Whether running a small business or managing family investments, you’re constantly faced with decisions which balance financial strain from debt, against the need for money in order to grow. Your cash flow statement will give you a snapshot of how you’re doing.
If you have no debt at all, this is probably a missed opportunity, especially in the current era of the lowest sustained interest rates in almost 50 years. One way to look at this question is: if your business or your investments can generate a higher rate of return than the cost of borrowing the money, and there is little or no risk, then you should probably borrow the money.
And that is why debt is healthy – because by avoiding it you’re refusing an opportunity for profitable investment or work!
Organise and thrive!
Though debt can be healthy, it only remains healthy if you’re organised enough to be certain you’ll never miss any payments, and know which repayments need to be prioritised. Frankly, who has time for that?
Let Bill Butler take a snapshot of your debt and automate the management of all your repayments. While you’re at it, why not automate all the other boring chores too? After all, you can probably earn more money in the time saved than the online outsourcing costs.
Set your debt for health
According to Thomas Dowling from Aegis Capital corporation, the maximum healthy debt “total ratio” is 36%, so you should aim for a maximum 36% of your gross income from all sources being committed to servicing your debt. This 36% figure for “total ratio” should be regarded as a true total.
You can’t cheat by excluding the hire purchase payments on your white goods or pool. Check your cash flow statement at least quarterly, and aim to stay under this level to keep yourself in the zone where assets purchased through borrowing continue to return more than the cost of the loans. This will help keep your total fixed outgoings under control, to ensure a small earnings shock (like having to change jobs) doesn’t risk causing defaults.
Stay hungry, keep learning
If you have access to credit, you effectively control an additional asset the size of your credit rating. You need to maximise the asset’s return. Seeking independent financial advice is the most important thing you can do. The next most important is to learn everything you can, both about the market sector you compete in, and about investing for wealth – a good starting point is this overview of how to use debt wisely from the Charles Schwab investment bank, which will give you lots of ideas for educational Googling.
So get started. Automate the boring repetitive tasks, learn how to make your money work hard while you focus on your passions, and build wealth the Bill Butler way.
This blog forms part of our debt is good series – make sure to check out our next blog – expert help next week.
Lead Thought Provoker
Jay began his career in London with Rabobank, CLS bank and a Lloyd’s of London syndicate. Jay’s work has spanned corporate communications, content editing, newspaper articles, courseware, blogging, policy drafting, technical writing, and a regular crossword. He is passionate about 8-bit tunes, self-improvement, and the Oxford comma.