By Godfrey Kenneth Gobba
A Salary Loan is one of the greatest opportunities that employed people have to start creating wealth for themselves, but many often squander this opportunity.
Anyone that has ever approached a bank seeking a loan knows for a fact that qualifying for credit is indeed no simple task. However, salaried people have access to salary loans which puts them in an extremely advantageous position although many don’t take up the chance because they are not Investment Literate.
Chances are that 8 out of the 10 “corporate people” you see driving have been bank rolled. A fresh graduate will land a good job and 12 months down the road they will be driving a Shs20 million car.
You will most probably find people in middle or top management positions constructing posh “family homes” courtesy of a salary loan.
It is also common place for an average employed person to construct their home courtesy of a salary loan all in the name of “security”.
I personally find this course of action out rightly insane and completely ridiculous.
This is like going to a money lender and borrowing money so you can buy a really good rope to hang yourself well.
Why don’t you just save yourself the trouble and go jump into the River Nile? At least the Croc’s will remember you as the easiest lunch they ever had.
Don’t get me wrong here.
I believe salaried people have been endowed with an amazing opportunity to create wealth using OPM (Other People’s Money) even if they probably don’t know it yet and are unknowingly misusing it.
They are just not Investment Literate enough, otherwise they would respect the simplest and most fundamental principle in Investments Literacy:
“An Asset puts money into your pocket and a Liability takes money out of your pocket.”
So why on earth would you go borrow money, to “invest” in a bunch of liabilities that are only going to suck you dry?
Why would you go use OPM that you have to pay a hefty interest on, to buy a fuel guzzling #vampire that you are going to have to service, eventually repair and even pay police fines for?
Likewise, why would you squander an opportunity to use OPM to create wealth for yourself, on building a house you are going to live in rent free?
I totally respect the need to create security for ourselves and our beloved families. But I deeply believe that there is a better way.
If only we had the courage to consider other possibilities and to think out of the box, we would be able to create even much greater financial security for our families.
I believe that there needs to be some serious mindset debugging and attitude reprogramming amongst our employed folks as regards to their usage of salary loans.
Why not get that salary loan to set up a rental property? This would be an asset that would put extra money into your pocket every month.
Not only would you have created an extra income stream, but your tenants will be paying back that salary loan for you, every month.
And for heaven’s sake if you are going to be using OPM to set up rental properties, perhaps you should consider building for the mass market. Try not to use OPM to set up posh 1000 dollars a month apartments that have limited demand.
It could take a while for low and middle income earners to run out of supply. Hence these are the people you should be developing property for. They are the masses.
And as they pay you rent, they will gladly (although unknowingly of course) pay back your loan, pay back the interest, buy you a cash flow asset and even help you qualify for a bigger OPM bank roll so you can repeat the process over and over and over again.
If only you could silence that natural need for short term gratification and short term security. If only you could see the bigger picture. If only you could endure using public transportation just a little bit longer. If only you could put up with your land lord a little bit longer.
If you are employed and you have access to salary loans, you are immensely blessed. Maximize that opportunity. Use OPM to buy Assets.
Let tenants buy you that car you desire. Keep renting until tenants can build you your dream house.
If you are lucky enough to qualify for a salary loan, use it to create wealth, not to hang yourself like a blind goat jumping off a cliff. Besides property, there are many asset classes you can invest in for wealth creation.
But this is just my obviously rigid opinion.
Whether it makes sense or not depends entirely on your perception.
Does it make sense to you?
(I would love to hear from you. Share your opinion in the comments section below.)
The author is CEO, African Investor Academy