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- How To Use DEBT To Your ADVANTAGE
Debt can be an unbelievable tool to accelerate your wealth. BUT, it can also be a catalyst for stress and financial turmoil!
If you want to see us break it down in video format, feel free to head to YouTube for 10 minutes of our beautiful faces! But before we dive in…
A heartfelt thank you to everyone for the incredible support we’ve received so far. We’re incredibly proud of this project and the strides we've made in just three episodes. Progress is a beautiful thing:
MoneyMoves Ep1-3 performance
What is Debt?
Debt occurs when someone borrows money to purchase or build something they need or want. You get something now with money you get from somewhere else. But, of course, there is a catch:
You have to pay it back
You have to pay interest on the borrowed money
Is Debt Good or Bad?
So, is debt good or bad? Well, as any good lawyer would tell you: “It depends”
Firstly, it depends on what you actually do with the borrowed money, i.e., what you’re spending it on. Secondly, it depends on how much you are paying for it in the form of interest. Is it 10%, 15%, 20%, or even 25%?
According to Paul, it’s mostly bad. Here are his reasons:
Lower Disposable Income: Imagine acquiring a car loan of R250,000 with a monthly instalment of R5,000. Additionally, you have to pay maintenance and insurance for the vehicle of roughly R2,000 per month. The result? Your disposable income decreases by R7,000 per month.
Locked in: Debt does not go away. Whether it's a personal loan of 3 years, a car loan of 6 years, or a home loan of 20 years, you are locked in for the duration of the loan.
Stress: Having a monthly debt obligation can be very stressful to oneself and one’s relationships. In most cases, it’s not worth it.
The Good Side of Debt
Debt can be very beneficial to your life IF utilised correctly. How should it be used? Easy, to buy or build a Quality Asset.
Quality Asset:
1. Increases in value over time
2. Increases your ability to earn an income
This is how we distinguish between good and bad debt. Are you buying a quality asset?
Good Debt:
✅ Increases in value over time
✅Increases your ability to earn an income
Bad Debt:
❌Decreases in value over time
❌Decreases your ability to earn an income
Examples
Good debt
🏠Home loan: Buying a home typically increases in value over time and stimulates cash flow via rental income.
🧑🎓Student loan: Investing in education can increase your earning potential and open up more career opportunities.
💼Business Loan: Borrowing money to start or expand a business can lead to higher income and long-term financial gains if the business is successful.
Bad debt
🚗Car loan: Cars depreciate in value over time, making car loans a poor financial investment unless the vehicle is essential for income generation. Make sure to buy a car that is well within your means.
💳Credit card: Financial consumables that do not appreciate in value. High-interest credit card debt can quickly become unmanageable and lead to stress.
🏪Personal loans & store credit: Borrowing money for vacations, luxury items, or other non-essential purchases can lead to financial strain without providing long-term benefits or value appreciation.
Episodes coming your way 🎬
So, what are we covering? Well, depends on who’s asking (literally!). Our aim is simple: Ask your questions, and we’ll cover them as best we can: to inform, educate, and entertain.
Season1 Topics |
|---|
1. What is a TFSA and how can I use it to my advantage? |
2. Can you explain the different types of investments? |
3. I hear people are making money with Arbitrage. What is it? |
4. Debt: Is it good or bad? |
5. Life insurance - should I get it and why? |
6. How big of a deal is compound interest? |
7. Where should I invest my money? |
8. Should I go the DIY route or use a financial advisor? |
Who are we?😎
 The Knowledge Chest | Paul holds an Honours degree in Financial Analysis from Stellenbosch University. With a career spanning investing, accounting, and education, Paul is committed to becoming the best financial planner in South Africa. Despite his many accolades, Paul insists that his greatest achievement is that he is dating a yoga teacher. |
 The Anchor | Ingrid holds a BA Honours in Journalism from Stellenbosch University. She is a self-diagnosed workaholic, excelling in various roles such as marketing, publicity, social media, and strategic partnerships. Ingrid's commitment to promoting wellness and balance extends beyond her professional endeavours, as she is also an avid yoga teacher. |
 The Magic Maker | Alwin holds a BCom in Business Management from Stellenbosch University. Alwin has a unique ability to make things happen - if you need something done, he’s your man! Alwin currently works in the alumni office at the university, connecting past and present Maties and ensuring a brighter future for the youth. |
Connect with us📲
Feel free to reach out if you want to chat about finance (or even just chat!). We’re keen to get to know the community.
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