If you're struggling to understand how you own a car/ house/ excavator even though you borrowed money from the bank to pay for it, here's a 2min explainer without any accounting jargon...
There's two sides to every purchase you make.
1. How you get the money (sources)
2. How you spend the money (uses)
Sources: salary, side hustle, bank loan, drug trafficking, OnlyFans
Uses: houses, cars, excavators, Birkins, garden chair for Midrand apartment
1. How you get the money (sources)
2. How you spend the money (uses)
Sources: salary, side hustle, bank loan, drug trafficking, OnlyFans
Uses: houses, cars, excavators, Birkins, garden chair for Midrand apartment
Once you source the money, the money is yours to use. Whatever you buy with the money, you own.
If you borrow 100k & buy Louis Vuitton, it's still your handbag.
If you use your own money to buy a house using cash, you own the money (source) and you own the house (use).
If you borrow 100k & buy Louis Vuitton, it's still your handbag.
If you use your own money to buy a house using cash, you own the money (source) and you own the house (use).
When you borrow money, the person/ institution lending it to you wants to make sure you can pay it back.
To make sure they check your income levels, credit history, run affordability tests & whether you support Arsenal.
They also have one last protection - called security
To make sure they check your income levels, credit history, run affordability tests & whether you support Arsenal.
They also have one last protection - called security
Security isn't ADT or Trellidor - it's what happens if you can't pay back the money!
If you lose your entire salary in Dogecoin & can't pay your home loan, the bank will intervene & try to sell your house to get their money back.
This is the where sources & uses intersect.
If you lose your entire salary in Dogecoin & can't pay your home loan, the bank will intervene & try to sell your house to get their money back.
This is the where sources & uses intersect.
When it comes to sources of money, each source only cares about being paid back. Whether it's a friend/ bank/ mashonisa
You could take a loan for a million bucks, then borrow a million from a friend & pay the bank off - the bank will never contact you again
(Unlike Netflorist)
You could take a loan for a million bucks, then borrow a million from a friend & pay the bank off - the bank will never contact you again
(Unlike Netflorist)
Sources & Uses is a tool used heavily in M&A ++ financing deals in investment banking.
It helps show what you need to pay back & the value of the stuff you're buying. It can get a bit complex on some deals but the concept stays the same.
It helps show what you need to pay back & the value of the stuff you're buying. It can get a bit complex on some deals but the concept stays the same.
This is useful whenever you're faced with a "do I own this?" question & don't want to call up your CA friend & hear about IFRS (also because they're annoying as fuck)
Most times you own the stuff you buy (use), you don't always own the money you used to buy stuff (source)
[END]
Most times you own the stuff you buy (use), you don't always own the money you used to buy stuff (source)
[END]
Here's an additional thread on debt
https://twitter.com/iamkoshiek/status/1365947899151085573?s=19
My goal is to make everything finance related accessible
If there's ANY finance topics/ concepts (basic or complex) you need me to break down using no jargon - feel free to post them & I will thread 🚀🚀
If there's ANY finance topics/ concepts (basic or complex) you need me to break down using no jargon - feel free to post them & I will thread 🚀🚀
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