If you ask most people what they thought of debt, they would see it as a negative. This is because debt can quickly become a huge burden on people’s finances, so it’s no wonder most try to avoid it at all costs. However, debt can actually be beneficial if you understand how to use it. In fact, debt can be a cushion or launching pad to bigger opportunities.
It all comes down to how to use it. If you borrow money carelessly with no idea of how to pay it back, then the debt will quickly become your master. In contrast, if you plan your strategy for using the debt and an exit plan, that loan will serve you. Let your money work for you, not against you.
Here are two ways to use your debt wisely.
1. Mount a Hurdle and Expand
Life happens sometimes. A piece of expensive equipment breaks, you expand your practice, or you hire a new doctor. All of these make look like costs on the surface, but in reality, they all open new doors for your practice. This is because buying new equipment, expanding your practice, and hiring a new doctor can help you enhance your practice and reach more patients than ever before.
If you’re at this place and want to guarantee that your debt serves you, here are some quick pointers:
Be Very Specific with How You’ll Use the Money
Lay out the exact reason you’re taking out a loan, where it will go, and how you’ll pay it back. This is the key to maintaining control of your finances. If you plan it, you control it. If not, it will control you.
Calculate the Precise Amount You Need
Instead of guessing how much money you need, get precise. Calculate the cost of your hurdle, then add some wiggle room just in case additional costs pop up. That way, you’ll be prepared for when life happens, and it will.
Consult a Second Opinion You Trust
There’s nothing like a fresh set of eyes on a situation. Talk your situation through with someone you trust and decide if a loan is your best option. They’ll probably see something you don’t.
Above all, it’s important to think beyond your present circumstances. The average American household carries over $155,000 in total debt, so the future can be either terrifying or empowering. It all depends on if and how you plan for it.
2. Tackle a Goal
Reaching certain goals may require debt, and that’s okay. Buying a house, finishing school, or training yourself in a high-value skill to add to your practice are all ways to increase your value in the market and earn more every year.
However, if you’re still hesitant to take out a loan to reach your goals, here are some pointers to change your perspective and feel empowered by money:
Build Assets, Not Liabilities
The first determination you need to make is whether you’re creating assets or liabilities. If you’re borrowing money to buy something that will cost you money in the long run, then it’s a poor investment. However, if your loan creates something that then generates even more wealth, then it’s worthwhile in the end. Put more money in your pocket.
Consider the Value in Dollars You’re Creating
Once you’ve determined that you’re creating assets, you need to calculate how much value that asset is creating. This will help you determine how much loan makes sense so that you make your money back as soon as possible. This includes determining how valuable your skill is, demand for it in the market, and interest rates for your loan.
Plan Your Personal and Professional Journey
The final step is to figure out if a loan is aligned with your personal and professional goals. For example, taking out a loan for a house can be a great idea if you plan to live in the same area for 30 years, have some children, and contribute to the community.
However, owning a home isn’t always a wise decision. For example, if you move frequently and won’t own a house long enough for the potential value increase to outweigh the transaction costs of buying and selling, taking out a mortgage to buy a home might not be a good idea.
If you have any questions about using debt wisely, contact us here.
