How bad can it get?
Never trying will guarantee failure, but any attempt to secure your future is better than nothing and even small victories count.
But the phrase of ‘cash flow is king’ is always true. I make it no secret that I am not a financial advisor—I’m an educator! But you don’t have to go too far to understand that cash flow is truly king.
- How Bad can it get?
- Secured and Unsecured Loans
- Payday lending & the Toxic Debt Spiral
- Rage & Fury
Cash flow today is where your buying power comes from. Cash flow is what makes you serviceable to banks. Cash flow is what allows you to get into the investment game and to start securing your future. Cash flow is what allows you to put money into savings and live the quality of life you want.
This is why cash flow is king!
But what happens when you don’t have it?
Aside from the fact that real estate is recovering and out growing wages, and the cost of living is out growing wages, Cash flow is the first thing that anyone needs when it comes to their financial journey.
Related: Why money for time is a poor trade
Secured and Unsecured Loans
When it comes to getting a bank loan it’s not as simple as looking at your budget and seeing if you have enough to make the repayments that the agreement demands.
Getting a 30% – 70% return on a loan is!
Banks go to extensive efforts to protect themselves and this means that they will only loan money to you if you can support a higher interest rate than what they advertise. This is called serviceability.
Security is also another big factor. When it comes to a home loan in the region of less than 4%, the banks can support this rate for 30 years because they will claim the asset [your home] if you default.
When it comes to credit cards, cash or personal loans, these will be (or have a very high chance) of being unsecured, so the bank takes on a larger risk. This means two things. The value they will loan you is far smaller and the interest rate on it will be much higher.
Personal loans can be in the order of 15%, and credit cards can be as high as 30% before fees are taken into account. At the end of the day a bank will make about 70% return on a 30 year home loan and about 30% (14.77% annual rate) on a 3 year personal loan.
As time goes on these returns seem pretty hefty and … they are. Its business! But the point is that these are the high level details if the banks see you as serviceable. If not and they don’t give the money in the first place, then as you’ll see, the banks are doing you a favour to stop you from getting into real trouble!
If you take the hint!
Payday lending & the Toxic Debt Spiral
If you look at the feature picture you’ll see the potential to get a loan where the maximum annual percentage rate climbs as high as 217.95%
This puts a 14% personal loan or a 30% credit card rate into perspective.
For those who already have bad credit history and or a lack of cash flow, there are still places where unsecured loans can be offered. These will appear nice and fluffy and offer money to be available within 60 minutes, hardly the type of arrangement that screams legitimate, but they do exist.
And although they may serve a purpose to those who can support the incredible interest rates that go with them for small amounts on short term time scales (Days or weeks) these facilities are also the final nail in the coffin for those in financial distress, who can afford them the least.
Small loans start with a 20% principal rate and 4% monthly fees from day one. This means $1,000 loan will slug you a whopping 68% for 12 months as a singular example. The ongoing interest rate sits at 48% per annum, while maximum Annual Percentage rates can be as high as 217.95%
Rage & fury.
Getting emotional remarkably doesn’t achieve much, but if there is one thing that does make me angry it is situations like this.
But it’s not the systems that prey on the vulnerable which trigger my rage. It is the fact the vulnerable are in such a bad position to ’start’ with that there is no choice, because things have degraded so far.
88% of people do not invest! That means 88 out of every 100 are relying on a pay check to support their lives and their lifestyles, and these same people will stop working before they stop living.
Cash flow is King. Cash flow is what starts and secures your future.
Long live the King!