Thoda Aur

Converting debt to savings.

If you are reading this post then there are chances that you have some debts too that you want to get rid off. But why is it so important to get rid of the debts?

Debts are those expenses which you cannot avoid. It is an expense that is more worse than the expense that you do to meet your ‘needs’. We all know the ‘need’ expenses like food and shelter cannot be avoided. But if you do not eat or buy any new clothes no one is going to ask you why you dint (apart from your family of course). But debt is one such expense that if you decide not to pay then someone will be at your door knocking. Not just that, the interest multiplies and that will make you many steps far from your goal – Financially Independent and Early Retirement.

The concept of debts is beautifully modified by the advertisers that it seems like a need now. You need to take a loan to buy a house, medical expense, marriage, travel and so on. Some of these are actually needed while many are not. But these needs can be met by proper planning.

The first step to being debt-free is to remove the idea of taking any more debt. I want you to make the following promise.

Come what may in the future, I will be prepared for it. Because being prepared is the solution and not taking a debt. Debt stinks!

First I need to explain the kind of debts that I have. All my debts are in the form of a few personal loans. Luckily in my case, all the loans that I took were to buy an asset. Nope! A house is not an asset. Not at least in this period of time. But let’s talk about that later. So the assets that I have bought were few machines for the Makerspace and a tempo for the same.

But why do I call the above an asset? Its because assets can pay me back and liabilities take money away. Loans taken for a marriage or travel or medical expenses do not payback. So these types of loans are the worst.

So how am I planning to convert debt into savings? It’s by tipping the scale. I want to tip the scale which is right now spending more and saving the rest. I am going to keep myself first. By keeping myself first I mean that I will secure myself first financially before paying off the others. It means I will save first before spending. I will save a fixed 30% of my income no matter what and consider only the 70% as my actual salary. I will first move the 30% into a separate account that I had opened for savings. It is this account that I will not touch NO MATTER WHAT!

In my case, 70% is set for the expense and that’s only because I have loans. A major part of this 70% will be going to repay my loans. As I complete the loans I am looking forward to change the ratio. Eventually, I am looking forward to saving 60% of my income and spend only 40%. Only by doing this, I can achieve Financial Independence. If you do not have any loans then I suggest you already start doing 60-40 ratio. If you are wondering how can you live up with only 40% of your salary then my friend you have come to the next level of your battle. We will talk about controlling expenses soon in another post.

If you have come here looking for some magical formula then I am sorry to disappoint you. Its actually fourth standard maths. It’s also something that was taught by our parents but with a twist.

Savings comes first and the remaining is expense.

I have begun dedicating a large portion of my income into clearing out my debt. This does not answer the problem of what about expenses like medical and marriage? These are also important!! Well, let’s take one challenge at a time. Let’s make one change at a time. I have made the first change to being debt-free. I am writing this to remind myself to continue on my journey. As far as other necessary expense I will be talking about them in another post as this post is already very long. Hope to see you there.

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