Debt

Today I wanna talk about debt (or accountants may wanna call it liability).

DEBT, a simple four-letter word that is more complicated than astrophysics simply because it carry around "THE MOST POWERFUL TOOL IN THE UNIVERSE" (Well, according to Albert Einstein), interest (compound interest to be exact).

We all think we know what is interest but in reality, average people like you and me know nothing about it. Once we understand what it really is, we will realize the power of interest is limitless (at least Einstein understood it although he is no economics and finance guy)

Imagine this: if a central bank create 100 dollar of money into the economics, the newly created money will be lent out to another party, eg person A (by a commercial bank) with interest attached, let say 10%. So this person A owe the commercial bank 110 dollar. If the 100 dollar is the total money supply of this economy, how A can generate 110 dollar to pay back the bank when the whole economics only has 100 dollar in it?

In other word, agents in economics (consumer, firm, government etc.) can't generate the amount of money higher than the money supply itself. So how can they pay the interest when every dollar created is attached with interest?

So, one thing is a certainty: in long run, people who in debt will find themselves bankrupt. So here's an advice: do not be in debt.

Unfortunately, many people do not realize they are in debt. Financial Institution nowadays created so many ways to "help" us get in debt without telling us the truth. They are creating so many creative way of getting us in debt. They make us feel we are wealthy by providing financial services to us. They "encourage" us to spend the money we don't have (yet) to get what we want today. Guest what, most of us do that.

The only reason we are in debt is we want to buy something we can't afford now. Car, property, business, etc.

So if we can't afford it now, don't buy it!!