11 Aug 2022

113

Financial Management: What You Need to Know

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Academic level: University

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Most the debts I have are as a result of money borrowed from friends and family members. I also owe money to some online lending platforms. The most prominent reason I borrowed money from friends and family members was to start a computer and accessories retail store. In the first three months of the operation of the business, there was a lot of turbulence, and I almost despaired. I had to get more money from online lending platforms to finance the operations of the business as well as to pay two people I had employed. The business itself was not generating enough revenue to sustain its operations, and to ensure that the two people employed were motivated. I believe the only asset I have currently that secures my debts is the computer business. Although the business premise does not belong to me, I am sure all the computers as well as the accessories once sold can pay the debts back and at least leave me with a significant sum of money to sustain myself. 

My debts finance, therefore, finance the business; purchase of computers and accessories. Some of the debts are costly (especially those from online lending platforms). The main reason is that they attract high interest rates compared to the debts owed to friends and family members. One of the risks I undertake by being in debt is being listed by financial lending institutions as being credit unworthy if I default to pay (Cecchetti et al., 2011). In future, such a listing may prevent me from accessing finances especially when something crucial comes about. Secondly, I feel that being in debt hinders me from doing multiple things or financing other projects because once I get any money, I always have to think about clearing my debts first. Lastly, I think the greatest risk of being in debt is the inability to save; all the money generated must pay debts off, living very little or nothing to save at all. Therefore, it might be very difficult to deal with emergencies if only little money is saved. 

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Being in debt, I think helps one to have discipline. Since the debts will have to be paid, it becomes necessary for one to work hard, for instance, to ensure that the business is a success. One will have to commit and become creative in generating enough revenue to sustain the business and pay off debts. In this way, more wealth can be created because of the hard work, commitment and discipline (Federal Reserve Bank of Dallas, 2019). I am not considered a default risk because I always strive to pay the debts in time. Regarding the 5 C’s, I am sure lenders will rate me highly in all aspects except maybe collateral. My business is growing gradually, and in the near future, I hope that I will have divested and bought more assets that can act as collateral. In this way, I think most lenders will find me more attractive to lend me more credit to expand my business. 

The Tim Clue video is funny because it exaggerates the conversation between the debtor and the lenders. In real sense, people do not have fun talking to their lenders about debts. What makes the video not funny is that it is about a serious subject (debt), which mostly scares many people or makes them get too much worried. Nevertheless, the video highlights that debt should be used to buy ‘good things’ and in this case, the good things signify important assets such as homes or any other valuable assets that could possibly appreciate with time. 

References 

Cecchetti, S. G., Mohanty, M. S., & Fabrizio, Z. F. (2011). The Real Effects of Debt. Retrieved from https://www.bis.org/publ/othp16.pdf 

Federal Reserve Bank of Dallas. (2019). “Building Wealth: A Beginner’s Guide to Securing Your Financial Future” retrieved from https://www.dallasfed.org/~/media/documents/cd/wealth/wealth.pdf 

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StudyBounty. (2023, September 15). Financial Management: What You Need to Know.
https://studybounty.com/2-financial-management-what-you-need-to-know-essay

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