Money buys you options, debt takes them away.
Debt takes options away.
Money is what you have and debt is what you owe. If money does anything, it buys you options. And debt, being the inverse of money, takes those options away.
Debt forces you to make decisions that you wouldn't normally have to make if you didn’t have debt. It forces you to choose things that are undesirable.
In a world with easy debt, people often think they are smart when they arbitrage (make money on the spread) between debt and equity markets. Because now, in a low-interest-rate environment, central banks monetizing debt, and forcing money into financial markets, this strategy works well.
But debt doesn't hurt you when outside forces are tipping the scales in your favor. It hurts you when those scales tip in the other direction.
That is when your financial assets, your net worth and your income get cut in half, and you still owe the debt and the service payments...forcing you to cut needed expenses (lights, water, healthcare) and sell needed assets (like a home, car, retirement savings or a business). That is when debt hurts you.
Losing your livelihood to debt.
Even with debt service payments, in good times, debt can force you to make undesirable choices.
Buying too expensive of a car with debt and being forced to not fix the AC in your house, or not going to the doctor, or not replacing old clothes for your kids because the money is being use to service your car debt.
Or if you own a business, and you bought a big building with debt to expand your business faster, and a global pandemic hits, decreasing your income. Then you can't afford your building because you owe too much money on it, so you have to sell it at a discounted price, losing your livelihood and your future and still owing money...all because you wanted to grow your business faster; all because you took out debt.
Have some humility.
It's important to have a little humility when it comes to debt. You’re not that special to win with debt. You’re not that smart either, no one is. Because sooner or later, the world is going to tip against you, and you're not going to be fast enough to sell those assets that you counted on for collateral. Because they will no longer have the value you thought they did, because suddenly no one wants to buy what you're selling.
Be Wise, Avoid Debt.
A clever person solves a problem and a wise person avoids it. Be wise, avoid debt, because ultimately, you’re going to be paying for it whether you like it or not.
Stay frosty people.
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