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The Value of Debt in Building Wealth

  • ID: 3609949
  • Book
  • 272 Pages
  • John Wiley and Sons Ltd
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From the New York Times bestselling author of The Value of Debt

Praise for THE VALUE OF DEBT IN BUILDING WEALTH

"Trying to achieve financial success without using one side of the balance sheet is like trying to swim without using one of your arms: you′ll survive, but you won′t be winning any races. Tom has explained how to strategically and prudently use debt to build wealth and live a better life."
Raj Date, Former Deputy Director, U.S. Consumer Financial Protection Bureau, and Managing Partner, Fenway Summer Ventures

"The invention of debt fueled all of the Enlightenment, the Industrial Revolution, and Silicon Valley, and has resulted in almost every innovation and invention that man uses today. Nobody gets this. Tom Anderson gets this. A valuable book to understand a controversial topic."
James Altucher, bestselling author of Choose Yourself and The Power of No

"Given how many people get trapped in the cycle of oppressive, high–interest rate debt, it′s easy to dismiss all debt as inherently bad. The Value of Debt in Building Wealth shows us both practically and mathematically that the right kind of low–interest debt can help grow wealth. Debt can and should be used to invest in growth: a home, a business, or your own education, and if your return on investment exceeds the cost of debt. This book will give you a plan."
Aaron Patzer, Founder of Mint.com

"There is a wealth of deep knowledge in finance on the value of debt for both corporations and individuals and how the judicious use of debt can ensure that its benefits exceed its costs. However, much of this knowledge remains within academia and is not readily accessed by households and individuals who have much to learn from it. Tom′s book does a great service by taking this knowledge, combining it with his own vast experience in financial markets, and presenting it in a refreshingly new and persuasive way. It should be a valuable tool for people who want to learn how to optimize the way they use both sides of their balance sheets to build and preserve their wealth for a better life."
Dr. Anjan Thakor, Director of Doctoral Programs, and John E. Simon Professor of Finance, Olin School of Business, Washington University

"Tom encourages us to look at how using both sides of the balance sheet can help us achieve our goals. The real–world case studies will have you wondering why you′ve never heard about debt in this way before. You′ll close this book feeling more empowered about your financial future."
Dr. Michael Gibbs, Clinical Professor of Economics, Booth School of Business, University of Chicago

"Embracing debt can be a tough concept to overcome. In The Value of Debt in Building Wealth, Tom once again shows a way to break through the conventional noise by offering a thoughtful perspective grounded in proven financial theories on the strategic use of debt. Thought–provoking, digestible, and compelling, this book is for everyone who wants to get the most out of their money at each stage of their life."
Dr. Mahendra Gupta, Geraldine J. and Robert L. Virgil Professor of Accounting and Management, and former Dean, Olin School of Business, Washington University

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Foreword xi

Acknowledgments xv

About the Author xix

Introduction xxiii

Chapter 1: The Traditional Glide Path 1

In a Perfect World, No Debt! But Our World Isn t Perfect 2

You Owe a Debt to Your Future Self 3

Break the Paycheck–to–Paycheck Cycle 4

Companies Embrace Balance 5

The Power of Savings 6

A New Glide Path: Debt Adds Value 8

Finding Your Glide Path 11

The Need for Specific, Actionable Advice 12

Endnotes 14

Chapter 2: Foundational Facts 17

All Debt Is Not Equal: Oppressive, Working, and Enriching Debt 18

Paying Down Debt Gives You a Return Equal to Your After–Tax Cost of That Debt 20

Sh t Happens Value Liquidity 20

Yes, You Can Save 24

Compounding Matters For the Upside and the Downside 26

The Past Is the Past; Focus on the Future 29

Behavioral Economics Matters 30

Endnotes 31

Chapter 3: A Balanced Path to L.I.F.E. 33

Phase 1: Launch! 37

Phase 2: Independence 51

Endnotes 62

Chapter 4: Freedom and Equilibrium 65

Phase 3: Freedom 66

Phase 4: Equilibrium 76

Bonus Phase: No Debt! 80

Endnotes 82

Chapter 5: The Other Side of the Balance Sheet 85

The Probability of an 8 Percent Rate of Return Is Zero 86

Risk, Return, and Diversification 87

What about Interest Rates and Cost of Debt? 95

What about One of Your Biggest Assets? Your House 97

Three Buckets of Money 99

Risk Matters The Risk of Time 105

Factoring Leverage into Returns 107

Debt as an Integrated Part of Your Investment Philosophy 109

Endnotes 110

Chapter 6: Proof of the Value of Debt 113

The Big Picture Debt Can Be Valuable 115

Children and College Savings 127

Interest Rates and Debt Service CoverageRatios 128

Endnotes 128

Chapter 7: Conclusion 131

Taking a Stand Against Conventional Wisdom 132

Endnotes 137

Appendix A: Phi Phound Me 139

Inspiration Arrived 140

Not Perfect Makes Perfect 142

Applying the Fibonacci Sequence 142

From 13 to 8 148

From 8 to 5 150

Super Cool Math 151

Endnotes 154

Appendix B: Understanding the Power of Securities–Based Lending 155

Case Study 156

The Power of Securities–Based Lending 159

First Bank of Mom and Dad 162

Endnotes 163

Appendix C: Home Purchase and Financing Considerations 165

Don t Rush to Buy a House 166

When Home Ownership Can Go Wrong 168

Save Yourself the Anguish 169

Be Careful! 170

All Mortgages Are Not Created Equal 171

Owning Can Be Great 175

Endnotes 176

Appendix D: The Millennial s Guide to Debt and Getting Started 179

Saddled by Student Loans 180

The Best Budget: Spend Less Than You Make 182

Debt–to–Income Ratios 185

Pulling These Concepts Together 188

Endnotes 188

Appendix E: The Math Behind the Examples 191

Chapter 1: The Nadas, Steadys, and Radicals 193

Chapters 3 and 4: Brandon and Teresa 199

Higher Income 210

Endnotes 216

Glossary 219

Resource Guide 225

Bibliography 231

Suggested Reading 233

Index 235

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Thomas J. Anderson
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