If you’re buying an asset that makes you more money (whether through appreciation, cash flow/dividends, or tax benefits) than it costs to borrow (paying down your principal and interest while more than keeping pace with inflation), you can make a legitimate argument to go into debt to invest in that asset.
If you’re going into debt to buy something that doesn’t make you money, you’re giving into your inner child.
Only borrow money to buy things that go up in value. Otherwise pay all cash for it or not at all.
“The journey of 1,000 miles begins with one step.” – Lao Tzu
How often do we look at success stories and either become envious of the person who “made it” or think to ourselves, “I could never do that.”
The truth is, we are more capable than we think. Everyone has to start somewhere. Sometimes, our starting lines are staggered, as some people grow up in better/worse environments, with more/less natural abilities, resources, and privileges. But that doesn’t mean that we should give up before we even get started!
Start where you are. Put blinders on. Ultimately, it doesn’t matter where you start versus where anyone else starts, it only matters that you start AND that you keep going. Because the situation is what it is. You can’t do anything to change the past – whether it’s your past actions/inactions or your parents’ past actions/inactions. You are where you are and the only thing that can change that is you. You can choose to make your life better or you can make excuses for why you can’t do something.
The key to any great story though, is that the hero of the story got started. It started with a single step. And the best stories – the most compelling ones – aren’t the ones where everything comes easy to the hero. The hero often will have doubts and have to go through trials and tribulations. But the reason we know about these heroes is because they overcame the difficulties they faced and persevered. Whether you think about Frodo Baggins in the Lord of the Rings, Harry Potter, or even Jesus Christ. They all started somewhere. They all had challenges they needed to overcome. But to get to where they needed to be, each of them kept taking the next step.
So take a look at your life. Are you where you want to be? Are you proud of the story you’re writing? We are each the heroes of our own journeys. Refuse to play the victim, the villain, or a passive character. Be the hero! Take the first step and keep on going.
If there is something that you heard about, but don’t know what it is, look it up.
If there is a vegetable that you’ve seen but never tried, buy it and look up a recipe on how to cook it.
If a friend asks you to go to some new place/event and you’ve never experienced anything like it before, go for it.
Do not be afraid of trying new things. Most of the time, the economic cost is minimal. But to live a life to the fullest by experiencing as much of what it has to offer as possible? That’s invaluable.
The college/university you go to does not create success. In fact, even knowledge alone does not cause success. It is the application of your knowledge on a consistent basis that creates success. How you obtain that knowledge could be in a classroom, it might be from a book you read, someone you talked with who has done it before, or your own experiences. Just because you go to “higher education” doesn’t mean that you’re actually more educated than those who don’t attend college.
Sometimes, going to university/college is a requirement for specific professions. But for many other professions (I would even argue that maybe for a slight majority), I think classes tailored to a specific group of skills would be better suited to help individuals trying to get into that field. That’s not to say that I think college is bad or that I would take back my experience at all. BUT I do believe that we need to harp on options for young adults. Why go deeply into debt for a degree that may or may not help you?
Are you a “cash” only person (like Dave Ramsey) or do you prefer to utilize debt on your behalf?
Honestly, I see the pros and cons to both sides. Being more financially risk averse/conservative, I get the appeal of only using “cash” (or, even if I’m putting it on a debit/credit card, only buying what I can afford to pay at that very moment). It’s a safer position from the standpoint that you aren’t going to get yourself into massive debt. This strategy makes a ton of sense for those trying to minimize spending on things they don’t need (mostly consumer products that contribute to lifestyle creep).
But if you leverage debt to buy assets (like real estate), where someone else is paying the loan down for you, you can scale much more quickly.
Imagine wanting to buy a rental property. Let’s say you’re looking to buy a single family home for $120,000. If you have to pay cash for it, it will take you a long time to save up $120k. Even if you’re investing it, unless it’s in a self-directed IRA, when you pull your money out to purchase the property you’ll get hit with taxes. But if you only had to save up $30k (for a 25% down payment on an investment property) or even $4,200 (for a 3.5% FHA loan, where you have to live in the property for at least one year), you can get started much sooner.
Leverage works both ways. It can help propel you to success or drive you into the ground. But as long as you’re taking on appropriate risks (preferably starting small unless you have a ton of experience and expertise in what you’re investing in), you can build wealth at a greater pace by leveraging debt as opposed to paying all “cash” for everything.
What are your thoughts/how do you prefer to invest?
