Tag: debt

Using cash or using debt?

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?

Remember what you’re working for

For the high achievers out there, remember what you’re working for. Some people refer to this as finding your “why.” Why are you working so hard? What is it that you really want?

Sure, you may like what you do, you may find enjoyment getting recognition or accolades from your employer, or you want to be seen as successful in the eyes of your peers/family members, but is that in alignment with what you actually want?

I’ve been working hard for a long time. I worked in high school, worked my way through college, and upon graduating I worked multiple jobs and many hours of overtime to pay off any student loans I had, pay off cars, a mortgage, etc. But after having kids, I had to re-prioritize my life goals. Did I still want to earn financial freedom? Absolutely. But I need to do it in a more sustainable way so I can see my family. Working 60-70 hour work weeks will help me earn income, but at what expense?

The questions I had to ask myself were:

1) What am I working so hard for? What is my new why? The answer to this, I think, is to create the best life possible for my family. That doesn’t necessarily mean to have or to make the most money though. Instead, I think it’s to raise respectful children with good work ethics who are happy with life…and me NOT being around just so I can earn more money or do something I’m “passionate” about is actually a very selfish thing to do.

2) Instead of racing the the financial freedom finish line, am I willing to maybe work a few more years to have a better quality of life (more free time to spend with my family, friends, and hobbies)? The answer to this is yes. What’s the point in rushing to retirement when you might lose your family (say, if you get divorced as a result of never spending time with your spouse), you lose your health (because you’re “too busy” to work out), lose your friends (because you never hang out with them anymore), and have no hobbies (are you just going to sit at home and watch tv all day)?? That life would be so unfulfilling to me.

So, as I conclude, I just want to say that everyone is different. We feel different things, have different goals, and are in different stages of life. Our life experiences are different. Our expectations are different. There is no right or wrong when it comes to why you’re working as hard as you are. But the key thing is to think about what you’re working for and adjust your time accordingly.