Investment Tip

What is reasonable use of debt?

It may not be possible to completely avoid debt, but it's a good idea to try very hard to do that. The issue isn't so much IF we will acquire debt somewhere along that way, but rather WHAT kinds of debt make good common sense.

A good guide for making reasonable use of debt is to consider what will happen to the value of the item you are considering over time.

• Things that will increase in value over time and add to your net worth comprise good use of debt.
• Things that will depreciate in value over time and do not add to your net worth represent unreasonable use of debt.
• Buying a house, starting a business, getting more education to further your career are examples of things that will build your net worth.
• Motorcycles, boats, vacation trips, the latest television and other consumable consumer product are examples of things that will depreciate immediately and not build your net worth. Save up and pay cash for these kinds of things.