Debt is the root of all evil.

Say we have 2 people.

1) The first person is a professor earning 10k per month.

2) The second person is a clerk earning 1k per month.

The professor spends 12k per month and the clerk spends 900 per month.

At the end, who will be rich and who will be poor, if we assume that the interest in saving and debt is similar: 6 percent.

I am sure, all of you agree with me that the professor will be poor and the clerk will be rich. But, can you tell me what is the effect in 20 years?

Let me calculate how the effect of both spending lifestyle in 20 years.

First, the professor, he will need to borrow 2k per month (10k-12k = 2k). So, in 20 years, he needs to borrow 480k (2k x 12 x 20). Now, the ugly part will be when we added interest. He will have to pay interest of 72/6 or double the amount he borrows in 12y. As it is additive, in 24 years he will have to double what he need to borrow or to simplify matter we assumed he needs to repay double what he borrows in 20y. This become 960k (480k x 2). So, after 20 years of working this professor will be owing to the bank around 1m.

Second the clerk, he will save 100 per month (1k-900 = 100). So, in 20 years, he will save 24k (100 x 12 x 20). Now, the magic of compounding work for him, cos he is a saver. Same like the professor in 20y his money double. So, in 20y he will have 48k or around 50k. Even though, he saves only rm 100 per month.

So, the professor will be down with 1 million debt when he retires and the clerk will have 50k when he retire.

See, the ugly picture on debt.

So, we must avoid debt at all cost by reducing our expenditure or by increasing our income (eg. by getting another part-time job or better still start a part-time business).

"You can be a very kind and pious person but if you are heavily in debt it is not a bless thing."

Good luck.

Sincerely,
Dr Lion