If I have to borrow to pay your school fees, I will do so until my last-born graduates. ~Igwilo Nwokike
The above quote from my dad is the responsibility of every parent.
My dad was focused and incredibly determined to achieve his ambitions and fulfil his responsibilities.
I mean, think of the typical Igbo man; successful, ebullient and proud.
Thankfully he didn’t have to borrow to train us.
He was wealthy enough to give us certain privileges.
And when he passed, none of his accounts had a debit balance.
But this piece isn’t about my dad.
It is about borrowing and wealth creation.
It was conceived after a private chat, so I decided to write and possibly educate/encourage you.
People are afraid of borrowing for diverse reasons.
I am not. I borrow when the need arises and do all I can to repay.
This need could be personal/domestic or business-related.
It doesn’t matter really. So long as you repay.
While conventional wisdom emphasizes saving, strategic borrowing, diligence and smart investment can expedite your path to wealth creation and financial success.
I took my first loan after about a year in business when the new owners of Con Oil demanded increased working capital requirements from dealers.
Getting the credit facility was smooth as Con Oil arranged it with my bankers.
Even though I traded well with the money, I struggled to repay it at the expiration of the tenure.
As such, the renewal dragged on for much longer and my business suffered liquidity issues.
Tip: Your first borrowing will likely go wrong, but learn from it.
Since then, I’ve never shied away from accessing credit from financial institutions. And believe this; I rejected offers from banks when I did not need credit or when the terms didn’t suit.
Now here are a few things to consider about borrowing.
Positive Pressure.
Borrowing puts you under pressure and this is why many people avoid it.
But this pressure can be positive.
It can act as a powerful motivator if you are hardworking.
In 2002, I took a revolving overdraft facility.
The bank offered 3 months tenure but I insisted on just 1 month.
I didn’t mind paying the renewal fee 3x.
I just wanted that 30-day pressure as 90 could make me relax and risk defaulting.
After 6 months, the bank offered to increase the loan amount.
When you have repayment obligations, you should focus more on income-generating activities.
You will be forced to dig in, repay and even qualify to borrow more.
Yes, regular repayments contribute to developing your credit history.
A strong credit standing provides access to better financial opportunities in the future, creating a positive cycle of wealth-building possibilities.
Remember, the ability to raise credit is also a measure of one’s wealth.
Leverage
Consider this fact: some of the world’s most successful entrepreneurs and even entire nations employ borrowing as a tool for growth.
If the rich and countries regard borrowing as a viable strategy, why shouldn’t you consider it?
The key lies in understanding how to use borrowed funds effectively and responsibly.
When you borrow to invest, you utilise other people’s money to build wealth.
This strategy has been fundamental to wealth creation for generations.
I’m reminded of Other People’s Money starring Danny DeVito (one of my favourite actors).
Watch that movie if you haven’t. It’s a wonderful drama packed with sweetness and lessons.
The Investing Paradigm
While saving money is undoubtedly important, keeping cash in a savings account is not the optimal path to wealth creation.
With inflation constantly eroding the value of money, keeping all your funds in savings reduces your purchasing power over time.
Investing, alternatively, puts your money to work.
Be it in stocks, real estate, or business ventures, investments offer the opportunity to generate returns that usually surpass inflation over time.
This is where strategic borrowing can enhance your investment capacity.
But please only borrow to invest when you have planned carefully.
For instance, if you wish to start a wheelchair-accessible transport business, you are unlikely to save up the funds needed to execute this from your earnings.
Start from scratch.
Study the taxi industry and regulations.
Take courses on manual handling and caring for people with mobility needs.
You can then acquire a license and operate a wheelchair-assisted taxi for say 6 months to 1 year.
When you finally present a business plan to your bankers, you will have gained adequate hands-on experience in the industry.
The credit facility to lease vehicles will be approved and your business is up and running!
Yep, that’s basically what banks do. Lend your savings to smart people willing to invest in businesses.
I have just given you a breakdown of what I’m currently doing with my latest venture CommuteCare.
Having identified the limited accessibility of wheelchair-assisted vehicles here in Ireland, I came up with a plan to fill the gap.
Hopefully, in 5 years I will look back at the genesis and smile.
To make borrowing work for you, consider these essential principles:
- Only borrow for investments with a strong potential for generating returns above your borrowing costs.
- Focus on investments that align with your knowledge and experience.
- Maintain a clear repayment plan based on your reliable earnings.
- Never borrow more than you can reasonably and practically manage.
Remember, successful lending relationships are built on trust and reliability.
By consistently meeting your repayment obligations, you establish a positive financial reputation that can lead to better borrowing terms in the future. But if you are lazy and unserious you’ll end up in a ditch of debt.
Invest in your financial literacy before borrowing let alone investing.
You don’t need a college degree for this.
Learn from those who have been there and done that.
The most successful investors combine borrowed capital with experience.
So to make it work for you, start small and grow big.
Of course, there will be challenges and I repeat; your first borrowing will likely go wrong..learn from it!
Work hard and maintain discipline in your repayment schedule.
And most importantly, remember that wealth creation is ALWAYS a gradual process that requires patience and persistence.
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