Debt is a topic that can that people find notoriously difficult to talk about. People shy away from it. They use euphemisms like “we’re getting by” when in actual fact they’re struggling under the weight of what they owe.
They feel there’s a stigma around debt, and it’s not something to be proud of and the result is, nobody feels able to talk about debt.
But is it really something to be ashamed of, or is it just that people don’t have the necessary information to manage their debts properly.
What is debt?
If someone came up to you and offered you a million pounds, but the only catch is you have to pay it back. At £1 a week. Virtually everyone would accept it. And rightly so.
You see, this would be a sensational deal for the borrower and an atrociously bad deal for the investor. That’s because debt isn’t simply a question of how much you owe, but what the terms are.
If you looked solely at the balance sheet of the borrower you would find him heavily indebted, and you might consider his finances to be in a poor state. But that wouldn’t accurately describe the situation.
You see debt, and investments, aren’t only the amounts on paper. But the means to an end. The extent to which your debt is manageable and productive is just as important as the figures themselves.
The Eagle eyed amongst you will already have spotted one blindingly obvious factor in our million pound scenario.
The interest alone on £1,000,000 in any bog standard savings account will far outweigh the £1 per week repayment. So the borrowing really would repay itself. Many fold.
There are some people who actually use this process to make money, but I’m not sure it’s a viable way to make a living. They’re discussing it here if you’re interested.
Anyway, this hypothetical million pound loan is obviously an exaggerated example to prove a point. But the principle stands. Does the borrowing pay off? Will the investment be a stepping stone to some greater?
That’s the mindset needed when approaching an investment opportunity.
Why are we talking about investments? Tell me more…
OK, so the main focus of this blog is the gig economy. Gigging in a taxi. Gigging for Deliveroo. Busking. Painting. Life art modelling…
So where does investing come in to the equation?
Well. Working for an employer, and therefore being employed, means someone else taking care of the difficult set up costs. Uniform, training, insurance. Possibly even private healthcare and company car benefits. Most of the time these are covered by an employer.
And that makes life much easier for new starters, particularly those who have little to no savings. Some employers even give their employees a cash advance on their wages, to help them transition to their new pay date and make up for the gap in their income.
However, for those entering the gig economy, there can often be set up costs. And if you have no savings, that means borrowing to invest.
For Uber drivers for example there’s the cost of the vehicle, licensing and registration. Possibly a new phone to run the app. Petrol. Wet wipes. Bag of haribo for customers…. You get the idea.
For a graphic designer or digital nomad, IT equipment is essential. You might need a new macbook, photoshop licence, Bluetooth keyboard and 4G Internet subscription. It all adds up.
And so, we really need to talk about debt. Not all debt is a bad thing. In fact, it can be a very good thing if it helps you get a business off the ground. It’s all about context.
So should I borrow to invest? I’m worried about debt.
As I mention regularly on this blog, the key to going solo is caution. And when it comes to investing in a new idea or project, the need for caution is even greater.
However there are times when there’s a clear rationale and thought process behind decided to invest in a business opportunity.
So my advice would be simple. And it’s something I always encourage.
Don’t feel the need to ditch your job, remortgage your house and borrow heavily with the promise of riches to be made online.
God knows, there are a million and one sites out there promising to make you rich if only you would part with your life savings.
Start steadily. If youre a photographer, for example, build your portfolio website. This is a cheap and easy way to get started, and there are some great hosting deals out there.
Upload your photos in the evenings, and start to build a nice following for your niche.
If you get confident, try to sell a few all the while building your skills and network.
When you get to the point when your time constraints, or equipment, is holding you back – or there’s more demand than you can handle…..
Boom! Now is the time to strike.
Then, if you need to take out £1,000 on a credit card to finance that new lens you need there’s a clear rationale and judgement for taking on that debt.
You can see a return on the investment and a clear means to pay it back.
That’s the polar opposite of rushing to the bank, taking on a £10,000 loan and trying to become rich overnight in some project you’ve always wanted to do, but have no idea if it’s viable.
So it’s okay to talk about debt after all?
It’s absolutely okay to talk about debt, particularly with your spouse or partner. If you’re making a clear, rational decision and the repayments are not putting your way of life at risk, then everyone should be happy.
Just make sure you proceed with caution.
Taking on debt is absolutely essential for many businesses people, and it can kick start you on to a journey that changes your life.
However, it can be a slippery slope for others. Use your time, your money and your investments wisely.
Don’t go anywhere near these online charlatans promising to make you the next Richard Branson. Instead, focus on your own skills and your own passions first to test the waters. And when everything on course, that’s the time to take the plunge.
If you do find yourself in financial difficulty, there are loads of useful resources out there to help you navigate the difficult waters of debt such as Citizens Advice and Stepchange. But hopefully you’ll never need them.
So whatever you choose, and whatever your passion is, don’t be afraid to talk about debt. Don’t be ashamed or embarassed. Use it wisely and talk about it openly.
And as always, good luck and best wishes.