I. Businessman. (Part 8)
I want. I need. I must have. Three phrases that define our existence today.
Thanks to peer pressure, ‘Keeping up with the Joneses’ and clever advertising, we end up buying an endless stream of gizmos, gadgets, clothes, lifestyle products… JUNK!
New toys that get banished to the corners of our rooms or cupboards, relegated to darkness and neglect, within months of our buying them.
Of course, the funding for these comes from our good old friend, the credit card.
Costs more than I earn? No problem, there’s always revolving credit!
Something that you learn, once your unending supply of cash from a salary dries up is this:
Learning No: 10
Our parents were right… again!
Hold on to all the goodies you want to buy and must have.
Don’t stop buying, but stop buying on credit. The best way to buy is by paying for it, upfront, in full.
Credit cards, while needed for emergencies, must be used precisely for that. In case of an emergency only.
As salaried professionals we are used to living life to the fullest, splurging on the must haves. We swipe our cards at the drop of a hat, because ‘you only live once’ right?
However, a large amount of the money we earn, goes off in the interest we pay. And the longer the term, the more the interest paid. Credit card companies in India charge around 3% on the balance outstanding per month. That’s more than a 39-40% interest on an annual basis. To get a grip on your expenses, stop using your card on stuff that can wait.
To understand how this can help you, the perfect analogy is trying to lose weight by diet control and exercise.
You’d agree if I said that the best way to control your diet is to convert the calories of what you want to eat, into minutes on the treadmill. So every time you are seduced by a chocolate pastry, reminding yourself that it works out to an additional 40 minutes on the treadmill, helps you stay off it.
Likewise, calculate the interest you’re paying on loans and credit cards. Now imagine what it could afford you, if you didn’t pay it. You would be surprised!
I did. And I was taken aback. The saving amounted to the salary of one of my employees, for a year!
I jokingly tell my friends, that I was ‘customer number one’ for many credit card companies in the past. Not because of the purchases I made on them or the annual fees I paid. But because of the amount of money they made off me in interest!
As a businessman, being debt free, gives you the leeway to pull through lean months, when your business is not generating the revenue it should. The sense of freedom you have, when you don’t owe anyone anything, has to be experienced to be believed.
Before you start your business, stop being an EMI slave.
Getting rid of the interest paid on credit card and loan outstanding is the first step towards it.
TO BE CONTINUED…
(This is part 8 of a series of blogs on my learnings as an entrepreneur )
Read Part 9 here