If you can’t handle your personal finances, you will struggle managing your business finances.
If I could only share one piece of personal finance advice to recent graduates, new startup entrepreneurs or to just about anyone, it would be this:
Only borrow money to pay for things that increase in value.
It’s a short list: your business, your house and your education, shares mostly. That’s pretty much it.
Marketers have convinced that us that a credit card is good for you and your swag.
It’s not a credit card, it’s actually a debt card.
It’s not a credit profile, it’s actually a debt profile.
You are not credit worth, you are actually debt worthy.
If you have credit card debt, you are in big trouble.
Your bank account has a huge leak in it, and it’s getting worse. Hence the urgency.
If you have credit card debt, that means that every time you spend money (even cash), you are borrowing money to do so.
And so, if you are going out to dinner or buying a new pair of shoes, you have just broken the single most important rule of personal finance.
You are spending borrowed money on stuff that is decreasing in value.
This is an emergency.
It’s an emergency because every single day you wait, the problem gets worse. A lot worse.
Debt is the slavery of the free.
My suggestion: Shift gears to live well below your means. That means:
- No restaurants;
- No clothes accounts;
- No DSTV bill;
- No cellphone contract;
- No Starbucks.
Take in a tenant in your spare bedroom
- Get scissors and that cut that credit card into two pieces;
- Carpool to work;
- Use wifi hotspots;
- Skip vacation this year;
- Eat pap or rice, chicken and beans every night for dinner.
Act like you have virtually no income.
You will save R50,000 to R100,000 a year.
Send all of it to the credit card company. Do this until you are debt free, the faster the better.
There. Now you are on your way to start building your personal wealth.
Now you get interest on your savings instead of paying the bank.
Happiness is a byproduct of a meaningful life not of buying stuff.
Twenty years from now, this emergency action will translate into perhaps a million rands in the bank, depending on how much you earn, you much your business is doing and how serious you are.
You can thank me then.