Bad Medicine

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Be careful of who you take your advice from because there are far too many witch doctors out there dishing out some very bad medicine.

As an example, I recently read an advice given in a local publication. I did not know whether to laugh, cry or kick the guy in the groins because the advice was, to be perfectly honest, crap. (Please remember that I’m a Malaysian, so that means that I’m being very polite here. I cannot use the actual phrase and expect my mom to talk to me still.) The writer was saying that the first thing one should do in managing one’s finances is to settle the debts. Ha, ha, ha! (I’m still being polite here!)

His argument was that the debt was burning the debtor alive and so should be dealt with as quickly as possible.

Now, if you just look at it from this point of view of course the answer would be yes. Anyone, even yours truly, would jump up and agree. Bad debts are bad things and should be obliterated as quickly as possible. No question there.

However, let’s analyze things a little bit deeper. Based on this argument, that means that we must first use our money to pay off our debts. Since debt is a bad thing, we must deal it with it first and foremost. This means that if our debt repayment is more than our salary, we must still pay off the debt first. Even if we have no money left for small unimportant things like food and shelter, so be it. Use all our money and pay off the debts.

Now you see how flawed this argument is. Paying off debt until you have no money to even eat makes no sense whatsoever. Anyone who suggests such as flawed strategy should have his brain examined as far as I am concerned.

After all is said and done, the better method is to pay yourself first. Put aside some money as your savings and then use the balance for other things, which include paying off your debts. The strategy may be old fashioned, it may be unoriginal and it may even be boring. But it is the first thing one should do to take control of one’s finances.

“Even if it means the debt will increase because of the higher interest?” some skeptics will insist on arguing.

“Yes, folks. You should still pay yourself first even if it increases your short term liabilities,” is my answer. And before the skeptics draw out the daggers, let me share that this is not my own thinking only. Even the law agrees with me. See, even a bankrupt is not obliged to use all his money to pay off his debt. The law realizes that a person – even a bankrupt – needs money to live on, so there is a provision that ensures that the person has sufficient money for food, shelter and clothing before addressing the debt issue. Now if the law provides a bankrupt such an allowance, what more for you and me? Certainly we should do the same. Pay yourself first, and use the balance for other things, which naturally includes paying off the debts.

More importantly, when you pay yourself first, you have now taken control of your finances. You are the one in charge, you are in control and you are the master. And once you have done this consistently, the rest will soon fall into place. In other words, in due time, you will be able to manage the debt. Yes, it may take a longer time and yes, it may cause you a little bit more money but you would gain something more valuable – your life.

Let me share with you a second and more recent example: I recently appeared on TV with a financial consultant. He said that we should keep a part of our money and invest it. So far so good. But then he added that if we get 10 to 15% return, we should do well. This is an example of a textbook answer that is out of synch with the real world.

Where in Malaysia can the average investor get a 10 to 15% return? (Koperasi Bank Rakyat or Koperasi Felda don’t count because these are not available to the average investor.) In the real world, the average investor in Malaysia would be lucky to get an annual 8% return.

I suppose the lesson this month is this: be very careful of who you take your advice from, particularly regarding money matters. Ideally, the people dishing out the advice should be properly qualified, neutral and most important of all, have done it themselves. And as both a private investor and a chartered financial consultant myself, I can tell you that there are not too many of them around. The harsh reality is that when it comes to money, there are far too many witch doctors who are more than happy to share with you their two cents worth. And that is all their advice is worth – two cents.

Still I must admit that sometimes, advice from self proclaimed financial advisors and trainers can be good and original. Tragically, the advice that is good is not original and the one that is original is not any good!


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