Getting the most out of your Money - Lesson 5

The risk of using debt

Today is the last lesson in our mini course “Getting the most out of your MONEY” and we are going to cover a topic which has troubled many people I have come across.

I have found that many people fear the things that they don’t understand. This is commonly known as ‘fear of the unknown’. How many times have you been subject to this? Think about the first time you did anything? How did it feel?

Do you remember the three keys which we gave you in the introductory report to this series? One of them was the key of action and many people fail to take action because they are gripped with fear.

The one way people overcome their lack of action is to be subject to a higher motivator and that is instant gratification. They fear debt but the desire to own capital is so strong they plunge into debt. Often the result is high levels of stress while going through the process of trying to pay it off.

The reality is that debt is a growing part of many people’s financial world but how debt and equity actually work is a mystery to most non financial people. They struggle trying to work out how much debt to take on because they have no real skill or framework to work it out with.
The risk of using debt is:
You have to pay interest
If you lose your job, you still have to pay interest
If you choose to take leave of absence for raising children, you still have to pay interest
Until the debt is paid in full you continue to have to pay interest.
If you fail to [pay the interest, the lender can sell your capital to recover the debt.
if you have a ‘forced sale’ of capital it usually get an unfavourable amount.
Debt lenders (Banks) do not care about your equity in a forced sale. They are only concerned to recover their debt.

Managing your finances on The Financial Fence® will allow you to determine the level of your debt to equity and also your ability to pay the interest. This approach means that you can understand how your money is working for you.

Taking on some debt will always allow you to accumulate capital more quickly but having the security of knowing how it all works together will avoid the risks above.

Thank you for working through this mini course.
The Financial Fence® is unique because it is a strategic planning, budgeting and reporting tool which shows exactly what happens to your hard earned income and what you are doing about building your financial wealth. It shows a picture of how ALL the pieces of your financial puzzle fit together.

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