The Value of Debt in Building Wealth. Thomas J. Anderson
effective management of both sides of the balance sheet and the delivery of balanced, integrated, holistic wealth management services.
The mission of Supernova Companies is to empower individuals to live their best life possible. We believe that the path to financial freedon happens through the effective management of both assets and liabilities, working together as part of a common plan and a bigger picture.
Supernova believes that by managing your life in an interconnected and holistic way, you will have a better chance of living a balanced life where you can not only enjoy the present, but also are prepared for the future and the curve balls life sends all of us along the way.
In the short term, we assist borrowers with refinancing to debt that has lower rates and better terms, striving to save consumers tens of billions per year in unnecessary interest expense.
The long-term vision of Supernova is to Revolutionize Debt™ by making the world safer for savers and to lower costs for borrowers. Supernova envisions a future where people throughout the world have access to borrowing money at rates lower than most governments and companies. Rather than having many loans, borrowers will have a loan – a single lending solution for all of their needs.
Through this process, Supernova envisions a world where interest rates start at zero percent for all borrowers, where there are zero ineffiencies, and where all people will have the biggest pie possible. A world where there is zero risk in the financial system and where you are more concerned about your grocery store having food on the shelf than you are concerned about a financial crisis, recession, or depression.
Supernova: knowledge empowering life.
Introduction
“The best preparation for tomorrow is doing your best today.”
There is considerable value to using debt in building wealth. Not credit card debt. Not payday loans. I'm talking about the right debt, positioned the right way and used in a thoughtful, balanced way throughout your life. Like chocolate, coffee, or red wine – a little bit can be a good thing, when handled responsibly.
The goal of this book is to illustrate what a balanced and comprehensive path may look like throughout the time that you are accumulating wealth. I will demonstrate the power of debt and compare it to conventional wisdom. The goal is to empower you to make better and more informed decisions. After all, as I will prove to you, the decisions you make with respect to debt are likely to be the biggest financial decisions you will make in your life.
My books The Value of Debt and The Value of Debt in Retirement were critically acclaimed because they sparked new ways of thinking that helped wealthy people work both sides of their balance sheets – just as corporations do – to become even wealthier. I understand that people are not companies, but that doesn't mean we can't learn from their ideas.
I wrote my first books as guides for people who have $1 million or more in assets, and back then I was pretty sure that people needed a net worth of at least $500,000 to implement my concepts.
A funny thing happened. People with much less money started playing with the concept of a strategic debt philosophy – and it worked. I realized these are not just concepts that make rich people richer. When used responsibly, debt can help anyone with discipline and the right disposition build enough wealth to live the life they want and put themselves on the path to retiring comfortably and productively.
If the very phrase “intelligent use of strategic debt” sounds heretical to you, you're not alone. The concept of “good debt” shows up as counterintuitive and even disruptive in a world that scolds us for taking on personal debt. We're blasted with horror stories about people who get buried in oppressive, high-interest debt (unfortunately all too easy to do, especially when you're young and inexperienced). And we've all taken in the popular advice about becoming debt-free as the first step to financial freedom.
This is unfortunate. Debt is a powerful tool that corporate financial officers have understood since capitalism was born. Savvy use of debt provides liquidity and flexibility, allowing smart companies to jump on opportunities and ride out emergencies. Why wouldn't smart investors who are building wealth do the same?
For the past two decades, many people have learned (and benefited) from Dave Ramsey and Suze Orman's advice. These financial authors have helped many people get out of debt, especially out of the oppressive type of debt I agree should be eliminated. However, they often assume people are irresponsible and almost scold them. I approach things a little differently – I give you the credit you deserve. I assume you are disciplined, smart, and rational.
I will provide a glide path for your financial journey. Glide paths are traditionally buoy lanes for ships and runway lights for airplanes. They are crucial for success and survivability. If captains and pilots don't stay within their confines, they could crash. Glide paths set a course and provide necessary boundaries. This book, your financial glide path, will help you set your course and provide you the necessary boundaries to get you on track for a comfortable life and secure retirement.
This book isn't for people who accumulate wealth to acquire more things. I believe happiness comes from relationships, experiences, and giving back, not things. I believe things and trying to acquire them can become a trap.
Living simply is, simply, more satisfying. I was born and raised in the Midwest, and I learned that early on. I know that no matter how much I amass, someone will always be richer than me. In my business, I see far too many people who have $5 million comparing themselves with people who have $15 million and people with $15 million comparing themselves with people who have $50 million. It goes on and on, exponentially upping the ante and limiting their ability to enjoy life's real blessings.
This book is for people who want to build wealth so they can pay for education and experiences that will enhance their lives and those of their family members, protect them in emergencies, help them seize opportunities, and allow them to retire comfortably and productively. It's for people who understand that they can't buy the good life but who value liquidity and flexibility as important tools to create and maintain it.
My ideas aren't for everyone. I will suggest that you live in the smallest house you can manage rather than the largest one you can afford. I'll show you why renting can be smarter than buying a home, especially early in your financial life. I'll ask you to give up on buying the latest-model BMW and to think long and hard before jetting off to Tulum. I'll ask you to buy less and do less than you can afford. That's not the American Dream, but it's a foundational pillar when using strategic debt to build wealth. Don't even think about using debt as a tool to build wealth if you can't follow this rule.
You must be willing to live below your means if you want to build liquidity and investments. You need a financial ecosystem that could survive a crash like 2008 or, as is my prediction, something worse. You need a mind that's open to debt as a tool that can work for you as well as against you and a team of financial and legal advisors who think along these same lines.
On your glide path to financial security, working both sides of your balance sheet can give you the liquidity and financial flexibility to lift off and land with ease, elegance, and grace. If you think you have what it takes, take the wheel of your financial life and steer it into the prosperity you deserve.1
Chapter 1
The Traditional Glide Path
“It does take great maturity to understand that the opinion we are arguing for is merely the hypothesis we favor, necessarily imperfect, probably transitory, which only very limited minds can declare to be a certainty or a truth.”
In the traditional financial glide path, debt adds no value. It should be eliminated as fast as possible. Doing so is financially responsible, will increase security, save money, reduce stress, and put you on a better path to financial freedom. In this view, you typically hear:
● Debt