mGa KuRo-KuRo Ni Ka UrO

Friday, February 24, 2006

Point of Clarification

I think I might have misled others in my previous post so it’s important that I set the record straight. I hope I have not influenced anyone the wrong way when I encouraged people to be in debt.

For me, I consider borrowing money into two types. There is irresponsible borrowing and responsible borrowing.

When you buy a 50” plasma TV on installment at 20% interest that’s irresponsible borrowing. When you borrow money to buy a $30,000 dollar car, when you can make do with a $6,000 Japanese import that is irresponsible borrowing. When you use your credit card to buy designer clothes and only pay the monthly minimum payment that is irresponsible borrowing. In other words if you borrow money to buy something that will not generate income and only puts you more into debt as a result of interest payments, that is being irresponsible.

If I loan money to buy a rundown house with the intention of renovating it and then either reselling it or having it rented, then that’s responsible borrowing. Because even though I’ll be paying interests on the mortgage, I am still in a position to make more money from the investment. If I borrow money to buy a van to start a “food on wheels” business, that’s responsible borrowing (provided of course you've made a feasibility study that it will make money). On a larger scale, if I borrow money to open a Jollibee franchise in my hometown in Pampanga, that's not a fantasy. It's a probability. And it's borrowed money that won't be wasted.

The type of borrowing I’m advocating is only the responsible type. Borrowing for the sake of borrowing is folly. Paying interests for borrowed money that doesn’t generate income is not being clever. Kung gusto mo ng plasma TV, pag-ipunan mo, huwag mong utangin. Use your credit cards, but always pay the amount owed in full para walang interest. Lakasan niyo ang loob niyo na mangutang especially if it is for income generating ventures. It's a benefit/cost thing. If you think the benefits will outweigh the costs, go for it, mate!


17 Comments:

  • i totally agree KU, i learned all that through my 'boss' here, who by the way, volunteered to be my Financial Advisor..

    i cut my credit card in half, borrowed money from the company to pay it all in full and now i completed paying the same to my company! i don't owe anything to anyone at all! =)

    By Anonymous pobs, at 9:48 AM, February 24, 2006  

  • ay dko napansin! UNA ako ah! heheeh

    By Anonymous pobs, at 9:49 AM, February 24, 2006  

  • good on you pobs! now that you owe no debt, i encourage you to be brave and borrow money again. this time borrow money for an investment. borrow money only if it will generate more money. you don't have to start big. start with something small. say $20000 worth of investment. pwede na yon pampatayo ng apartment sa pinas, di ba? eventually, the apartment will pay for itself. after 15 to 20 years bayad na yon.

    By Blogger Ka Uro, at 10:15 AM, February 24, 2006  

  • dito sa tate nung nag-uumpisa palang kami read:no credit history yet,napuwersa kaming mangutang ng medyo hindi naman ganon kaimportante like jewelries pero 0% financing.Nakatulong ng malaki yun nung nag-apply naman kami ng sasakyan @4.5% interest tapos dun na nag-umpisa yung pagiging responsable sa pangungutang.mahirap talaga yung mangutang ka for the sake of makautang lang. pero lam mo KU, umutang kami ng plasma TV 42" payable for 2 years @ 0% interest, don't you think it's a wise decision too? Hirap kasi dito, para ka makabuild ng credit, mangutang ka, pero pag wala ka namang credit history ayaw ka nilang pautangin kaya pano ka mag-uumpisa kung sa simula palang ayaw ka namang pautangin? kaya wala kang magawa kundi umutang ng hindi naman ganon kaimportanteng bagay.

    Bottomline, umutang ka ng kaya mong bayaran...

    By Blogger katrina, at 2:37 PM, February 24, 2006  

  • tama ka jan katrina, minsan kinakailangan gawin ang pangungutang ng hindi importanteng bagay. but you're doing it for a specific purpose which is to build up a credit history. okay yon. that's part of the game.

    42" plasma for 2 years at 0%, aba good deal yan. at basta kayang bayaran, ok lang. in the end, it's up to one's own priorities kung saan niya gagamitin ang perang kanyang pinaghirapan. minsan kailangan din bigyan ng konting luho ang iyong sarili. walang masama doon.

    ang masama siguro kung uunahin pa ang plasma TV, pero di man mabili ng gamit sa iskul o bagong shoes ang anak.

    By Blogger Ka Uro, at 3:15 PM, February 24, 2006  

  • salamat sa advice ka uro kaso sabi sa astrology/chinese sign (1982 - Year of the Dog) ko, hindi ako magiging swerte sa pag bu business this year... hehehehe

    By Anonymous vemsan, at 3:35 PM, February 24, 2006  

  • 42 plasma 0% installment, nde sya magandang deal... why? kasi after 2 years na makumpleto mo ung bayad depreciated na ang value? the money you have been paying every month could have been invested elsewhere let's say mutual funds... best is to purchase it with cash. ika nga "live within ur means"... i was once a believer of credit cards pero ngayon unti-unti ko ng binabayaran... i've read dave ramsey's total money makeover book and andami ko palang maling paniniwala before...

    By Anonymous jon, at 7:29 PM, February 24, 2006  

  • saka yang mga banko nde mga charitable instituion yan na tumutulong sa yo... in fact they are earning from us because of the interest rates... in america and other countries "normal is broke"...

    "live like no one else so later you can live like no else"

    By Anonymous jon, at 7:37 PM, February 24, 2006  

  • This is very true Ka Uro...I usually think about a thousand times before I borrow money. It is always easy to borrow but hard when payment time comes...

    By Anonymous Major Tom, at 12:03 AM, February 25, 2006  

  • very well said and i totally agree with you. ganyan ang principle ng big companies di ba, they borrow money and make big benefits out from it...

    if it's profit generating, ok lang mangutang, pero kung para lang magyabang, di bale na lang..

    im also indebted...because of my house, but it's ok, im paying 3.5% interest for a house which already increased it's value by 20%...

    By Blogger Analyse, at 3:36 AM, February 25, 2006  

  • You are right ka Uro!!! If it is unnecessary, why use the credit card. Nice post and very specific.

    Have a great weekend po sa inyo jan.

    By Blogger Raquel, at 8:41 AM, February 25, 2006  

  • As Always, VERY WELL SAID KA URO!

    Basta ako, nainitindihan ko ang ibig mong tukuyin doon sa nauna mong post, hehe.

    By Blogger Rhada, at 11:43 PM, February 25, 2006  

  • nothing wrong with buying plasma, mercedes benz or designer clothes if the interest rate on those is only 4%.

    well if you got property (properties) whose market value is more than your liabilities (debts such as mortgage(s, credit card(s), etc) the bank will give you the preferred rate of 2%-4% interest rate which they call as a secured loan based on the property equities. it's also known as a "secured" line of credit. the outstanding debt is paid on monthly basis up to 5 years, however the amount paid is added to the available line of credit so in a way your available funds to spend remains growing depending on the amount you pay back.

    this is really how the well off people do it. a lot of people do not know this procedure. if you have more assets than liabilities then this is the route.

    just imagine going for a cruise paying 4% interest than the 25% credit card payments. or buy a jag paying 4% interest than the usual 17% interesnt. cool huh!!

    banks wouldn't normally offer this to you. but if you already have built up a relationship with a bank financial advisor, you could inquire about the secured line of credit.

    By Blogger Air Milikay, at 11:58 AM, February 26, 2006  

  • very nice blog Mr Kiosaki.... ehe Mr Ka Uro pala!!!!

    to some readers, what KU's referring is "good debt" (term borrwoed from Mr. Kiosaki)

    so... kelan natin bibilhin ang holiday home sa Taupo?! :-D

    By Blogger KiwiNoy, at 8:48 PM, February 26, 2006  

  • KU, thanks for the advise, actually i'm thinking of that too kya lang i don't know yet wether i'll settle in pinas or somewhere else..haven't really decided on that!

    By Anonymous pobs, at 1:34 AM, February 27, 2006  

  • vemsan,
    para kang si esmi ko mapaniwalain sa feng shui at mga chinese superstitions.

    jon,
    any electronic appliance depreciated na the moment you take it out of the store, di ba? i think the point is, if there is a choice between buying in cash and buying installement at 0% interest for the same price (and no hidden costs), it is a no brainer to go with the latter. kahit may cash akong pambili, i'ld still go with the latter. of course the other option is not to buy at all and invest the money instead somewhere else. well that's a good idea too.

    major tom,
    katulad mo ako major. takot din akong mangutang. it is more my wife who has the lakas ng loob to do so.


    analyse,
    3.5% lang. wow galing naman. here we're paying 8% at least. can't complain though, because house prices have risen at least 80% in last 2 years alone. also we have no capital gains tax which makes it very profitable to buy and sell houses.

    raquel,
    thanks.

    rhada,
    i know you do.

    air m,
    that's very true about owning property and getting preferrential treatment from banks. so my advise to new migrants here that i talk to is to plan to buy their own house as soon as they could. then try to pay off the mortgage the soonest possible time so their equity increases. a bigger equity results in bigger credit line.

    kiwinoy,
    pwede ba yung holiday home na lang na may gulong?

    pobs,
    don't think of where you're going to settle as a limiting factor to investment. may mga kaibigan kami dito sa auckland noon ayaw nilang mamili ng properties dito kasi daw lilipat sila ng aussie. tas ngayon nagtaasan ang properties dito at nagsisisi sila kasi wala pa silang property pagpunta ng aussie. unlike yung isang pinoy bumili ng bahay dito sa nz. bago lumipat ng aussie, binenta yung bahay. e di kumita pa siya at may pambili na kaagad siya ng bahay sa aussie.

    By Blogger Ka Uro, at 9:18 AM, February 27, 2006  

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