Why are entrepreneurs so rich when they have so much debt?

    Hello everyone, see you soon. Welcome to our article on money. We are probably all familiar with something called debt. If you lose your wallet, you owe a friend first. If you're stuck at the end of the month, you owe the shop first. We are currently spoiled with debt. Debt is no longer just for the stingy, it's for basic necessities, from entertainment to business finance.Loans ranging from mortgages, car loans, business loans, gadget purchases to holiday expenses. can be paid in installments. Come on, who likes debt here? I really understand that there are times in life when you don't have money and you have to borrow money. On the other hand, there are many troubles caused by debt.

Why are entrepreneurs so rich when they have so much debt?

    Some were persecuted by debt collectors, went bankrupt, and ended up in prison for their debts. Have you ever wondered if debt is a bad thing? You can still do it sometimes, right? Or should I borrow nothing? So, in this article, I would like to talk about debt. Let's discuss it together. First, we need to distinguish between liabilities according to their use. There is consumer debt and productive debt.

    First, let's talk about consumer debt. Simply put, consumer debt is debt used for things related to consumption. Consumption may vary here. They range from basic needs to desires for entertainment and enjoyment. This consumer debt can be viewed as borrowing money for future income to meet current needs and desires. Therefore, the value of profiting from consumer debt is meeting needs and desires that arise sooner than necessary.

    Examples of need-related consumer debt include debts such as basic grocery purchases, child care, mortgages, medical care, and emergencies. Therefore, these consumer debts must again be differentiated between need-serving and need-serving. Now let's move on to productive debt. Productive debt is debt that is used to buy, create, or learn something that can be a potential source of income in the future. So the advantage of this productive liability is that you can own the asset or create a new income stream in the future. Examples of productive debts are debts to start a business, debts to qualify for a particular profession, debts to purchase land, which is then used to build commercial buildings or boarding houses. will be used. There is also a liability for purchasing a vehicle to become an online motorbike taxi.

    Usually, this productive debt installment can be paid with the income we generate from the new income streams we create. For example, you apply for a loan to buy an apartment. Then rent an apartment. Usually rented monthly. With rent, you can pay for the installments to purchase the apartment unit. After the loan was paid off, we had an asset that could productively generate money. Now you understand the difference between consumer debt and manufacturing debt.

    Returning to the original question, is all debt evil? And shouldn't we borrow anything? The answer depends on what the debt used to look like. From an economic point of view, it is clear that consumer debt should only be a desire and not temporary. Productive borrowing and need-based consumer borrowing are still viable as long as you can calculate the risks and have the ability to repay the debt. saw. From the percentage of installments and monthly income

    What do you think? Simply put, what percentage of your income do you owe? If your income is 5 million, your installment is 1 million, which means your debt to income ratio is 20%. Generally, a good debt ratio is around 30%, so the maximum rate you can spend is around 30% of your income. But again, everyone's financial situation is different, and ultimately, the appropriate debt ratio is also different for everyone. Depending on your level of income and daily living expenses, for example, if your living expenses are only 35% of your monthly income, you may naturally have a high debt ratio. B. 50% of income.

    Because you can choose to pay in installments. Conversely, if your living expenses account for 80% of your income, your debt ratio is even smaller, around 10-15%. Does this debt ratio help determine if the debt is still reasonable and accountable? The same principle can be applied to corporate debt and even national debt. For example, if a company decides to submit a loan to a bank. You can see if the debt is spent on consumption or productive things. Corporate debt that is consumptive in nature, such as room renovations, office vacations, and the purchase of recreational facilities for bosses and employees that have no impact on productivity gains. What about the company's productive debt? This is the same as the previous definition. Productive debt of a business is debt that is used for things that help increase the company's income in the future. For example, borrowing money for business expansion, purchasing land for building a new factory, purchasing production machinery, and refurbishing to increase production capacity.

    In the context of debt, this does not mean that companies cannot have good facilities for their employees. But it's best when debt is distributed proportionally and productive things are prioritized. From an entrepreneur's point of view, bank debt has become completely natural. But in this case, the entrepreneur should more carefully assess whether the company's debt is sound and accountable. The method is to calculate the percentage of debt allocation. How much is productive? How much does it cost to consume things?

    Apart from that, the company's future solvency should also be considered. The calculation method is the same as personal debt. You can see the ratio of this debt to the company's income or equity. Earlier, we discussed corporate debt metrics. I will put the link in the description. What will happen to the national debt? It's actually the same. Can you see the split between productive and consumer uses of national debt? For example, the country's consumer debt is used to refurbish government buildings to make them more luxurious, build facilities for civil servants, increase civil servant benefits, and even fuel subsidies. is a debt to These are all consumption budgets. What is a productive allocation of government debt? Yes, according to the previous definition, debt can create new streams of income. For example, the debt of a development project that provides a new source of income for the country. highways, airports, hospitals, etc.

    What if the country is in debt? Shouldn't the country go into debt? At the national level, public debt has become commonplace, with 70% (should be 97%) or about 190 of the world's total of 195 countries having debt from advanced economies whose economies are already very strong. I'm here. We are in debt just like in America. Germany, UK, South Korea, China, Japan, etc. It is the management and distribution of debt that requires care and attention. Is debt allocated to productive or consumption? In addition to managing and distributing government debt, solvency must also be taken into account. Indonesia's own debt-to-gross domestic product ratio is usually used as a benchmark, with Indonesia's safe limit of debt being 60% of gross domestic product. Next time I might go into more detail, the principle is the same, debt should be used for productive things, but in the context of the state, sometimes there is also consumer debt, the purpose of which is to help the people. Welfare. People who accelerate together.

    Because in the state, it's not about doing business, it's about building people's well-being. This time I would like to summarize the discussion about debt. First, the liability must be viewed from the attribution of its use. Is the debt for something productive or for something consumption? If the debt is consumption, is it related to needs or wants? To get what you want, you should avoid consumer debt. Second, you must consider your ability to pay your debts. Ability to pay is determined by the ratio of installment payments to income. If the ratio is still reasonable, it means your debt is still healthy and can be said to be accountable.

    For those of you who are currently in debt. Remember that debt is a promise that must be kept. Whether it is owed to a friend, bank, business associate, or someone else, it still has to be paid. Aside from affecting our history of debt as borrowers, there is something much more expensive than debt and that is the trust of other people and our trust as honest people. That's all. I hope this article is useful for all of us. See you in the next article. There are endless things to talk about money, so stay tuned for articles that talk about money! 

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