FINANCIAL LITERACY FOR ALL-GOOD & BAD LOANS

Businesses every where are run with money. Most businesses raise their capitals in the form of loans. Loans are as old as mankind and will continue to live as far as man lives. I, believe, everybody, has at least once been encountered with a loan transaction before whether formal or informal. We take loans from friends, sisters, brothers, employers, and more especially the money-lending financial institutions, i.e. the banks and other non-bank financial institutions.

Many formal loans are borrowed with the understanding of giving back the original loan taken together with some form of interest on it, so that the lender could benefit for the opportunity lost in not putting his/her money in another investment to earn them some return.

Loans taken from friends and family members are mostly interest free and there are also mostly in small amounts taken mostly for personal purposes. Their repayment period is also shorter and many of these loans are not even repaid, because some of the borrowers fail to be honest and reliable to perform their part of the obligation and agreement.

Loans could be good or bad depending on the terms and conditions of the loan agreement and the purpose for which the loan is contracted.

If a loan involving a large amount is taken and the purpose is to acquire personal property then that is a bad loan, in the sense that the loan is not for free, it will be repaid, so, it should go into an income generating venture to make more money for the loan to be repaid easily.

Good loans should be contracted for business purposes, which in the long term will bring more returns than the interest on the loan. A good loan’s interest is tax allowable but with a bad loan you bear the interest yourself. A good loan should help decrease your tax liability but a bad loan helps increase your tax liability

 A good loan is a loan that someone else pays it for you. You don’t feel the pain, inconvenience and depletion in your cash flow. This means, you hedge the loan contracted, so its repayment becomes pleasurable.

Good loans increase the value of   your assets. If you draw up your assets, you realize the loan has added to its value, if not then it’s a bad loan

Good loans have very moderate and affordable interest rates charged on them. Bad loans have interest rates that are skyrocketing and are unpalatable to contract and are never friendly to repay. Most Ghanaian loans are of this class. The interest rates on loans in Ghana are crazy and unbelievable. No wonder, all the banks, report higher profits year after year. Interestingly, the interest the banks give on our monies that we have deposited with them on savings, etc, is nothing compared with the rates on loans. Risks on loans? They are credible and very honest and less risky business ventures and people in the country, but how many banks in Ghana would grant them loans by using even the 91-day T. Bills rate as interest rate for them?

Good loans bring income home, but bad loans take away the little you have from home and give it to the lender. A good loan taken should be invested to generate some type of income for it to be a profitable loan. Bad loans are taken for purposes, which are not investment-oriented and bring nothing home.

Good loans are free from conditions and covenants that are unfriendly and tied or attached to your personal property, in case of default, you lose everything.

Good loans allow and give opportunity to re-negotiate interest rates downwards; bad loans’ interests’ rates are not negotiable after signing.

Mortgages are loans, they could be good or bad depending on what purpose the mortgage was contracted. Mortgages for personal property are bad loans, but mortgages but for business purposes could be good loans.

In my humble opinion, I would not take a mortgage facility to buy a house for my personal use, no. I know I need a house by a certain age, so I plan for it and build it gradually. If I don’t finish building it before I retire, generations after me will finish it, after all the land, the most valuable property, the land would have been acquired and owned by me or us.

In a mortgage facility it will be difficult to transfer the property to generations after you if you have not finished paying for it even if the land was bought by you.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  I wouldn’t mind taking a mortgage facility to buy a house and rent it out and the rent received should be able to pay the interest on the mortgage, if not then no mortgage for me.

If you take a mortgage facility for a personal property, then you become an employee for the mortgage company, because you would be working very hard for them till you finish paying them.

Good loans bring prosperity and wealth creation. Bad loans drain us financially and bring problems home.

© 2010, Godwin-Xavier Ayeebo

Email:gayeebo@gmail.com

Blog: www.g-xavierayeebo.blogspot.com

FINANCIAL LITERACY FOR ALL-ENTREPRENEUR & EMPLOYEE

In the world today, one works as either an employee or an entrepreneur to earn a living. Financial Literacy touches so lovely, attractively and delightfully on the contributions of the entrepreneur and the great contributions of the employee. The two are not the same, so as their rewards.

As has been discussed before, financial literacy affords people the opportunity to learn to be creative, financial literacy greatly promotes entrepreneurship and entrepreneurship is the brainchild of financial literacy.

Financial literacy takes a critical look at the differences between entrepreneurs, who create jobs for themselves, and employees, who work for others and always seek for job security all the time.

Entrepreneurs create a job, whilst employees seek for a job. Entrepreneur takes risks but the employee doesn’t take risks. The entrepreneur’s income could be in the form of portfolio income or passive income but the employee’s income is earned or active income.

The entrepreneur owns the job, but the employee is hired to work, the entrepreneur is the inside investor or shareholder but the employee is mostly not a shareholder, in cases, they are involved they are outsiders investors.

The entrepreneur builds his own assets and has the chance of getting very rich once he/ her succeeds but the employee build assets for somebody else and has little chance of getting richer.

The entrepreneur is greatly a knowledge worker as well a data worker but the employee is mostly a data worker.

The entrepreneur doesn’t seek for job security; they keep on investing in other areas and managing risks, but the employee greatly seeks for job security and doesn’t compromise on it.

That is why some employees would even kill and maim their colleague co-workers to secure their jobs. They don’t take risks, no way. They play politics, they gossip, they pull him/her down ( PHD holders) to occupy certain positions at their work places maybe to get more pay, fame or power but they are answerable to the owner of the business. The entrepreneur owns the company and doesn’t fight with anybody to retain his title and position. He/she can hire and fire appropriately. He/she is not answerable to anybody in taking decisions affecting his/her organization.

The employee relies on a monthly pay cheque to survive life but the entrepreneur doesn’t need a monthly pay cheque at all to enjoy life. In fact, the entrepreneur could live for a long time without pay. The great and successful entrepreneur delays luxury for a later time in order to run his/her business.

The entrepreneur may not necessarily have personal expenses, their organizations could bear all their expenses for them but the employee always has personal expenses, he bears all his/her own expenses.

The entrepreneur has enough time to attend to family matters and other important issues at his/her own will but the employee has to seek for permission to be granted time to be able visit his sick wife/child or her sick husband/mother. In some instances, the employee is refused permission to attend to family matters, even in very urgent ones.

The entrepreneur takes decisions about the company but the employee has little say about the company.

The entrepreneur doesn’t do the same job every day but the employee does a monotonous job all the time, only reassigned once a while. The entrepreneur could sleep and still make some money but if the employee decides to sleep without permission, he/she gets fired to go home without pay, he therefore gets poorer. The employee can only make money when he is working.
The entrepreneur retires or dies and leaves a job for his/her children but the employee retires and goes home without his /her job.

The entrepreneur spends before paying tax, but the employee pays tax before spending.

The entrepreneur plays a leadership role in the organization but the employee plays a managerial role in the organization.

The entrepreneur is visionary and thinks about the long term success of the business but the employee is occupied with the short term well-being of the business.

Life is a choice, you decide what you want and nobody does that for you, not even your parents. You decide to be a follower for the rest of your life or you become a leader to take up great responsibilities with great risks and rewards.

“Leaders are visionaries with a poorly developed sense of fear and no concept of the odds against them” said Robert Jarvik

Credit: Godwin-Xavier Ayeebo
Blog: www.g-xavierayeebo.blogspot.com
Email: gayeebo@gmail.com