Quote:
Originally Posted by MoneyGuy
Bill Gates disagrees. Warren Buffett disagrees. Many, many people who have borrowed to buy, start or expand a business disagree. I know two people who borrowed to start electrical contracting businesses and are now wealthy; they disagree. I know a couple of land barons who disagree. I know someone who borrowed to buy apartment buildings and rental houses; he disagrees. I have a friend who borrowed to build commercials buildings and retired at 40; he disagrees. The people here who have built their net worth with debt would, I believe, disagree.
I'm not saying it's for everyone but business is built on debt. You may dislike debt but that doesn't make it wrong.
Smarts + money + hard work = success. If you don't have the money, you have to borrow it.
|
Quote:
Originally Posted by bizaro86
I really disagree with the bolded part. Any debt incurred to make an invested with an after tax, risk-adjusted return significantly higher than the cost of the debt is good debt, as it increases your net worth dramatically.
As someone said earlier in the thread, how much would you borrow at 6% if you had a guaranteed 10% place to invest the money. For me, the answer to that question would be, "As much as I could." I appreciate that different people have different levels of comfort with debt, but painting all debt as bad debt is overboard, imo.
|
Both you guys missed my point so I'll try to restate it a different way. I think you both assumed that because I said that debt can't be good, it must be bad.
I actually feel you can't have good debt or bad debt, because debt is just a tool to accomplish certain goals; it's inherently neutral, and the only measurement of it is whether it helps us achieve the most important goals in our life. Unless you are pre-christmas Scrooge, it's very likely that money, in and of itself, isn't the end goal in your life either; but money is a very powerful tool in helping you achieve your goals. As such, money is inherently neither good or bad. Labelling some debt as good and other debt as bad tends to prioritize the long-term financial picture above all else, and overlooks the reality that our goals are much more complex than that. I prefer to turn that the other way round: start with the end goals you want to achieve in life, then determine the necessary financial decisions to get there.
And yes, all of this applies to business debt too: we start with our goals, then work backwards to determine the necessary tools. And yup, a lot of the time it's debt. Labelling it as good or bad debt is counterproductive. It's necessary.