Debts

Let me give you a brief summary of what you have seen so far. If you want to improve your financial condition, and with it the quality of your life, it is essential that you change your mindset. With your salary, before everything else, you have to pay yourself for at least one-tenth of your income. After that, you need to make your money produce money. This is done by investing in activities that generate income (assets) and not liabilities.

Now, before I move on and develop the second step (making savings work), I want to deal with a thorny subject. Certainly not all of you, but there will be some people who, for various reasons, have taken on debt which will surely be a source of concern.

Firstly, I should start by distinguishing the types of debt:

• Good debt
• Bad debt

The latter is what most people contract and is called "bad" because it's set up to spend money on something that doesn't produce income, i.e. liabilities (car, vacation, latest iPhone model, etc.).

“Good" debt, on the other hand, is created to buy an asset which in turn will generate income. Of course, there will be interest to pay but if the income from the asset is at least equal to the amount to be repaid plus interest, this will result in free money received (and an asset which will produce income even after the debt has been repaid).

Unfortunately, modern society is based on appearances which offer the means to squander money on useless things that gratify us in the immediate moment. So, many people, especially young people, are influenced to spend through channels (like Instagram and YouTube) and pushed to live in a constant desire to purchase useless things. Too many people go into debt to satisfy the desire for "liabilities".

Credit cards are the best way to incur these debts. How many of you are having trouble repaying what you have spent on your credit cards?

I have a few friends who are struggling with debt. I myself have been in debt in the past. I was young and not inclined to wisdom. I used to buy lots and collections with the promise of paying for them once I sold them but when that happened, instead of fulfilling my promise I spent that money on other collections or worse yet, on myself.

A solution to the problem of debt comes to us from Dabasir the camel merchant (from "The Richest Man in Babylon"). It is not an easy method to put into practice and requires sacrifice and willpower. But if your desire is to get out of debt, you will succeed.

Dabasir wrote on five clay tablets describing the way in which he repaid his debts. The plan has three goals:

• It must ensure future prosperity. So, a tenth of the income must be set aside and saved.
• Seven-tenths will be allocated to expenses (housing, food, utilities, etc.).
• Each month, two-tenths of the earnings must be divided equally towards paying your debts. In this way, over time, the debts will be paid off.

This is the plan, described by Dabasir himself as "invaluable". What you need to do is to draw up a family budget. Eliminate all items that are not necessary for living, even if it costs you to do so. Make sure that your expenses do not exceed seven-tenths of your total income. With the remaining three-tenths, one will be allocated to you and saved, the other two will be used to honour your debts.

Being able to repay a part of your debt contracted each month will give you much more serenity and will help you to improve the quality of your life even if you have to give up things that previously gave you pleasure (if for a few years, your smartphone isn’t the latest model on the market, believe me, you can survive this).

I myself, after a few years of dastardly choices, put this plan in place to get rid of my debts; and if you are thinking that you will never be able with your income to do as I did, the answer is provided by Dabasir himself,

"where there is determination, a way can be found."