From time to time,I have friends and relatives coming to me asking for advice.
"Kenneth, my company has a bad debt of $30k. What should I do?"
"I really don't have time for my family. My last customer often leaves late at night, why can't my wife understand me?"
"I need $4000 to pay a legal fee, this is the final warning. Can you help me?"
Honestly, I don't have a solution to their problems.
I have had similar problems before.
When this kind of problems happen, you can only manage, you can't solve!
For me, besides managing the problem, I chose to prevent these problems from happening to me again!
So, what is the best way to resolve a problem?
To me, the best way is not let that problem happen at all.
I'm sure you have heard of the saying,
"Prevention is better than cure"
Most people have heard of it, but they don't practice it.
Let me give you some examples of how I prevent problems.
When I was running the wholesale business, most of the payment terms were 30 days term, which means retailers will pay me after 30 days. But some retailers don't pay or delay their payments. For better relationship, I often continued to supply to them. The end result is, I accumulated a bad debt of $20k in two years.
I still remember one of the retailers agreed to pay me $100 a month, for the $3000 that he owed me. I had to travel all the way to his shop, 20 minutes drive away, to collect it.
I did that for a few months and eventually gave up.
Yes, I can read books about how to manage bad debt. But what's the point?
My goal was to achieve time and financial freedom. Collecting bad debt, no matter how effective the method can be, was not something I want to handle.
My solution? I avoided wholesale business all together, so that I will not have to handle bad debt at all.
I have had financial crisis before.
In my worst time, I had to surrender an insurance policy prematurely to take back $9000, so that I can use the money to pay bills.
How to NOT get myself into financial crisis again?
I saved and built a reserve.
I now have a reserve equivalent to 2 year of my expenses. This means if touchwood all my income stop, I can still pay my bills for two years.
I reckon 2 years should be enough for me to restart from ground.
Another thing I did to prevent myself from getting into financial crisis is that I have income from different sources. It is highly unlikely that all my income will stop at the same time.
I may sound like a coward but I'm happy with this 'chicken-out' mentality.
As much as possible, I will put myself in a position where I can avoid potential problems, so that I only have to focus my time and energy on creation and progress.
To your success, Kenneth