(Money Matters) Liabilities: Taming the debt monster - Kasfia Rashid

​Kasfia Rashid - "Money Matters with Kash the Bookkeeper"

Introduction: 

Hello! Welcome to Money Matters here at IBGR, THE #1 global resource for businesses! My name is Kasfia Rashid, but you can call me Kash the bookkeeper! I help small business owners understand the language of business, Accounting!! 

“Money matters” is all about the fundamental basics of the accounting language. These building blocks of business can be arranged and rearranged for a customized experience. Once you understand the basics of any language it is much easier to communicate using that language. 

We have discussed Liabilities, what they are, how they are used and why they are important in the last show, today’s show is all about flexing that debt and leveraging our liabilities. 

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Show Objectives - The Why

“You must spend money to make money” has been used by countless authors throughout history. It was coined by a Roman playwright named Plautus around 200 BC. Clearly it has stood the test of time! 
When someone hears this quote they often have one of two reactions. 

If you have money to spend you may nod and say “Oh yes,  that sounds right!” Ultimately the quote makes sense to you. 

If you don't have money to spend you may start feeling anxious,  you may start looking around thinking about where money can come from, you may also start to feel a bit hopeless; if you have no money how can you make money? 


Key Issues - Owner Perspective:

1. What sort of debt do I owe? Credit Cards? Accounts Payable? Mortgages?
2. Why do I owe this debt? 
3. How can I make this debt work FOR me?

What You Need to Know - The What

One of the most common forms of business and personal debt is credit cards. The debt trap example that I spoke about in the last episode started with taking out loans and putting inventory on credit cards. How's the interest on the credit cards often can outweigh the usefulness of what was purchased with the credit cards. 

So how do we control that? 

A couple of different ways

1. Only use your credit card to pay for expenses that you can afford in cash. 
2. Use a rewards credit card. 
3. Use your credit card for recurring monthly expenses only. 
4. Pay off full balance every month. 
5. Transfer your balance to lower interest rate cards. 
6. Have specific uses for specific credit cards if you have more than one. 
7. ICE credit cards if you cannot pay off the balance. 

What if you are already caught in the Debt Trap? If you know you're hearing this just a tad too late and you are fully caught in the debt trap, don’t worry.  As an accountant I see this very often in my small business clients and we work together to come up with a plan on how to lower the debt. Some basic components of the plan include debt consolidation, debt restructuring, as well as just paying it off. 

Now you can't pay off debt with money that you don't have so obviously at some point we need to have a conversation about increasing our revenues in order to support the amount of debt that we are in. 

Dave Ramsey is well known in the finance world as a financial guru and he supports the debt snowball method where the lowest balance debt is paid first instead of the balances with the largest interest rates. A 2016 study by the Harvard Business School found that people who used the snowball method to pay off their smallest account first, paid down more of their debt than those who used other methods.[22]

​What You Need to Do​​ - The How

1. Rip off the bandaid- add up all of your debt! 
2. Sort them by category, need, and payoff structure. 
3. Control how debt is used! Always know what you are spending and why.

 
Additional Resources 

1. Check out Kash’s Youtube Playlist: Bookkeeping basics for small business owners. 
2. Compare credit cards and find zero interest cards here.
3. https://www.thesimpledollar.com/in-what-order-should-i-pay-off-my-debts
4. https://www.daveramsey.com/blog/how-to-pay-off-debt\n\nhttp://money.com/money/collection-post/2791960/which-debts-should-i-pay-off-first/ 

Shows: 
Previous: Liabilities, the untold story of debt 
Next: Owner’s Equity, You’re worth it

​Written by Kash the bookkeeper  
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You can connect with Kash on any of her seriously social platforms under the handle @Kashthebookkeeper
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