I am reading various Financial authors and ran across several YouTube videos by this husband wife pair Darius and Carmen Britt, and their financial services company Wealth Nation. I read one of their blogs and came across this example of their thought processes and attitude towards debt that I thought was very progressive. The example was just a few lines but it’s preceded by several videos, so I will expand upon the 3 line example to provide all the background information I think you need to understand the example.
Example:
They use to pay rent, 800 dollars a month. They asked their landlord for a 25% discount if they paid for the year in advance. The landlord said no to 25% but yes to 15%. So they are paying; $800 x 12 months = $9600 per year.. They can pay 15% less.
How much less? Let’s figure it out.
800x15%=120$
800-120=680$/month x 12 months=8160$
9600 - 8160= $1440
How do they do this?
They borrow the money.
They apply for a unsecured line of credit at 4% to pay the rent for a year.. They replace one debt, the rent, with another debt, the loan.
Does it make sense to replace one debt with another debt of equal value? Yes if the interest rate is less.
800$ x 15%= 120$ per month, that’s how much their discount is.
800 x 4% is 32$ per month that’s how much the loan costs them.
$120-$32= $88
$88 is how much they save each month.
$88 times 12 months equals $1056.00 in their bank account instead of the landlord.
They can use that money how they see fit.
They use the money borrowed at 4% to save 15% off their rent. The purpose of this analogy is not to encourage borrowing to own things, but to encourage borrowing to generate or save money. Do you see how they generate money where their was a debt before ?
I think this type of creative thinking is definitely worth a 2nd or 3rd look. They have a Patreon page, so I will be signing up soon. I am also trying to recruit them for Steemit.
✍️ By Shortsegments