The Value of Debt in Building Wealth

Chapter 3A Balanced Path to L.I.F.E

“The definition of insanity is doing the same thing over and over and expecting different results.”

—Albert Einstein

Whether traveling by boat, plane, car, or train, there are markers to determine where you are and beacons to help navigate the path where you want to go. We all stand at different milestone markers of our financial journey and we all need beacons to set the glide path going forward.

Whether you have a lot of assets, are just getting started, or are even behind, you can have balance. Let's take a look at the four phases of your financial L.I.F.E.

1. 1. Launch. In this phase, you are just starting to build your wealth with an emphasis on reducing oppressive debt and building up a savings reserve. Your net worth is less than 50 percent of your gross annual pretax income (if your income varies, use the most conservative estimate).
2. 2. Independence. You have a small nest egg and many people consider buying a home or taking on some working debt. Your net worth is between 50 percent and two times your gross annual pretax income.
3. 3. Freedom. Your net worth is between two and five times your gross annual pretax income. You are at the point where you can safely and confidently take advantage of the debt strategies I discuss here and reap the benefits of your financial decisions.
4. 4. Equilibrium. Your net worth is greater than five times your gross annual pretax income. You have a healthy, accessible cushion of cash in reserve. You are saving ...