The Debt Dragon:The Importance Of Financial Literacy

My name is Money, if you use me well, count me , take care of me , I grow and multiply . If you abuse me , misuse me . I slowly begin to disappear and evaporate.?

We have a problem in not knowing the value of money. Yes, money is a dragon that blows fire on poverty continuously. Financial literacy is not common for everyone. Financial literacy begins with budgets and budgets create discipline. Discipline creates rewards .?

Without budgets we live on a hamster wheel constantly chasing short and long term obligations . Obligations come with an interest rates. Interest rates are designed to enslave you if you have too many obligations. This is why financial freedom is hard to amass .?

How did this occur ? The levy broke ! I mean literally the levy . ?? Let's talk levies, sometimes levies are actually hidden costs that the home owner is unaware of . The excitement of acquiring a home doesn't include the cost of the levies . The greater the property , the greater the levies. If the levies then become to heavy , you're now playing catch up with liabilities. A body corporate has it well in it's power to auction the property is behind on its levies. Yes, levies can be that heavy ! ?

How much does a levy cost ?

Formula for calculating levies:

?Calculating a PQ (participation quota) –

Total square meters of Scheme ÷ Total square meters of your unit = PQ

?e.g.?17000m2???÷????621 m2???=??27.3752

?Calculating a levy –

Total budgeted amount x PQ of your unit = Answer

(Answer ÷ total PQ of Scheme) ÷ 12 = Monthly Levy

e.g.?R 250 000?x???27.3752??=???R6 843 800.00

( R6 843 800???x???100.0000) ÷ 12???=???R 57 031.66

Rounded off to a total of?R 57 032

Let's say we want to acquire property, car and a pet . We are coming from a background where we were not taught financial literacy. When acquiring the bond ; you estimated the value of the bond payments , rates but you forgot the hidden cost which is the levy. The levy could be detrimental to the pocket .?

We are new graduates , we might have student debt. We just came into money as newly graduate engineers . Coming from a background where we haven't experienced money . We are reckless , so we start to abuse it . We go out almost every night of the week . We get the most expensive sports car , we get the most expensive fridge , the most expensive living room furniture. The debt is slowly building up.?Mind you , we are living that lie.

R30 000.00 can fit into our living expenses . Henceforth we overestimated the value of 30K. The obligations are just too many for our 30K a month . Because entertainment and other miscellaneous things are hidden before our eyes .?One mistake or One job loss and the levy is broken .?

We also get involved with worthy suitor that spans into a relationship.??Relationships as much as we would like to think they're free ,they come at a cost 70%?marriages fall apart because of financial issues .?When people get involved with each other they don't talk about the financial aspects of the relationship. Not everyone will have it good all the time . There's ups and downs. A common trend is when the financial tables turn , will your partner still be in your life or will they look for more a compatible suitor. In this new world we have been hypnotized to think materialism is supreme when in essence it could be the detriment of our relationships.

The 2008 recession was caused by people living beyond they means. Over Leveraging on mortgages , taking out secondary mortgages. The creation of collateralized debt obligations by investment institutions to feed the Debt Monster .?

The Debt Monster itself was but fat dragon ready to throw up because a few percentage drops in it's " CDO Assets " meant the institution was closing it's doors for business.?

Can we as the investment firms then say that being greedy is being illiterate? Yes we can because we should have known that there's a limit to these CDO's , we should have assessed the character and caliber of the person before issuing the loan's. We should have assessed the affordability brackets as per individual or as per institution to see whether assets and liabilities can match up. We didn't , we were greedy . Even money itself has a limit . There's only so much financial assets and liabilities an investment firm can hold at any given period.

We should also educate people who are opening credit accounts on financial literacy and budgets .People tend to take on financial liabilities they are unable to recuperate . When the obligations of 30 million people are but to catch up to bills, a 15% drop in the true value of outstanding financial liabilities could equal the detriment of a an investment firm.

We should also tell the client what they getting into by signing the agreement. Not only that we should also explain the consequences of not budgeting for debt.?Debt can be a monster if you bite off more than you can chew .