A very careful consideration of your strategy should guide you in borrowing
money. You can easily adopt the following Laws—that wealthy and very rich
people follow when thinking about borrowing—into your strategy:
1. If possible don’t borrow
from friends or family.
You remember Law 8 which
taught that life has never been a
straight road and 26 which said that things more often than not turn out not as
anticipated? Should that happen when you borrow from close ones, you will have
a hard time trying to avoid them and they will try very hard to catch up with
you. Result? Your close relationships can be strained or lost.
2. Only break Law 1 above if
you absolutely must.
If borrowing from friends or family is your last resort for cash
flow and investment into your business, then go ahead and do it.
3. Borrow only to invest
in income producing assets.
Never spend or borrow against the promise of future earnings. That may
never happen. Borrow money to invest in liabilities only when you can afford to
do so. For you could never set up a big business without ever borrowing money. You
could also never buy a house without borrowing money. So when you have to acquire
something that could potentially generate a lifetime of income far beyond the
repayments, then there could be great leverage in borrowing money to do so. For
example, with a little help from the bank you could use the equity in your own
home to purchase other 5 or 10 properties.
However be warned that borrowing money can bring heartaches: people
have lost everything, including their lives, in this regard; interest on loans
can be crippling and emotional debt to someone even more so.
Your debts and loans are what you must pay off first. Just as the Law
of compounding [Law 34] can work to make you rich, it can also destroy your
finances in matters of compounded loan interests.
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