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Intelligent Borrower or Economic Slave?

by Rajen Devadason

If you would know the value of money, go try to borrow some; for he that goes a-borrowing goes a-sorrowing.

Benjamin Franklin

I've found a large part of my work as a licensed financial planner, consultant and professional speaker revolves around urging people to extricate themselves from the clutches of clinging debt!

Because of that, many people assume I believe all debt is bad... even downright wicked. Yet, nothing could be further from the truth.
 

In all fairness, though, I'm sure the title of one of my books, Liberty! From Debt-Slave to Money Master, helped entrench that 'Rajen-thinks-all-debt-is-bad' perception among many who've heard of that book but have never read it.

The truth is few things in life are correctly viewed in monochrome! And debt isn't one of them.

Most of life involves the full spectrum of colour and hue. That includes the emotive subject of debt.

Just like fire, debt can be a great friend if properly harnessed. But, also like fire, it can scar you for life or even permanently snuff out your breath if it is permitted to rage out of control.

Liberty! teaches - in stories involving three young men - principles and strategies that work well for those who want to get out from under the sometimes overwhelming burden of consumer debt.

In most countries, typical consumer loans are taken on for years at a stretch to buy items that go down in value, sometimes precipitously during just the course of the outstanding loan!

In most cases, for most people, I believe too much consumer debt is indicative of a well-entrenched inability to exercise one of the key criteria for long-term success, a commitment to delayed gratification - the willingness to give up something good today in anticipation of something far better tomorrow.

Embracing a philosophy of delayed gratification is, at least in my opinion, indicative of a person of superior emotional intelligence.

Mature people can exercise delayed gratification with regard to consumer items. Immature people can't, won't or simply don't!

The dividing line often has little to do with chronological age.

Yet I believe there is one type of debt that - under the right circumstances - can be productive.

It is viable business debt, although even here intelligent restraint should be used!

In this instance, money may be borrowed, say at 10%, to engage in productive economic activities that yield perhaps 30%, 40% or more.

The ability to do this again and again leads to burgeoning, upward spiraling profits, which are the cornerstone of sound, vibrant capitalism and the goal of all self-respecting capitalists.

Still, let the record show that I vehemently disagree with the oily character Gordon Gekko played by Michael Douglas in the iconic 1980s movie Wall Street. In it, Gekko declared, "... greed, for lack of a better word, is good. Greed is right. Greed works."

Not to my mind. Not now, not ever!

I believe unadulterated greed is cancerously evil. But a healthy desire for profits, as long as they are achieved by ethical business practices devoid of gouging others, are not merely good, but wonderful.

After all, the fair exchange of useful goods and services for money is the cornerstone of a healthy economy. For instance, a simple, personal example where I exchange an understanding of the principles of sound time management for money is found at this page which features another of my books, this one entitled Unshackled.

Our entire way of modern life is centred upon the benefits of profits earned honestly.

Bernard Baruch described it best, I think, when he wrote, "Society can progress only if men's labour show a profit - if they yield more than is put in. To produce at a loss must leave less for all to share."

If you believe Baruch's statement, and I believe it is wise to do so, then for your own sake make it a point to sit down tonight - there's nothing like striking while the iron is hot - to figure out how much you owe and to whom. Do all this figuring on a large sheet of paper.

As you do so, identify which financial debts are productive, good business-type ones, and which ones are the more common destructive, consumption-type that only make financial institutions richer at your expense!

Then embark upon a focused programme of debt-eradication within the second group.

For this part of the exercise, here's what I suggest:

1. List all your debts on another, fresh sheet of paper;

2. Then decide whether you want to  adopt one of two great strategies:

a) Paying off your debts in order of the most expensive ones (meaning those with the highest interest rates) first ; OR

b) Paying them off in order of the smallest ones first.

The first strategy (2a) is mathematically more efficient, but I have found the second (2b) more emotionally satisfying.

Use the first if you're super-disciplined. Use the second if you're like most of us mere mortals and in need of quick reinforcement through positive feedback!

In closing, I wish you all the best in crushing the monster of excessive consumer debt and thus rescuing your future income streams from being devoured by this implacable foe.

FOR SERIOUS READERS: If you wish to consider this matter more deeply, you'll find these additional articles helpful:

Escaping Debt Slavery

Credit Cards – Friends or Foes?

Credit Cards – Beware the Retail Therapy Trap!

Oh, and by the way, if an unhealthy level of consumer debt is not a problem you face, congratulations! Perhaps you can proactively choose to 'be part of the solution, not the problem' by actively and enthusiastically sharing this lesson with friends and family members who may be wrestling with excessive debt of the wrong, consumption-based, type.

© Rajen Devadason