I'm hearing guys post that debt can be a good thing under certain situations.
I disagree.
Debt is a siren song, designed to trick you into making really bad decisions and bankrupting your future.
Imagine a casino. The casino rakes in millions of dollars in cold, hard cash every evening. You probably understand how it does that -- boomers who are too stupid to realize that they can never win the jackpot. But no, YOU'RE the smart one, YOU know how to beat the system. So you show up every night with a hundred bucks in your pocket, and you end up going home with barely the shirt on your back.
What happened?
You forgot the ONE RULE of casinos: THE HOUSE ALWAYS WINS.
THAT IS HOW BANKS WORK TOO. The BANK **ALWAYS WINS**. If you make money, they make money. If you lose money, **they make even more money.** If times are tough for you, **they make even more money.**
Banks NEVER want to see you succeed. Quite the opposite. They are gambling that you WON'T succeed. They win bigger when you lose!
If you really, really need money, then there are ways of getting money WITHOUT GOING INTO DEBT. Let me share a few examples:
1. ASK FOR FREE MONEY. Go to your friends and family, and tell them what you intend to do with the money, and ask them for it. You might be surprised how often they will just give it to you for a song and a prayer. Go to your customers and ask them for free money too. You'll be surprised how loyal customers respond to such strange requests!
2. ASK FOR AN INTEREST-FREE LOAN. Real friends and family will almost always be willing to give you and interest free loan. Sometimes they will borrow against their 401k and just ask you to cover the interest they'd have to pay -- to themselves. Sometimes they won't even ask for that, because they know it is their own money.
3. ASK FOR AN INVESTMENT. And investment is different than a loan because the investor ONLY wins when you win big. You have to be careful with investment because you are going to have to sign away part of your business to them, so don't be stupid about this. Never sell more than 51% of your business, unless you want to get out of the business.
4. ASK FOR MONEY UP FRONT. Oftentimes, general contractors shoulder the burden of construction until the project is finished, so people expect this more often than not. But don't be afraid to say something like, "I need some up front cash to get started so I can pay my employees and get materials." If you need it, you need it. Don't be afraid to ask for it.
We have been programmed to think that the ONLY way to get money is to walk into a bank and beg for a decent interest rate. NONSENSE! We have also been deceived into thinking that we can somehow gamble our future away and win. It doesn't work!
Let me explain the fundamental principle behind interest bearing loans: Whether it is sunny or rainy, Sunday or Monday, summer or winter, whether you broke your leg or you are in good health, interest accumulates. You might think you can beat the odds, but you can't. Eventually, something is going to happen, and when you realize that your castle is really a house of cards because it relies on loans -- you see what can happen.
Dave Ramsey has a wonderful story from his life. He was flipping houses like a madman, and making money hand over fist. However, he needed short-term loans to buy houses and to get them fixed. Yes, he was making good money on top of the loans with interest, but one day the bank called him up and say "Pay back the loans right now." When that happened, his business disappeared. He could no longer buy houses and get materials to fix them and flip them. Without banks funding his venture, he had nothing.
Instead, you MUST build up wealth the old fashioned way. SPEND LESS THAN YOU EARN AND INVEST WISELY. Buy things with CASH, not CREDIT. Watch carefully how money comes in and goes out, and if you realize that you will be short of cash -- SOLVE THAT FIRST.
Do NOT get involved with loans and debt and interest rates. Yes, SOME kinds of loans make a lot of sense, like real estate, but even then -- you're playing with fire!
I disagree.
Debt is a siren song, designed to trick you into making really bad decisions and bankrupting your future.
Imagine a casino. The casino rakes in millions of dollars in cold, hard cash every evening. You probably understand how it does that -- boomers who are too stupid to realize that they can never win the jackpot. But no, YOU'RE the smart one, YOU know how to beat the system. So you show up every night with a hundred bucks in your pocket, and you end up going home with barely the shirt on your back.
What happened?
You forgot the ONE RULE of casinos: THE HOUSE ALWAYS WINS.
THAT IS HOW BANKS WORK TOO. The BANK **ALWAYS WINS**. If you make money, they make money. If you lose money, **they make even more money.** If times are tough for you, **they make even more money.**
Banks NEVER want to see you succeed. Quite the opposite. They are gambling that you WON'T succeed. They win bigger when you lose!
If you really, really need money, then there are ways of getting money WITHOUT GOING INTO DEBT. Let me share a few examples:
1. ASK FOR FREE MONEY. Go to your friends and family, and tell them what you intend to do with the money, and ask them for it. You might be surprised how often they will just give it to you for a song and a prayer. Go to your customers and ask them for free money too. You'll be surprised how loyal customers respond to such strange requests!
2. ASK FOR AN INTEREST-FREE LOAN. Real friends and family will almost always be willing to give you and interest free loan. Sometimes they will borrow against their 401k and just ask you to cover the interest they'd have to pay -- to themselves. Sometimes they won't even ask for that, because they know it is their own money.
3. ASK FOR AN INVESTMENT. And investment is different than a loan because the investor ONLY wins when you win big. You have to be careful with investment because you are going to have to sign away part of your business to them, so don't be stupid about this. Never sell more than 51% of your business, unless you want to get out of the business.
4. ASK FOR MONEY UP FRONT. Oftentimes, general contractors shoulder the burden of construction until the project is finished, so people expect this more often than not. But don't be afraid to say something like, "I need some up front cash to get started so I can pay my employees and get materials." If you need it, you need it. Don't be afraid to ask for it.
We have been programmed to think that the ONLY way to get money is to walk into a bank and beg for a decent interest rate. NONSENSE! We have also been deceived into thinking that we can somehow gamble our future away and win. It doesn't work!
Let me explain the fundamental principle behind interest bearing loans: Whether it is sunny or rainy, Sunday or Monday, summer or winter, whether you broke your leg or you are in good health, interest accumulates. You might think you can beat the odds, but you can't. Eventually, something is going to happen, and when you realize that your castle is really a house of cards because it relies on loans -- you see what can happen.
Dave Ramsey has a wonderful story from his life. He was flipping houses like a madman, and making money hand over fist. However, he needed short-term loans to buy houses and to get them fixed. Yes, he was making good money on top of the loans with interest, but one day the bank called him up and say "Pay back the loans right now." When that happened, his business disappeared. He could no longer buy houses and get materials to fix them and flip them. Without banks funding his venture, he had nothing.
Instead, you MUST build up wealth the old fashioned way. SPEND LESS THAN YOU EARN AND INVEST WISELY. Buy things with CASH, not CREDIT. Watch carefully how money comes in and goes out, and if you realize that you will be short of cash -- SOLVE THAT FIRST.
Do NOT get involved with loans and debt and interest rates. Yes, SOME kinds of loans make a lot of sense, like real estate, but even then -- you're playing with fire!
It's really easy to understand if debt is useful or not. Will you make more money if you take on debt or less? Almost all personal debt isn't worth it. Debt for a car? No. Debt for a house? Not actually usually worth it but depends on expected price appreciation and how low you initially bought the property for.
Debt to buy a business? A better idea.
Debt to start a business or expand your existing one? Also potentially a better idea.
Take a newly graduated dentist. The dentist works for 2 years and gains some experience. He can take on a loan to start his own dental office or keep working for another dentist. In most cases he's better off taking on the loan to start his own dental office.
It's a simple formula for understanding if debt will benefit you or not. Banks also don't always win. We saw tons of bank failures over the last 5 years. That's because when a bank locks in a loan at 4% then interest rates go up to 7%. The bank is now paying 5% on its liabilities and only earning 4% on its assets.
Borrowing from friends and family is usually a terrible idea for many different reasons. For 1: nothing is free. Friends and family often try to exert influence on a business/transaction when they lend to it and this can be very problematic. You might also permanently damage your relationships with family/friends. Also, you might end up net poorer if someone lends to you for free. What if your friends/family could have invested the money they lent you for a 10% return whereas bank interest is only 5%? By lending to you, your overall net worth between friends and family will be lesser. There's also huge risk involved in lending to friends/family. What happens if the venture fails to earn a return? Now the friend/family loses the money they lent to you and you don't earn a return. Both of you are significantly worse off but if you borrowed from a bank and failed in your venture only the bank loses not your friend/family.
Just be smart about your borrowing. I can tell you whether it's a good or bad idea to borrow pretty easily. Most people who fail when they borrow are actually borrowing to CONSUME PRODUCT instead of borrowing to invest. Many people try to justify their consumption as an investment like "owning a house is a smart investment decision because then you don't pay rent" as they justify buying some weird as fuck house in the middle of no where that would never resell. Or "my new business needs Teslas for every employee to save the planet. Green is a great investment!" Yeah no, fuck off retard.
> be smart about your borrowing
Be smart by NOT borrowing.
People who are too dumb to know when it is smart to borrow should never borrow.
People who are smart enough to figure out when it is smart to borrow never borrow.
How many companies have failed because of debt? How many rich people ended up poor because of debt? Look it up. It's what kills people. Had they just taken a little longer to grow, earned their profits FIRST and then expanded the business, they would never have put themselves at risk. But no, they leveraged FUTURE income to get money NOW, and what happens if that income doesn't show up? Well, now they are totally screwed.