When Debt is a Ticking Timebomb

My father-in-law warned me from being jealous of the very rich men in the country. He said, “Don’t ever think they are rich just because they say they are rich. You never know, they are even poorer than we are.”

What he meant was this, while many businessmen may be paper rich, they may be ultra-poor and drowning in debt.

Drown-in-Debt.jpg

Debt is a wonderful thing: The money you owed can supercharge a business and make it grow exponentially. Through debt, you can open a large number of stores, increase your workforce, introduce a new product in the market, get a large endorser and increase your brand visibility, among others.

Debt can also kill a business. If overdone and the business cannot pay the debt interest, or if your debtors suddenly pull their support, then your business is dead, leaving you a pariah and poorer than you’ve ever been.

My father-in-law has a friend Mr. H who lives dangerously in the edge. He is known to be rich, and is active in the Filipino-Chinese business community. Weirdly, many other businessmen do not seem to respect him. Despite his high profile and wealth, this friend cannot muster respect from the Filipino-Chinese community.

When I asked my father-in-law why, he said, “It’s common knowledge that (Another Tycoon’s name) does not respect him.” 

Another Tycoon Mr. L owns a bank to which Mr. H owes money. Apparently, it’s a LOT of money, worth in billions!

Put it this way, if the rumors are true, and assuming that the bank rate is 5% per annum, Mr. H would have to pay a whopping Php 25 MILLION per month merely in interest payments!debt.jpg

That’s like buying one condominium unit per month.

No wonder Mr. L scoffs at Mr. H. Despite living in a very prestigious village and touting several businesses, even going as far as appearing in a social media show that highlights him as an angel investor, Mr. H owes a large amount of debt. In the end, all his wealth is in the brink of exploding.

debt-bomb.png

Which is why I can understand Mr. L’s disdain for Mr. H’s high profile lifestyle.

How dare you tout your wealth, lifestyle and riches, even to the point of giving advice to aspiring entrepreneurs on how to make money and be rich like you… only to hide the fact that you are deeply in debt and have to work your ass off to pay the interest just so that your debt will not explode to your face. What’s more, if you are already struggling to pay the interest, how much more can you afford to pay for the principal?

Most likely, this is a debt that can never be paid, and Mr. H is just paying the bare minimum per month (e.g., just the interest payments) for his business to survive.

When I asked my father-in-law why Mr. H took on such a large amount of debt, my father-in-law explained that Mr. H took that risky bet because he thought that the government would approve and buy his products. He thought that if his political bet won the election, Mr. Political Bet would take on his business and roll his product nationwide.

Alas, he bet on the wrong horse. Another candidate won the election and this candidate was a dark horse from the South who had no knowledge of what Mr. H was doing with the previous administration, and was in fact, against everything that the previous administration supported.

So despite already expanding his factory’s capacity to churn out a large amount of product that can be rolled out nationwide and investing millions in marketing his product to the government, all such investments didn’t really push through, leaving him with a large amount of debt with not enough revenue to pay for it.

Learning about this story, I do not want to be Mr. H anymore.

I would rather be happy with my small business enterprise and be relatively “debt” small (e.g., We do have debt but it’s something we strictly budgeted for, and we know we can pay in whole if needed be), than be like Mr. H, who I don’t know how he sleeps at night.

Debt can be a great or dangerous thing.

Before we become jealous to the rich tycoons who rule our land, first understand where they are coming from and if ever they are cash rich or debt poor. Because sometimes, all we see are their huge houses, cash thrown around and glittering TV show, when in fact, it’s just the tip of the iceberg, and truly, the man we think who is very rich is actually poorer than we are.

How about you?

Are you cash rich or debt poor?

Have a good weekend!

 

 

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About Bonita

I'm a forgetful person. But I think a lot. Every day, a lot of thoughts enter my head. That's why this blog came to be: first, to keep my memories alive through the years, and two, to actually see how I and my thoughts have changed. Please note that I seldom draft or edit my posts. Sometimes, if I'm not careful, I offend some of you, my readers. And while I apologize for making you feel uncomfortable, I am not sorry for being honest or for making well-intentioned mistakes. I will however be the first to admit if I change my mind. Hence, do read and proceed with caution. My life is as colorful and as boring as you make it. I complain many days, but offer some encouragement in others. Life is fluid, it changes. So keep the positives and throw away the negatives, and I do hope that at the end of the day, you will enjoy reading the blog and leaving comments here and there if my posts touches you. Happy reading!
This entry was posted in Advice, Business, Dad's Advice, entrepreneurship, Favorite Posts, Filipino Men/Women, Personal opinion, Philippines, Work and tagged , , , , , , , . Bookmark the permalink.

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