Does Money Grow on Trees?
Want More? Spend Less!
Many wished that money grew on trees. Just seed, plant, and let it grow! Having a never-ending supply of cash may be a dream. Wouldn’t you love to 
do whatever you want whenever you want? The truth is, if you plan properly, this day of true financial freedom can occur.
It is far better than the alternative—incurring debt. In order to pursue true wealth, you need to understand the difference between “good” and “bad” debt.
So how can you tell the good from the bad?
Here are the working definitions of what I am talking about:
Good debt: Good debt involves purchasing something that will gain, retain, or create value. A home mortgage is a prime example of good debt.
Bad debt: To put it simply, bad debt is any debt you incur when buying something that will lose value.
Ugly debt: Ugly debt is debt incurred when purchasing something consumable (meaning it will have no further value). This seems logical, right? Spending does not equal happiness
Many spend more than they make going deeper and deeper into debt. Before you consider debt, ask yourself:
- Is this adding to my wealth or subtracting from it?
- Do I really need this now?
- Do I have enough in savings to pay for this?
- If I borrow, how much interest will I pay?
- Does this make financial sense?
4 Comments
Hmmm… I don’t want to bust up your Clint Eastwood theme; however, there’s something in my core that just shutters when I hear the term “good debt.” I understand the distinction you’re trying to make, and it’s a valid and necessary one that not many people stop and think about. I’m just not crazy about calling any debt “good.”
Brad, I agree the word “good” is subjective. I personally believe debt should be avoided and used only as a last resort. My point was simply there are some valid or better uses of debt – such as if there is a high probability you will make more money than the cost of borrowing. Thanks for your input!
Excellent points Jay. “Good” debt might also involve determining where we are in the economic cycle. During periods of deflation there is no “good” debt. During periods of inflation debt used to fund growing investments like real estate may be perfectly fine.
Unfortunately, Deflation is a huge risk right now. This makes all debt something to try and avoid at the current time; maybe even the “good” debt.
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