Is DEBT really a solution?

[rusha84]

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thats my point. its a leverage tool. they do initial public offering to get more capital in order to expand operations. but we cant say that they never use their money. they cant do IPO if they are not liquid. in the first place SEC wouldnt allow them. not all corporations can do IPO. they borrow because they do not have enough money

true, but then most use "business money" not their personal money...there's a huge difference..Also, if they use their personal money they expect the company to pay it with accrued interest once the business starts to profit....So, it'S still debt..But then, this is mostly true to corporations...

[darkcrux]

rich people never use their own money for business...they use other people's money instead in the form of debt...that's why they form corporation which is an entity unto itself...

sorry to disagree bro. That is a myth spread around. Majority of the really rich people even loathe debt. Henry Ford, JC Penny, and plenty others are not a big fan of debt. Rich people use their own money for business and also investors money. Some do get some business loans, but to say that they "never" use their own money is a disservice to them.

[triz1999]

i dont see any reason why they would borrow money if they have the amount of cash needed. in business even in personal life debt is used as a leverage tool. if ur fully covered u may avoid debt but in cases wherein u need to expand or u need some elbow rom for ur business or ur life people resort to debt.

hold on to you cash or liquid and let other people in form of investors or banks finance your business. then let that investment pay off itself.

in that way, you hold your cash and gain from another...

i think banks operate the same way, they grant loans to customers and the loans they provide are being funded by their own depositors...

although at times you have to use a certain percentage or degree of your personal assets/cash to jump start the wagon...

[du1cebu]

hold on to you cash or liquid and let other people in form of investors or banks finance your business. then let that investment pay off itself.

in that way, you hold your cash and gain from another...

i think banks operate the same way, they grant loans to customers and the loans they provide are being funded by their own depositors...

although at times you have to use a certain percentage or degree of your personal assets/cash to jump start the wagon...

yes thats true. but why would u hold ur money if it is enough and choose to loan capital from a bank? wouldn't the additional interest payments hurt ur net income margin?

and if ur rich ull probably start ur own bank

[rusha84]

sorry to disagree bro. That is a myth spread around. Majority of the really rich people even loathe debt. Henry Ford, JC Penny, and plenty others are not a big fan of debt. Rich people use their own money for business and also investors money. Some do get some business loans, but to say that they "never" use their own money is a disservice to them.

I concede, "never" is not the appropriate word to use...For even rich people use their own money as start-up capital. As for Henry Ford and James Cash Penney not being fond of debt, I believe they are referring to personal debt...But for business purposes, I believe at one time, they loaned from the bank to effect expansion and growth... And I guess their companies continue to do so until today...(Maybe u can check their company's financial statement for this)

Another example for this is real estate...

Say if you found a 1M property and after extensive research and due diligence, you were able to project a profit that would cover the monthly amortization and give you a nice cashflow every month, which is faster?? Scrimp and save for that 1M or ask financing from a bank?? I think the answer is obvious...
And even if they do have the money on hand, sophisticated investor would never pay for that property fully in cash...They'd rather pay for say, 10% downpayment and use the remaining money to pay for another property's downpayment...So instead having an asset of 1M, they leveraged and can go on and purchase 10M worth of asset with 1 million equity...And instead of collecting cashflow from 1 property, they go and collect from many property using the same amount of money...That's how they multiply their wealth faster... I haven't done this personally, but I've observed people doing this so I say that it can be done..BUT it takes different level of skills, mindset, wisdom and LOADS of GUTS...

Some say that debt is bad and to some extent, I agree...But then, we don't live in a world of either black and white, we live in a world of varying shades of gray...So we need to use our ability to make finer distinction...

I believe that people who are not able to handle debt should not go into it... On the other hand, if we are going into a business, we should keep an open mind on debt because to dismiss debt as totally bad is to fail to recognize and use one of the most important leverage that the rich are using to multiply their wealth....

P.S. I think that whoever thought of the popular wisdom "It doesn't take money to make money" must have "good debt" in mind...I think whoever he is, he may have meant to say that "It doesn't take ur personal money to make money"...There's always other people's money that u can leverage on...And one way to take advantage of that is through debt...

[darkcrux]

@rusha84. your right. Debt is a tool and of course there are good and bad debts. What you've just stated is of course a good debt. I do believe in good debt. leverage. yes true.

OT: There is also a way of becoming wealthy without debt and having little money. It has something to do with Time management and proper information. but let's put that on another topic. ^_^

But yeah. Ford and Penny does hate personal debt. Going back to the topic debt is not a solution to problems. It may even be a symptom of an underlying problem. Don't you agree?

[wealthyhead]

fact: there's Good & Bad debt
reality: but most people now have Bad debts (really bad.. to the extent that family may suffer)

so debt is really not a solution. avoid it.

[rusha84]

fact: there's Good & Bad debt
reality: but most people now have Bad debts (really bad.. to the extent that family may suffer)

so debt is really not a solution. avoid it.

I see ur point.... But I posted my opinion based on the premise that this is after all the business and economics section...I naturally assumed that ppol who frequently visit this section are either business owners, business minded or are thinking of going into a business...Either way, if pipol fall into any of those categgories, they should maintain an open mind on the subject of debt..I wasn't thinking of the general population...My apologies...

[wealthyhead]

I see ur point.... But I posted my opinion based on the premise that this is after all the business and economics section...I naturally assumed that ppol who frequently visit this section are either business owners, business minded or are thinking of going into a business...Either way, if pipol fall into any of those categgories, they should maintain an open mind on the subject of debt..I wasn't thinking of the general population...My apologies...

it's ok. I understand your point also. good point.

I'm thinking about how I can help people plan for their future. especially now that most people are in really serious debt problems.

[neil11]

wealthyhead is such a good financial mentor...

practical and realistic..