Questions to ask before taking out debt, and is there such a thing as good debt?
Smart Debt or Bad Debt
Many people in South Africa finds themselves in debt: According to a study by the World Bank, 25 million South Africans are in debt. This includes both bad and good debt. According to the National Credit Regulator, 58% of South Africans are struggling to repay their debts. For the financially uneducated person, debt can become a trap.
However according to Billionaire investor Ray Dalio, the founder of Bridgewater Associated, the worlds largest hedge fund, advises people to make clever debt and avoid bad debt. We all know that borrowing money comes at a cost, and therefore the good purchased comes at a higher cost.
Dalio therefore suggests we ask ourselves one question: “Will the debt help you save or earn more money in the future?”
Here are the two types of debt that according to Ray Dalio are smart or good debt:
Debt that forces you to save money over time is another good debt, for example buying a house and paying off the mortgage. This is good because you are accumulating money into an asset you can later sell.
Debt that produces more cash flow than it costs is good, for example taking a loan to complete a degree that will increase your future income. Another example is buying an asset on credit that would replace a continuous and never ending expense. Examples of these are green technology such as solar panels and water recycling equipment. Also do not forget that ENJO also falls into this category. You can now convert your entire home to a chemical free home. This would be a smart move, because you will win in at least two ways:
- Immediately stop 80-90% of all future expenses on chemicals by investing in ENJO.
- An average home spends about R600-800 per month on cleaning consumables. On credit a full ENJO conversion of your home will work out about half of your current expenses over a two year period, and after that you will freely clean your home for at least another year before you might need to replace a fibre.
An investment in ENJO would therefore immediately put more money in your pocket, and save you money over your lifetime! Based on Ray Dalio’s criteria this would be a smart way to invest. Ask your ENJOpreneur about our credit options, and start using ENJO.
Here is how a full conversion to ENJO would typically save you money on a credit plan.
The table below compares the cash flow between a full conversion of your home to ENJO on a 24 month credit versus the current status quo of cleaning consumables which are a continuous and never ending expense. Take note that due to interest rate changes, the values could vary slightly.
Difference between ENJO and Normal Cleaning Consumables
| Month and Description | ENJO | Cleaning Consumables | SAVING WITH ENJO | ACCUMULATED SAVINGS |
|---|---|---|---|---|
| Month 1 | R3 135.50 | R650.00 | (R2 485.50) | (R2 485.50) |
| Month 2 | R350.00 | R650.00 | R300.00 | (R2 185.50) |
| Month 3 | R350.00 | R650.00 | R300.00 | (R1 885.50) |
| Month 4 | R350.00 | R650.00 | R300.00 | (R1 585.50) |
| Month 5 | R350.00 | R650.00 | R300.00 | (R1 285.50) |
| Month 6 | R350.00 | R650.00 | R300.00 | (R985.50) |
| Month 7 | R350.00 | R650.00 | R300.00 | (R685.50) |
| Month 8 | R350.00 | R650.00 | R300.00 | (R385.50) |
| Month 9 | R350.00 | R650.00 | R300.00 | (R85.50) |
| Month 10 | R350.00 | R650.00 | R300.00 | R214.50 |
| Month 11 | R350.00 | R650.00 | R300.00 | R514.50 |
| Month 12 | R350.00 | R650.00 | R300.00 | R814.50 |
| Month 13 | R350.00 | R650.00 | R300.00 | R1 114.50 |
| Month 14 | R350.00 | R650.00 | R300.00 | R1 414.50 |
| Month 15 | R350.00 | R650.00 | R300.00 | R1 714.50 |
| Month 16 | R350.00 | R650.00 | R300.00 | R2 014.50 |
| Month 17 | R350.00 | R650.00 | R300.00 | R2 314.50 |
| Month 18 | R350.00 | R650.00 | R300.00 | R2 614.50 |
| Month 19 | R350.00 | R650.00 | R300.00 | R2 914.50 |
| Month 20 | R350.00 | R650.00 | R300.00 | R3 214.50 |
| Month 21 | R350.00 | R650.00 | R300.00 | R3 514.50 |
| Month 22 | R350.00 | R650.00 | R300.00 | R3 814.50 |
| Month 23 | R350.00 | R650.00 | R300.00 | R4 114.50 |
| Month 24 | R350.00 | R650.00 | R300.00 | R4 414.50 |
| Month 25 | R650.00 | R650.00 | R5 064.50 | |
| Month 26 | R650.00 | R650.00 | R5 714.50 | |
| Month 27 | R650.00 | R650.00 | R6 364.50 | |
| Month 28 | R650.00 | R650.00 | R7 014.50 | |
| Month 29 | R650.00 | R650.00 | R7 664.50 | |
| Month 30 | R650.00 | R650.00 | R8 314.50 | |
| Month 31 | R650.00 | R650.00 | R8 964.50 | |
| Month 32 | R650.00 | R650.00 | R9 614.50 | |
| Month 33 | R650.00 | R650.00 | R10 264.50 | |
| Month 34 | R650.00 | R650.00 | R10 914.50 | |
| Month 35 | R650.00 | R650.00 | R11 564.50 | |
| Month 36 | R650.00 | R650.00 | R12 214.50 |
How smart is it really to convert to ENJO?
As you can see, in 24 months (2 years) you would have stopped your monthly expenses on cleaning consumables, saving every month thereafter. Over a three year period you could save a whopping R12 000 if you currently spend on average R650 per month on your current cleaning consumables in your home.
What do you think Ray Dalio would advice you to do?
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