The Value of Debt in Building Wealth

Chapter 2Foundational Facts

“An investment in knowledge pays the best interest.”

—Benjamin Franklin

Glide paths, like runway lights for airplanes, set a course and provide necessary boundaries. The runway is different at each airport so the lights are helpful markers for the plane. When it comes to personal finance, I have my own markers. I consider these foundational facts for your financial journey, the boundaries to keep us on course:

1. All debt is not equal: There are different types of debt.
2. Your rate of return for paying down debt is exactly equal to your after-tax cost of debt.
3. Sh*t happens—Value liquidity.
4. Yes, you can—save.
5. Compounding matters to the upside and downside.
6. The past is the past. Focus on the future.
7. Behavioral economics matters.

Table 2.1 Oppressive, Working, Enriching Debt: You OWE It to Yourself to Understand the Differences

Type	Examples	Sources	Impact
Oppressive debt	Payday loans, credit card balances	Loan sharks, credit card companies	Oppresses debt holders and makes them continually poorer
Workingdebt	Mortgages, small business loans, low-cost student debt	Mortgage lenders, SBA loans	Has a real cost but enables things that might not otherwise be possible
Enrichingdebt	Debt that you choose to have but could pay off at any time	Mortgages or low- cost securities-based loans	May increase return, reduce taxes, and actually reduce risk

All Debt Is Not Equal: Oppressive, Working, and Enriching Debt

Before we even begin our quest to explore ...