Borrowing has a place in your life

MONEY

By THOMAS HUKAHU
ONLY morons borrow money.
That was the main point I made in my last article and it actually came from the American billionaire Mark Cuban.
But then it is true that there is a place for borrowing in our lives. In life, in general, we would need to borrow something.
We do not have everything and at times we have to ask others to help us with the common understanding that we will reciprocate the help, or replace what we took.
We are human beings and we are connected to each other, if not by blood, at least by some common set of values, and therefore we may need the help from others.
When it comes to finance or money, we will also need to borrow money.

Three cases where borrowing is justified
For those of us who are keen in staying away from borrowing money, I am of the view that there are only three things that would justify any kind of borrowing.
Paying for school fees is not one of the reasons. You can actually save money for you or your child’s school fees in a year, if you save money regularly.
(I share a personal story later in this article to show you that you can save for university fees.)
So, what are these three cases where borrowing may seem justifiable?
Firstly, to buy a car or truck or van, one would require a lot of money.
It can be anything between K60,000 and K120,000, if the model is to be brand new.
Most Papua New Guineans do not have K60,000 or half of that amount sitting in their bank account.
And therefore, it is sensible that borrowing from a bank would be the best way to acquire a vehicle.
Secondly, to buy a family home, one would require much more money too.
You are looking at about K200,000 or more, depending on the type of house you want and where you want that.
Houses in the cities and main centres in the country would cost much more than those in smaller centres.
Now, here can be a tricky question: So, which do you borrow money to purchase first, a house or car?
When you think about it, it is better you buy the car first.
The car does not cost more than the house and you can pay the loan off within a few years and then apply for a loan to buy the house.
If you were to buy a house, it may take you 10 years or more to repay the loan and your plan to buy a car will be delayed.
Think about this too: If you borrowed from the bank to pay for the car and were able to repay the loan on time, your repayment history with the bank will make your loan application for the house stronger to the loans officer evaluating your proposal.
Additionally, the vehicle you have can also be used as collateral for the loan on the house, once you have completed the loan repayments.
The third reason where borrowing may be justifiable is capital to start a business.
Some businesses may need a bit more money to kick-start them.
That seed money can come from a loan.
(Keep in mind that other businesses can actually be started with much less and you don’t need to ask for a loan, save money to use as start-up capital. To start a village trade store may not require a loan. The start-up capital can come from personal savings.)

Buy a vehicle and make it an asset
Here is a good tip.
Some people buy vehicles from loan money when they do not really need a vehicle.
They can always get on a PMV bus to get to work and back.
I once heard a young man, who is now running his own firm in Port Moresby, saying that “vehicles can be liabilities”.
They cost more in the long run.
But if you took out a loan to buy a 15-seater van to run as a local PMV along the highway, that vehicle “becomes an asset”.
You will be using that vehicle to make money, not just use money to pay for fuel, oil and maintaining it over time.
Buying a van to run as a PMV will also make enough money to repay the loan quickly instead of repaying from salary deductions only.
Then once the loan is repaid, you can use the money you make from the van to start with a loan for the house.
Savings is still vital in borrowing
I have made it clear in my first article in the series that savings is also important when you want to take out a loan.
It adds weight to your application.
Say, you want to buy a 15-seater van for K70,000, and you set a target to save K200 a fortnight, in a year you would have saved K5,200.
In two years, that will be K10,400.
Now, if you walk into the bank and want to apply for K70,000 and you provide your bank account showing that you have K10,400 in it, the loans officer will know that you are a genuine client with a genuine proposal to borrow.
However, if you just walked into the bank with your payslips, that will not add much weight to your loan application as compared to the proof that you have K10,400 already in your bank account.

Superfunds and opportunities
Your superannuation contributions, either to Nasfund or Nambawan Super, are compulsory pay deductions made by your employer to those superfunds to help support you when you retire, or when you are unemployed.
However, the wise person should be aware of opportunities that are available with their superfund and make use of that.
Take it that you have K70,000 with Nasfund after 11 years of employment and want to buy a house, the superfund may allow K19,000 from that total as your housing advance.
You can talk to Nasfund officers to confirm this.
And learn how you can take advantage of other opportunities offered by your superfund, to benefit from your savings even before you retire.
As a member of a superfund, you can visit their website and create an account and check on your savings as well
as opportunities.

Try not to touch your superfund
It must be a general rule that you must not run to your superfund if you become unemployed and have remained so after a few months.
It can be tempting in those times, but try to stay away from your life’s savings until you have actually retired.
Your superfund is your retirement savings.
If you are unemployed, find something else to do and do not touch your superfund.
Maybe, go back to the village and live off the land until you find a job.
When I was in my early 30s and teaching, an older teacher said that.
“Your superfund must be used only after you completely retire from your profession,” she said.
Some people find themselves without a job for a while and they run to withdraw all their savings in a superfund and find that all their life’s savings can be wasted in only a couple of weeks whereas it took them decades to save all that money.
That points to the unwise use of money and the concept of saving.
People who do not save will run out of funds and then run to their superfund as their lifeline.
During these Covid-19 days, superfunds in Australia are allowing their contributors to withdraw their retirement savings as business houses are closing down and many people cannot easily find employment.
In PNG the challenges are different and people should not touch their superfunds just as those in the western world are doing.
Many of us have land back in the village where we can farm cash crops and sell them to earn a living.
Rules in repaying borrowed money
There are few basic rules in repaying what you borrowed.
And these basic rules should apply to any kind of borrowing, whether the lender is a bank or your well-off relative.
Firstly, you must have a plan on how you will repay the money you will be borrowing.
Will you make a full payment after three months, or will you make part payments in a regular fashion?
You should talk to your lender about that.
Secondly, keep your promise and pay up the amount specified and within the time that was agreed upon.
Thirdly, you will have to be extra careful with your spending so that you can be able to reach your goals, one of which is to repay the money you borrowed within the time that you and your lender agreed upon.
Note this: If you fail to keep your promise in repaying on time, your lender will be unwilling to lend you money the next time you ask for it.
That applies to banks as well as relatives or friends.
Keep that at the back of your mind.
Saving money for university fees
Back in 2000, I made my decision to attend the University of Goroka to do the postgraduate diploma in education programme.
For the past six years I was teaching but did not have a real savings account.
About two years before that time, I had stumbled upon a financial service provided by a local firm.
The plan was to have some money deducted regularly from my pay to the firm and when I needed money, I could contact them and they can send me some money.
I started with the plan and saved K120 each fortnight.
In a year, I had K3,120 with them and in two years I had K6,240 with them.
When I had received my acceptance letter to the university in late 1999, I did not ask any relative or bank to help me pay for my airplane ticket or university fees.
I called the firm and told them that I needed the money with them.
The money that they gave me, as well as some money I got from higher duty allowances as a department head in the school I was in, enabled me to get to Goroka and do a full-year diploma programme.
That is to say, I paid my own fees and bought my own airplane ticket without borrowing money from anyone.
That experience taught me one of the most important habits in savings, and that is if you save a good amount of money regularly you could be able to achieve a lot of your goals without always running to other people or banks to borrow money.
(There is another side to the story with the local firm, but I will leave that out for now.)
Next: Educate your people on money matters.

• Thomas Hukahu is an Australia Awards student in Adelaide.