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Uncommon Wisdom: Knives vs. Loans
Are you afraid of knives?
If you’ve never used a knife, your life might be messy and boring.
It’s not the knife that gets you into trouble. It’s how and for what we use it.
Knife is just a tool. The user and usage determines the outcome.
Loans are no different.
Are you afraid of loans?
If you’ve never taken a loan, your life might be messy and boring.
Unlike a knife, you wouldn’t know it - that’s how lost opportunities and real value of money (= impact of inflation) works.
It’s not the loan that gets you into trouble. It’s how and for what we use it.
Loan is just a tool. The user and usage determines the outcome.
In addition to how or from where you borrow, what matters more is WHY you borrow?
• If you are borrowing for consumption or speculation, it’s like using a knife with no handle - you’ll bleed, most likely sooner, than later.
• If you are borrowing for a viable project which provides reasonably stable returns (= cash inflows), it’s unlikely for you to go wrong.
• If you are borrowing to repay a high cost borrowing, if original purpose of the borrowing is still valid, then it’s unlikely for you to go wrong.
Never use a katana to cut a mango.
Similarly, your loan also should match the purpose, cash flow patterns and the duration of your project.
Everything we do (or don’t do) has a risk. But the biggest risk is not taking any risks.
Want to know about why and how you should borrow?
I’m planning to write a series of posts on borrowing - the right way.
If you are interested, let me know by liking and reposting this - so that others can see and do the same.
If you found this interesting, follow me @theGayan for more insights on investing.
@CSE_Media
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