Snowball Concept
Summary - Yesterday it's big to small.. Today it's small to big
Today I'm going to prove to you that there are always two ways or more to see at things and both of them can be correct. Yesterday, I highlighted that we should always finish the biggest task to motivate us. Apparently there is another concept I just found while reading in the internet that describe it the other way around.
That concept simply urge us to finish the smallest to motivate us. See... Exactly the opposite but still true. Let me explain this concept.
- Continue -
How Some People Change Cars Every 5 Years
Summary - Some people change new cars every 5 years, how did they do it?
Today I went to the bank with a friend of mine. He is one of the main supplier for the mill and I know him way back when I'm still in Johor.
He is driving a new Hilux (very expensive and new). I remembered only few years back he was driving another branded new car (I'm not sure what the car was but it is definitely quite new)
When I asked him, he said it is his practice to change a new car every 5 years and this will be practised until he died.
According to him, he had fixed a monthly payment of RM800 just for his car. When the car is 5 years of age, he will trade that in when it is still high in value for a newer car. However the monthly payment shouldn't be more than RM800. Meaning, he will pay RM800 every month for the rest of his life.
According to him, this is better than maintaining an old car because -
- He will be able to drive any car he wanted
- People will see him as a successful businessman
- Almost no maintenance cost
- The money forked out for maintenance for old cars usually just as much as buying new car
- He does not have to worry a bit about maintenance of the car and its reliability. It's brand new..
- Some cars come with free bonus such as free roadtax and maintenance for couple of years.
- Almost everyone suffer from debt through out their life, why not enjoy from it.
One thing for sure he is a non-muslim. We muslim, were raised to try to avoid or settle all debt at all cost. If for example, we die with some debt unsettled, the debt will be a burden for us in the afterlife.
I am actually not very sure how other religion view debt unsettled, is it accepted?
For us muslim, what do you think of the idea? Agree / Disagree? :)
--------------- Personal Note --------------------------
When will I finish paying all my debt. Sometimes, it feels like it is a never ending juggling. One debt settle, another waiting. After I'm done with my car, I'm hoping to straight away use that allocation of money to buy a house.
Are debt really becoming part of our life already? How do you guys manage your debt?
It is called snowballing and it is a widely used methods to clear debt. An example will illustrate better.
One man had 4 debt to settle, house loan, car loan, credit card and study loan. According to Snowballing Concept, the man need to figure out what is the minimum amount he can pay for each loan. He will then have to figure out which loan is the lowest amount.
In this specific case, his credit card is the lowest at about RM3000, so what he should do is to pay all other loans at the minimum amount. And the remaining money is used to pay off the credit card. For example, after deducting all the minimum payment to other loans, he still have RM500 cash. That money must be used entirely to pay off his credit card. In about 6 months he will finish paying the credit card.
Then he moved to the next loan with the lowest amount, let say study loan. Previously he pay a minimum of RM200 per month, now he must snowball the payment and use the extra money from not paying credit card (RM500) and pay the study loan at RM700 / month (Snowball). This goes on until he finished all his debt.
I actually think that this make sense. To finish all debt the lowest ones first. Now compare this entry and the entry yesterday. Both of them emphasis exactly the opposite things and yet both of them is correct.
What do you think? Is this snowballing strategy practical?
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--------------Personal Note-------------
I still have long way to go to finish my loans. And when those loans are settled, I'm very sure I will start with my house loan. So it's really a never ending story :)
One thing for sure, when we owe someone, we have to pay them. Even one cents. I'm very particular with this, because it will be very disappointing when somebody owe me money and he didn't even bother to pay me back. He even look at me as if I'm the one who owe him money. And that is why, I stop lending people money except for family of course. Come be my family huhu