Biz Blogging (L45)

“Why shouldn’t I borrow (money) to buy something that depreciates?”

If I borrow 30,000$ and use it to buy a car and then drive it at all, then it immediately becomes worth only 20,000$. It depreciates in value. If you borrow money to buy that car, fully intending to pay it back, and then get into some sort of financial trouble and end up selling the car, you are still in debt by at least 10,00$. You’ve effectively dug yourself into a financial black hole. But if you use that borrowed 30,000$ to buy something that can produce more money, then instead of digging yourself into a hole, you are building yourself a crash-pad in case you get into a financial crisis and will be able to pay the debt back with extra money left over. Or even better, just don’t borrow money.

 

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