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Debt Deception

 

In this lesson, we will be discussing debt and leverage – how the wealthy use it to their advantage while the middle and lower classes end up using it to their disadvantage.  Some people believe that there is good debt and there is bad debt; good debt meaning when a person ‘borrows to invest’ into an asset that will appreciate in value and, in some cases, the interest on the loan payments are tax deductible.  The wealthy and sophisticated investor typically utilize good debt strategies while the middle class and lower class borrow for personal items that do not appreciate in value and are not deductible.  We must pay cash for our personal items, and never borrow.  If you can’t pay cash for it you cannot afford it.  Debt can be your best friend or your worst enemy; it can work with you or against you.  For example, if we went on a camping trip and went to get firewood, if you used the chain saw and I used a hack saw, who would be able to collect more firewood?  You would.  Why? Because you had a tool that leveraged your time to get the job done.  However, if you didn’t wear your safety glasses and gloves and understand exactly how to operate the tool, you could get injured.  Debt and leverage work the exact same way.  If used, one must have a plan and an exit strategy. If we were playing a baseball game and I was the runner on first and you were the pitcher, would I stand on first base when you are about to throw the ball? No, of course not.  I do what?  I lead off. Why?  To leverage the time that it takes me to get to second base.  However, if I’m not careful and I take too many steps off of first base without an exit strategy, I’m out.  Again, leverage works the same way.  If you feel that you must use it, you better have an exit strategy that’s proven, so that you have a sure way to get out with a plan.  I’ve leveraged greatly over the years and made much doing it, however, at one point in my life I nearly went too far – had I been in another country or province that was not as stable as Alberta, I could have lost everything.  But I was very fortunate and did well.  There have been many others that have not been so fortunate.  I had the privilege of watching a successful company grow to become one of the largest and greatest investment companies in North America for a number of years.  They had many years of amazing growth and success and became an industry leader.  Unfortunately, the economy turned quickly against their favour and the bank called the loan on one of their largest projects, valued at close to a couple hundred million dollars.  The company and its investors lost nearly everything, simply because the bank had all the power, and the investment company became the slave that couldn’t pay.  They had too much debt with no exit strategy.  Not only did the bank come after this major project but they came after every other project that the investment group personally guaranteed in order to secure the loan on this large project, which was their second mistake.  The bank literally cleaned them out for everything they had.  When things go sideways, banks and debt have no emotion and no mercy, don`t fool yourself.  Every time that you dig deeper into debt you become more and more of a slave.  I also know of a man who had an amazing career, as he built over 8 sky scrapers in the city of Edmonton.  He had a great relationship with a few people at a specific bank and didn’t see any reason as to why he should bank anywhere else.  Positions changed in upper management within the bank and so he was accountable to a new manager.  Shortly thereafter the new manager called the loans on all his properties, and the assets were literally fire -old for pennies on the dollar to another investor.  Turned out that behind the scenes the manager and the investor partnered and had a specific agenda to wipe out this individual and keep a portion of the assets for themselves.  These are very severe scenarios and obviously do not happen often, the point that I`m trying to make is, owe nothing and be free.

Personally I believe that there is bad debt and very bad debt, I never want to be in a position of having debt ever again.  When one has debt you’ll quickly find out that you become a slave to the lender.  If you cannot work and make the payment on your loan, in most cases, the lender will soon own you.  It reminds me of a verse in the Bible (Romans 13:8) that warns us to owe man nothing but the debt of love.  King Solomon who was known to be the wisest and wealthiest ruler said in Proverbs 22:7, “The rich rule over the poor, and the borrower is servant to the lender.”  The main reason why our world is in a ‘so called recession and depression’, with the second phase soon approaching, is all because our world has been built on debt, credit, and greed.  Today the US is a slave to China and Japan.  China and Japan are carrying somewhere between 40-60% of the US debt.  If they called in their loan tomorrow, the US would be on it knees the very next day.  Get out of debt and stay out!  If you happen to be in debt, immediately prepare a strict budget and stick to it, be wary of the debt trajectory that you may be on.  There are people out there that go overboard with debt reduction strategies and focusing on eliminating debt that they severely decrease their standard of living.  Don’t get me wrong, this is important and we need to be good stewards with our money, but the problem is that most people focus on so many different ways to live below their means when the wealthy and sophisticated investors focus more time on how to make more, rather than how to spend less and live on less.  Once you have a good budget and you’re sticking to it, slowly eliminate the smallest debt first, then immediately take the money that you were putting towards your smaller debt and begin to compound it onto the next smallest debt and so on and so forth.  Only spend money on what you can afford and pay cash for it, otherwise you will find that you will soon become a slave to whoever lent you the money.

Some people insist that borrowing to invest is the only way to get ahead financially.  If used properly, that could be a possibility.  However, I know a multi-billionaire family that built their empire without debt at all.  Instead of borrowing from a bank they would partner with someone that had the finances and this family would provide the service.  Together, they would split the profits and this way they never had to be in debt.  They leveraged themselves but not their personal finances.  I’ve seen so many people miss out on life changing events because they were enslaved to working so many hours to make so much income in order to survive financially and they were literally tied to their jobs.  I believe that we were not called to be enslaved by rather called to live a life of freedom.

To learn more on how to eliminate your debt, speak with one of our coaches by calling 1-877-741-8910.  If you’d like to learn more about other topics go to www.solidfinancialsolutions.ca.

Thank you

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by Brad Fisher on August 3, 2013 in

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