Make debt as your tool, and make sure you stay in control of your future

Owe. This word was not in my life dictionary before I started doing business. Understandably, I was born and raised from a family of very conservative employees. In fact, one of my uncles (deceased) who was very successful in business, always emphasized his business tips: "never owe". He does not want to be in a debt position to the bank though. By carrying out this principle, in the end many parties were even in debt positions to him.

When I was working in banking, of course I could not recommend my uncle's tips to my debtors. On the contrary, I recommend: "owe it to business", "don't use your own funds, use bank funds", etc. However, the destruction of the banking system in Indonesia around 1997 - 2002, inevitably made me think: Is there a debt? Why is the negative effect so destructive. Perhaps many are not aware, that the costs incurred for the recovery of our banking system reach around Rp.600 trillion, through recap bonds, which up to now are borne jointly by people throughout Indonesia through the taxes we pay. Inevitably I finally returned to reflecting on this "science of debt".

11th paper mystery

To understand the origin of debt, we can learn from a simple "debt system" model consisting of 3 actors in a closed system. Maybe people have written it often, I tried to retell my way:
Imagine there are 3 people who live on a remote island, call it Andi, Budi and Caca, or we are just short of A, B and C. A is a worker who managed to create 10 gold pieces. C is a farmer who can provide various foods, and B is a "banker". Long story short, B managed to convince A to save 10 gold pieces on B, to be safe. And B provides proof of storage in the form of 10 sheets of paper (this is the origin of the word "bank notes"). Thus, A does not need to carry the gold, just bring paper. A, B and C both understand that the 10 papers are equivalent to 10 gold pieces. One time, C borrowed 10 of these papers from A. A was willing, but required an "interest" of 10% upon return. The meaning is, C must submit 11 papers, at maturity. The problem: Where is the 11th paper? Is there only 10 papers for 10 pieces of gold? So, no matter how hard C tries, he will never succeed in returning 11 papers. This is the flaw of the interest-based debt system.

The above model is indeed simplified. But the same principle applies to a more complex general banking system. In complex systems such defects will certainly be covered by the system. But you can pay attention to yourself, in every banking system there are always parties who cannot repay debt. This, from time to time, will eventually explode as has happened in all economic systems on earth.

Debt and Fear Manipulation

So why is the defective debt system still maintained? One answer is the power obtained by the debt provider to the debtor, in the form of fear manipulation. Debt inevitably will cause fear. Afraid of being unable to pay, afraid of not having enough money, etc. And fear is the root of all failure. While the debt provider will enjoy dominance over the debtor. This applies not only to individuals, but also to companies and even countries. John Perkins' book "Confessions of an Economic Hit Man", honestly tells how foreign debt has been used as a weapon to dominate a backward country.

Manipulation of fear through debt often also kills the creativity of entrepreneurs. Take for example, what is generally done by a bad debtor from a bank? Request additional debt! Because of fear, his creativity, is dead. The only way out is to think about debt and debt again.

Debt with Science

Not that I'm anti-debt. I just want to illustrate that the existing debt system, by design, has a flaw that will always make parties who cannot pay debts. So make sure you are not the party.

Be careful of consumption debt. Consumer debt greatly manipulates fear. From the start of the offering, it has emphasized a hidden message that: "we don't have enough money to have what we want". Such fear is very dangerous. Even though in achieving what we want, money is not the point. When creativity is open, don't we often get something from unexpected sources? Not to mention if the consumption debt was stuck. Called and pursued by a debt collector, really will manipulate fear until the debtor often doesn't think clearly anymore.

Productive financing is worth considering. This is certainly with careful consideration after understanding "debt science".

The form of financing you should consider carefully. And this will depend very much on the form of your needs. For example, whether financing to cover cash flow, or to invest. To close cash flow, supplier debt is the best, because it is generally low cost. Or we can also use a revolving loan from the bank, carefully. What about a credit card? Credit cards are very high-interest consumer loans. Remember, the rate is usually stated in a matter of months, so the rate per annum will be very high. It is probable that your profit margin will actually not cover interest expenses.

For investment needs you should use long-term investment debt and have a fixed installment. Indeed on this paper it will be easier for us to calculate cash flow. But still be careful because you should include risk factors. Investment debt is prepared with various assumptions. Even though all entrepreneurs understand well, who knows what will happen in 5 years?

The most important point of "indebtedness" is not to let debt kill creativity and manipulate your fear. Make debt as your tool, and make sure you stay in control of your future.