Growing up, I adopted a negative view of borrowing. I saw many family members get in over their heads in debt, which eventually led to horrible things like divorce and bankruptcy. I looked up to many people in my community and at my church who talked about debt as something dangerous or evil. I always thought it was best to avoid debt like the plague with these exposures and perceptions.
When I went to college, I worked full-time and paid for all my classes as I went. I never took out one student loan for undergraduate or graduate school. I was afraid of borrowing because of the damage that I had seen it cause.
In my first Corporate Finance course in grad school, I started to really comprehend the math behind leverage (borrowing) and the potentially positive outcomes it could create for a company. By looking at the interest expense associated with the debt concerning the potential return on capital, one could decipher if it was prudent to borrow.
Prudence was the key.
This new lesson on prudent borrowing shifted my paradigm of how I viewed debt, and my long-held negative associations of debt were being challenged.
tcummings@thebahnsengroup.com dpernas@thebahnsengroup.com
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Trevor is a Partner, Director of our Private Wealth Advisor Group, and Author of Thoughts on Money.
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