Stop Investing on Liabilities

Recently, I’ve been thinking of whether to buy a car or a condo. And then it hit me! “Man, do you want to be unnecessarily tied-up to an obligation through a number of years?!”

A lot of employees, especially young professionals like me, are prone to this danger.

Thanks to be to God. I was reminded by this Proverb, “Don’t build your house and establish a home until your fields are ready, and you are sure that you can earn a living.” Bo Sanchez cited this in his book The Turtle Always Wins (How to Make Millions in the Stock Market). Thanks that I’ve reread that book.

For weeks, I was Googling on which is better – a Toyota or a Ford. I was also browsing articles about condominium units.

Before you react, let me give you some facts:

1. I cannot afford to buy a car or a condo unit on cash basis. I cannot even cash in some bucks for down payment. Although, I perhaps can work on that and grab some loan offers left and right.
2. I am a young professional earning just enough income. Well, maybe some extra. A little. No other income, particularly what we call a passive income.

Some may say, “Good for you, you can actually afford to take a loan and grab that nice car or that condo unit that’s soon-to-rise.”

These years of heightened consumerism brainwashed us that it’s OK to take a loan for you to buy your dream car or condo. And that it’s OK to enjoy that experience now and then pay later. To think, that thing is more of a want that a need – because it’s cool or pleasurable or terrifically irresistible.

With this, a lot of young professionals fall into the trap of “investing” in liabilities. These tie them up to growing obligations – what’s worse at times is that this demands them to stick to something they don’t want to do but still hang on to do it because of the bucks needed to pay a certain liability. In a number of times, unpaid obligations accumulate through the years with bulging interests.

On the other hand, the typical employee who falls into this trap may also be in a job that he/she likes but think about it, no matter how high you will get paid, there will always be a ceiling in what you’ll receive as a salary. And if you start the lifestyle of incurring debt for your “wants” that will chain you to the pipe of cash outflows, then there will come a moment that your liabilities outrun your income – you will be earning much but also spending much.
Hopefully, your net worth (asset minus liabilities) will not be negative. If the trend continues, then not later but sooner, such sad fate will happen.

In Proverbs 22:7, it says, “…Borrow money and you are the lender’s slave.”

Do you want to be a slave to your creditor? I hope not. Let’s walk away from that.

Going back to my example above, what if instead of spending time and effort in researching whether to buy a condo or a car, I spent time researching or planning or working on things that can actually become an income-generating activity for me – Bo calls this a money machine? I think that would have been better! And perhaps, when I will generate good cash from that activity, I may think of buying a car or a condo in a couple of years from now while reinvesting the rest of my “side-income” to grow the “business” even more.

While there are people who really need to buy a car or condo, more often, the rest of us just “wanted” them. In my case, I don’t really need them yet at this stage. I can still take the jeep to get to my workplace, and sometimes a taxi cab. And a condo for myself? Hmm, maybe later but not now.

It’s OK to buy those “wants” when you can afford to purchase them. If there’s extra cash from mom and dad (for the rich kids), or some extra cash from your side business (for brilliant young entrepreneurs), or any extra cash from somewhere (anything legal) – go ahead, buy it!

But not when you have to loan that sizeable amount with sizeable interest rate.

My invitation to every young professional out there – including myself, more importantly – let us stop investing on liabilities.

Stop engaging on transactions that take away your money, day-in, day-out.

Rather, start engaging on transactions that put in money, day-in, day-out.

Difficult! I know. But that’s the easy way out.

Invest in farms first.

Live your life, young mind.

Chris Dao-anis

PS: I invite you to join the Truly Rich Club to receive wealth strategies, investing tips, stock updates, and many other materials to help you prosper in every area of your life. Visit www.chrisdaoanis.trulyrichclub.com.

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2 thoughts on “Stop Investing on Liabilities

  1. Good common sense!

    If you like, just lease for awhile instead of committing for the long-term and then may ending up defaulting if you can’t pay up or sell.

    Housing (your crib) & transportation (your ride) should always be considered “Expenses” and not “Assets” since they don’t provide you income (unless you rent/lease them for business income). Also they tend to depreciate – even house & apt values have dropped (check those US housing defaults/foreclosures since ’08) and that could happen anywhere, even in the Philippines.

    1. Chris Dao-anis

      Thanks, Loco E. I concur – your “crib and ride” are expenses not assets. Assets are those that generate more assets. 🙂

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