When it comes to debt most people have a reflex aversion to it. It’s not surprising considering that most popular financial sources all claim that you should get rid of all of your debt as soon as possible. I recently read “The 
Value of Debt: How to Manage Both Sides of a Balance Sheet to Maximize Wealth” by Tom Anderson. Anderson takes a different view of debt. He explores how to use your personal balance sheet to enhance your net worth. He has five tenets on how an individual or family should approach debt. One of the tenets is to Explore Thinking and Acting Like a Company. The goal or most if not all companies is to make a profit. A lot of the principles that CFO’s use towards strategically using debt are applicable to families, but rarely used. An example of a company using debt when you wouldn’t think they would need to is Apple issuing $39 billion in bonds since 2013 even though they have $178 billion in cash reserves. Anderson is not suggesting that families start selling their own bonds, but there are other strategies that can be utilized to achieve your goals. The main one is creating an Asset-Based Loan Facility.
Value of Debt: How to Manage Both Sides of a Balance Sheet to Maximize Wealth” by Tom Anderson. Anderson takes a different view of debt. He explores how to use your personal balance sheet to enhance your net worth. He has five tenets on how an individual or family should approach debt. One of the tenets is to Explore Thinking and Acting Like a Company. The goal or most if not all companies is to make a profit. A lot of the principles that CFO’s use towards strategically using debt are applicable to families, but rarely used. An example of a company using debt when you wouldn’t think they would need to is Apple issuing $39 billion in bonds since 2013 even though they have $178 billion in cash reserves. Anderson is not suggesting that families start selling their own bonds, but there are other strategies that can be utilized to achieve your goals. The main one is creating an Asset-Based Loan Facility.Anderson claims that the strategic use of debt will allow you to have:
- Increased Liquidity – having more ready access to liquid funds or cash
- Increased Flexibility – having more options for addressing the direct and indirect costs of financial distress
- Increased Leverage – in good times, you have the ability to enhance and accelerate the accumulation of wealth
- Increased Survivability – a diminished likelihood that real survival issues, to your way of life or to life itself will arise.
A couple of the strategies in the book I liked in addition to the Asset-Based Loan Facility were options on how to finance cars, 2nd homes, boats, or other luxury items as well as how to maintain an ideal debt ratio.. It’s not about buying what you can’t afford, but about implementing a strategy to better purchase things you can afford and how to maximize value.
Anderson followed that book up with the 2015 release of “The Value of Debt in Retirement: Why Everything You Have Been Told is Wrong.” I’m looking forward to reading that one too.