Why Did We Plunged
Into A Deep Quagmire
Of Debts?
Top Five Mistakes We Made
Fely and I each received six-figure monthly incomes as managers in our respective companies. On the outside, we looked like successful career people living in a nice home, driving late-model cars, wearing branded clothes, and traveling abroad. But the truth was, we had a negative net-worth in eight figures. Our cash-flow was negative too — in the tens of thousands every month!
Our first major mistake: We bought things that were not necessary or needed. We were suckers for new gadgets or appliances even if we didn’t need them. Fely especially loved cameras. She bought one camera after another, even if the previous one still worked fine. She has the same love affair with cell phones. She buys one after another and ends up with two or three of them at a time. We would also buy TV sets even if we seldom watched TV!
We were drawn to midnight madness sales like bees to honey. One night, as if hypnotized by the four-letter-word, SALE, we bought appliances and gadgets worth more than P200,000 using our favorite credit card. We spent on things we actually didn’t need using money we hadn’t even earned.
Our bad practice of buying unnecessary stuff didn’t end with gadgets or appliances. It also extended to our grocery shopping. Since we have four kids each of them would buy their own brand of shampoo when they could just share. In essence, we also bought more than what is needed.
Second mistake: We bought things on credit and paid the minimum due. We had seven credit cards and looked at them as additional sources of funds to buy things we wanted. Then we just paid the minimum due.
We didn’t pay attention to the interest charges that accumulated in time. Eventually, the amount we had to pay for each credit card reached the maximum. With no cashflow, we were soon defaulting on the minimum payments of each card, increasing our payables with penalty charges. This resulted to us having to pay more than double for the price of the things we bought.
Third mistake: We didn’t manage our expenses. Instead, we resorted to getting loans. Fely and I changed our citizenship from being Filipinos to “Loandoners.” We took any loan we could avail of. Name it, we had it: salary loan, Pag-ibig loan, coop loan, SSS loan, pawnshop loan, even personal loans from friends. I failed to keep track of our expenses, didn’t analyze what we were spending on, and spent beyond our means. So it goes beyond saying that I didn’t know where our money went.
Fourth mistake: We spent money we had not yet earned. I expected a windfall from the sale of stock options and grants of the company we worked for. We also thought we’d get a large amount of money from the sale of a property owned by Fely’s parents. So we purchased a lot and loaned money to construct our house. But none of the expected windfall came. So we ended up with more debts than assets.
Fifth mistake: We invested on liabilities with borrowed money. We were so financially ignorant we did not know the difference between assets and liabilities. Fely and I bought properties with borrowed money thinking that we were accumulating assets. We believed that our real estate investments would increase in value in time. But we failed to do our financial analysis. I didn’t check if the real estate investments we made were viable projects, were in good locations and could generate income.
We bought a condo unit at 21% per annum compounded interest and for more than five years, we neither used it nor rented it out. Aside from not generating any income, we even had to pay monthly association dues. We bought two residential lots that remained idle, yet we pay their annual real estate tax. Its value hasn’t appreciated much through the years either.
These top five mistakes brought us our hopeless and insurmountable seven-figure debt.
Realizing all of these through the Financial guidance we received from IMG, we were able to rise up and become debt free and eventually become Debt Destroyers
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