I have a passion for personal finance... I can't get enough... I read about it, I think about it, and now I write about it.
Why does the Internet need another personal finance blog?
All personal finance blogs that I have read vilify debt, demonize it even... While such a stance is important for those unfortunate individuals laden with debt without the cash flow to pay it off, in my opinion, the propagation of this "truth" is the single biggest travesty to occur to the middle and lower classes since the time of feudalism. What ever happened to the American Dream? It is being buried in the avalanche of the debt snowball.
The American Dream isn't about scrimping and saving every penny like a frugal miser to pay your debt (unless it makes you happy.) It is about Life, Love, and the pursuit of happiness.
I'll be the first to admit that I am an American consumer. I have a house, a vacation house, 2 nice cars, a boat, a gym membership, I graduated from a first tier Ivy League institution, I belong to a secret society, I belong to one of the most exclusive country clubs, and hopefully one day at least partial ownership of a personal jet (dare I even dream my very own island?). That I have used other peoples money for leverage in my pursuit of happiness does not make me a bad person.
To me the American Dream is all about leverage. Money, income, cash flow, interpersonal connections, and even debt are but resources to be leveraged to create monetary wealth. Monetary wealth brings freedom of time and freedom of movement.
In the end, even the wealth is a resource to be leveraged. One personal finance writer I happen to agree with is LazyMan... He often talks about multiple income streams and alternative income. Not only should you diversify your assets, but you also need to diversify your income. The classic networth equation is that net worth equals assets plus income minus expenses. I actually think that balanced and diversified wealth comes from a 5 part equation, networth equals appreciable assets plus income producing assets plus income producing debt plus asset producing debt minus cost of living minus debt maintenance.
The nuance of this equation is that if one is taking on debt to maintain a cost of living then one is clearly living outside of their means... For these individuals and families, Dave Ramsey and the debt snowball might be important... If on the other hand you are producing long term net worth gains with your debt then you are living the American Dream.
Ask yourself did the Rockefellers or Carnegie or JP Morgan or Vanderbilt or the Kennedys or the Donald achieve wealth without debt?
Which brings me to the travesty of the debt snowball. I mentioned above your cost of living must be below your income, but there are two ways to achieve balance. Cost reduction and the Debt Snowball is clearly one path, but that path also has a limited ability to produce wealth. The way to wealth is through increasing your income, not limiting your expenses. The path to stability is diversification of your income, not eating only Top Ramen. The way to get Rich is to leverage Credit Debt and Loans to build a diversified portfolio of income producing assets, not slave away paying interest on your groceries to a large conglomerate bank.
Good luck on your personal journey and I hope you enjoy my blog.
Originally posted 2008-11-14 16:27:20. Republished by Blog Post Promoter
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Dave Ramsey, Debt, Debt Snowball, Money, Personal Finance, Wealth
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7 comments ↓
Thanks for the link. I think people have different definitions of wealth. For many, it probably doesn’t mean Carnegie or Gates wealth, but is closer to trying to be like your “rich uncle Bob” rich.
I think Warren Buffet has proved that you can be live a cost reduction life and still make a lot of money. Just look at the old used car that he drives.
@LazyMan
Thanks for stopping by. You are welcome for the link.
I don’t mean to sound glib when I disparage frugality, just that my emphasis will be in income production rather than savings.
finally, something different – I’m curious to see how this develops.
Just found your blog. Your background sounds similar to mine although I quit the country club and have no aspirations of fractional jet ownership (although I own multiple boats!) I have to say that my approach to wealth building has been closer to what you say you dislike. For me wealth comes first followed by collecting toys (e.g., boats). I would be interested in your age, and posts on your net worth and how much of it is liquid. It would make for an interesting comparison. Keep up the good work.
Totally agree with you here.
Coming from Silicon Valley like RichLeverage and Lazy Man, I can see why we’re particularly biased about this way of growing wealthy. Creating and investing in businesses (and leveraging debt responsibly) are the most powerful ways to become wealthy, a formula used repeatedly by successful entrepreneurs in the valley.
[...] Loan: Some interesting view points here about the advantages of leveraging. I agree with Kevin that increasing one’s income and leveraging debt properly may actually help you grow wealth more effectively than if you were [...]
I think diversifying income and creating passive income streams is always a good idea. i’m following dave ramsey at the minute and I don’t think all debt is bad at all. wise use of debt can certainly help build wealth.
At this point in time though I just need to payoff a lot of consumer debt and don’t mind being frugal for a while to do it.
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