Number 2 Rule To Wealth : Do Not Borrow

Remember, when your parents used to tell you that you shouldn’t borrow other people’s things? They were preparing you for the big bad world that gives a penalty for any irresponsible money behaviour. The big bad world loves the idea of you borrowing money from it, but there is a price to pay. When parents were telling you about borrowing, you thought it was about food, clothes, shoes, books but no, it was about their hard earned life lessons but as a child, you couldn’t trust them. They were not wrong, debt comes in two forms.

“He that goes a-borrowing, goes a-sorrowing”

Benjamin Frankin

There is good debt and there is bad debt. Good debt is mortgage debt to buy a house and then there is bad debt, debt that you take to buy clothes, to buy groceries or even cars. This is debt that you can easily avoid by controlling your spending , buy groceries and clothing that you can afford. Any debt that that you are going to pay sub-prime lending rates for is not worth it….this is a loan interest rate above 10% rates because as much as it is convenient in the mean time, it doesn’t make you better off, it makes you worse. For you to be better off, you will need to be earning an interest rate above 10% on any of your investments for this interest rate to be covered off.

Remember, the number one rule to wealth is investing so when you borrow you are going to the negative of the number one rule. You cannot borrow and expect to get rich, you need to be smart about the way you spend your money. Borrowing eats into your future income and leaves you with little or no wiggle room for savings if one actually manages to save.

Saving – Borrowing = Negative Wealth

Best way to avoid debt is to focus. If you have definite, authentic goals, then this becomes easier. Making a goal not to have debt this year is very different to having a goal that says ‘ I want $100 000 in my account” by end of year, it a definite goal, with a time line, and can be a good deterrent to the idea of borrowing.

Stay away from debt.