Dictionary defines bankruptcy as the state of being or becoming bankrupt. And you are bankrupt if you are unable to satisfy any just claims made upon you.
Some also define bankruptcy as a legal proceeding in which you put your money in your pants pocket and give your coat to your creditors.
These definitions apply to you once you are already bankrupt.
But the question is – How do you go bankrupt?
See, it was always easy to go bankrupt. But the recession has made it even easier, with people facing unemployment and struggling to pay their bills.
So going bankrupt is easier than most people realize.
In fact, there are several ways you can go bankrupt:
- Bury yourself in credit card debt, more than you can ever repay
- Pour all your money down the toilet
- Buy an expensive loan that your income won’t cover in the future
- Buy your kids everything they want
- Lend your friends a lot of money, and forget
- Never skip a sale
- Repay your debt with higher cost debt
- Play casino
- Keep saying yes
Keep saying yes to go bankrupt? What’s that?
I’ll tell you a short story here.
There’s a restaurant I’ve been visiting for years. It was once the most famous North Indian restaurant in my locality, and was highly regarded for its courteous and speedy service.
Then something happened. Another North Indian restaurant opened in its vicinity. And before I knew it, the first restaurant was busier than it could handle. It started offering all the cuisines under the sun – Chinese, Italian, Mongolian…you name it and it had it on its menu.
And the service standard it used to deliver to regulars like me fell apart. The main reason?
It kept saying ‘yes’.
When I politely suggested the owner that he must go back to offering what he did best, that is, North Indian food, instead of serving anything and everything, he was shocked and told me, “I couldn’t do that. You know that we have competition now!”
And so this restaurant stretched itself to its limits. And its long-standing and loyal customers now experience mediocre service, at best.
I hope this restaurant is able to survive. But in a world with so much choice, I’ll try a new place. One that’s fast and efficient, and offers me only what it knows best. And the one that has the discipline to say ‘no’.
Bankruptcy by ‘yes’
‘Yes’, and a lot of it, is what makes businesses go bankrupt. And this is what also makes individuals and investors go bankrupt.
- Yes, one more loan.
- Yes, one more expensive gadget on credit.
- Yes, what do you want me to buy you son?
- Yes, another sale!
- Yes, one more stock…and I know this one will certainly multiply 5 times in 2 years.
- Yes, one more IPO…and I’ll borrow to apply since it can give me huge listing gains.
- Yes, one more mutual fund…this one has been the best performer over the past 1 year.
See, it’s ironical but there is a general lack of discipline in the way we live our lives, manage our money and plan for our future.
We don’t know how to say ‘no’, simply because we find it hard to do.
Anything that makes us look inconsistent with the general norm (and ‘yes’ is a general norm) is disturbing.
We don’t want to sound rude…to others and to ourselves.
We always want to sound agreeable.
We fear that saying ‘no’ would mean losing out on opportunities.
We fear the conflict that comes from saying ‘no’.
We fear burning bridges by saying ‘no’.
So if someone advises us a stock to buy, we find it hard to disagree and instead feel indebted to the advisor for his ‘precious’ advice.
What happens next is that we go ahead and buy the stock, without knowing what we are getting into.
I am saying purely from experience, and from seeing people go bankrupt just because they said a lot of ‘yes’ during their investing lives.
“No, I won’t!”
This is the simplest and most direct way to say ‘no’.
We build up too many barriers in our mind to saying ‘no’. Most of the times (in fact, all of the times), these barriers are self-created and they are not true at all.
As an investor, don’t think so much about saying ‘no’. In fact, when someone offers you a free advice, just thank him for the same but don’t act on it till you’ve done your own homework on it.
Learn to say ‘no’ to investment advice that doesn’t meet your needs, and once you do that you’ll find how easy it actually is.
I know and I’m happy I started doing that.
Now it’s your turn. Just say ‘no’!