi!) - I was a carefree, single career woman earning more than what I needed. Needless to say, instead of saving for the future, I burned each paycheck, swiped all of my 3 cards left and right until I was chest-deep in debt.
You see, I thought those shiny plastics were magic cards and each time I paid with cash - "reward yourself" was my mantra. Apparently, I rewarded myself too much.
It is said that "There is always enough for our needs and never enough for greed..." well, my greed was insatiable,the more pair of shoes I bought or a new bag I purchased, the more inclined I was to borrow.
Fast forward to the present...
If there's one thing unplanned pregnancies don't prepare you for - it's the money needed to pay for everything.
I was 5 months pregnant with Choi when a huge fire razed our house and took down everything, as in everything we owned. Needless to say, expenses piled up on top of one another and we had to pool whatever money we had, accept donations and again, borrow from our relatives so we can get back to our feet.
So going back to being pregnant, Choi's Dad and I weren't in good terms at this point, so I had to shoulder the burden of it all since my pride won't allow me to accept whatever help he tried to extend. The result, I had to ask for a huge loan from a family member which I haven't even finished paying yet. You see - the situation made me realize that bad debts not only ruin your finances but also destroy good relationships.
Money 4 Life Session 4
At the 4th session of Sun Life Financial Literacy Talk facilitated by finance guru Coach Aya Laraya, a simple yet in-depth look at debt revealed the crucial difference between a good debt and a bad debt. Though both are classified as use of money you don't really own.
Knowing the difference between these two types of debt holds the key to financial freedom. Let me explain why.
Good debt - this is the money you borrow that will be used for a purpose beneficial to you. This normally results to long term gain. Taking out a loan to purchase your dream house or a business loan that guarantees a profitable return are the best examples of good debt.
Listing your business to sell for public ownership is also an alternative. This ensures that you will grow more than your competitors. A perfect example would be the Top 5 wealthiest families in the country - Ayala, Sy, Gokongwei, Andrew Tan and Lucio Tan. They grew their businesses intelligently and now is the best time to invest in their stocks.
Their stocks bear the fitting tittle - "Captains Fund". I say fit because they steer the economic growth of the country through their successful ventures. (Visit Sun Life's website or ask your Financial Advisor on how to invest too.)
Bad Debt - as with all the opposites in the world, if good debts help you, the bad ones will find you trapped in deep financial troubles if you don't take the time to know what they are.
This type of debt is the money you borrow to purchase things that won't bring any long term value to you. Some of its type according to Coach Aya are:
1. Consumer Goods - since the holiday season is almost here - we should all be well aware that the "great deals" you will see such as buy-now, pay later schemes on gadgets, appliances, home credits are not so great deals after all.
Not only do they put exorbitant amounts of "interest" on the price if you will take the time to compute but also, their value decreases over time.
Credits cards can be useful to track your expenses but it will take discipline to be able to do that. For me, these "magic cards" make you spend money you don't have in your hands yet. The best thing to do with your cards is to set a ceiling on how much you will charge on it as what Coach Aya did for his spouse.
2. Emergency Loans - alright, emergencies are unforeseen events but ideally, a Pinoy who's earning a living must at least be sufficiently prepared, money-wise for events you don't expect to happen.
You might be able to get past the financial obligation at the hospital and the likes but the burden remains when it's time for you to pay back the money you owe. I have experienced this too when my Dad underwent the procedure of angioplasty last April of this year. We had to take a loan so we can pay for the hospital bill that amounted to millions.
The best thing to do, while you still can, is to invest in a sound financial insurance company. See Sun Life.
3. Business Loans (If they don't work out) - do not, I repeat, do not borrow money for the purpose of buying a house or a condo you plan to rent out to other people. The rent will just cover your monthly amortization but it will not pay for the upkeep of the home. Not knowing the way a certain person or family that will rent the home lives poses a risk also.
Another bad form of business loan is buying a car that you will use for business. Again, the profit may cover the monthly car payments but does not include insurance payments, gasoline and maintenance expenses.
So instead of renting out the house and the car - live in it, use the car! You will be more inclined to take care of them and pay them on time because you will end up owning it. You can't go wrong with researching first before borrowing money too.
The Lessons Come After
It's been years since I found myself buried in piles of debt that losing my mind was the only option I had left. I have paid some in full and some up to now are still being paid or some I pray would just magically disappear. Lol!
One thing that we all need to understand and made me find out the hard way - debt is a debt. It is money worked hard for by others that we need to pay back no matter how long it takes.
Yes, valuable lessons came after. My bad debts pushed me to work harder, live smarter and to vow to teach my kids the value of money even before they get to have their own. Nowadays, you should think long and hard before borrowing money - think of what you and your family will gain.
At least, it is never too late to get yourself out of the predicament. There are institutions like Sun Life Financial that will allow you to start over. Back in the day, investing would cost one an arm and a leg but nowadays, sacrificing your overpriced coffee would mean that you and your family will be all set for the future. They have Financial Advisors that would openly discuss your finances with you as opposed to the "money is a taboo topic" mentality years ago. You should've started yesterday!
Start living a brighter life with SUN LIFE.