Anyone who casually watches television or listens to the radio likely hears about someone selling a strategy to pay off debt. After all, debt causes many problems in people's lives. For many, they choose to avoid amassing any deficit in the first place. Debt, however, can serve a valuable purpose. You can't pay cash for everything all the time, so borrowing becomes a viable option. You can't go overboard, though. Borrow strategically. Doing so could help you amass wealth.
Good Debt vs Bad Debt
Maxing out your credit card with unnecessary vacations and eating out twice a day adds up to bad debt. You throw money away when borrowing nonessentials to live beyond your means. Borrowing money to purchase a reliable computer to help your business, however, makes sense. The new computer could help the business generate income in many different ways. Yes, there is both good debt and bad debt. Good debt works to your advantage and helps you further yourself in life. Bad debt serves no purpose and harm's your life. Bad debt drags down credit scores and takes away funds better served in an investment vehicle. Before you borrow, think about the pros and cons of the resulting debt.
Gearing Up
Borrowing excessively to launch a business can create troubles. Using your own capital, however, may deplete all your savings and liquidity. If the business' cash flow doesn't generate enough funds, you won't get your losses back. If the business folds, you may end up in dire financial trouble. Also, you may not have enough money to run the business properly. Undercapitalization can drag a company down. Saving money makes sense but cutting out necessary items due to a starvation budget isn't beneficial. Borrowing money incrementally at strategic points could lead a business to a stable footing. Be wise with any financing plans and business investments might benefit.
Things to Watch Out For
The lending and borrowing landscape could change in the coming year. The Small Business Administration may come up with an interesting new loan program. Private lending sources might free up additional funds at lower rates. And then there is CECL: current expected credit loss, a new type of accounting standard. CECL will be implemented in 2020, and while it will affect lenders, you don't have to worry about it affecting your investing strategy too much. Educate yourself about CECL to become aware of how it works.
Debt isn't always a bad thing. Learn how debt works for and against you. Then, leverage it properly to achieve your goal of building wealth.
Good Debt vs Bad Debt
Maxing out your credit card with unnecessary vacations and eating out twice a day adds up to bad debt. You throw money away when borrowing nonessentials to live beyond your means. Borrowing money to purchase a reliable computer to help your business, however, makes sense. The new computer could help the business generate income in many different ways. Yes, there is both good debt and bad debt. Good debt works to your advantage and helps you further yourself in life. Bad debt serves no purpose and harm's your life. Bad debt drags down credit scores and takes away funds better served in an investment vehicle. Before you borrow, think about the pros and cons of the resulting debt.
Gearing Up
Borrowing excessively to launch a business can create troubles. Using your own capital, however, may deplete all your savings and liquidity. If the business' cash flow doesn't generate enough funds, you won't get your losses back. If the business folds, you may end up in dire financial trouble. Also, you may not have enough money to run the business properly. Undercapitalization can drag a company down. Saving money makes sense but cutting out necessary items due to a starvation budget isn't beneficial. Borrowing money incrementally at strategic points could lead a business to a stable footing. Be wise with any financing plans and business investments might benefit.
Things to Watch Out For
The lending and borrowing landscape could change in the coming year. The Small Business Administration may come up with an interesting new loan program. Private lending sources might free up additional funds at lower rates. And then there is CECL: current expected credit loss, a new type of accounting standard. CECL will be implemented in 2020, and while it will affect lenders, you don't have to worry about it affecting your investing strategy too much. Educate yourself about CECL to become aware of how it works.
Debt isn't always a bad thing. Learn how debt works for and against you. Then, leverage it properly to achieve your goal of building wealth.
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