“A Man Without Debt is Still a Boy”
During a trip with friends, I heard this provocative saying that initially struck me as nonsense. But upon reflection, I realized there might be wisdom in it. The key insight? Not all debt is created equal.
Let’s start with the basics. According to accounting principles:
Liability: The total monetary value of debts and obligations of a person or company, regardless of payment timeline.
We all understand what liabilities mean, but here’s what I’ve learned over the years: Not every liability is bad. While I absolutely oppose debt that drains money from your pocket, some “good debts” present genuine opportunities for growth.
Understanding Good Debt
Good debt is simply debt that helps you grow and generate future income. When you study how economies function (as economist Ray Dalio explains), you learn that credit is essential for faster growth.
Why Credit Drives Progress:
- Credit enables expansion beyond current cash flow limitations
- Without credit, technological development would be dramatically slower
- Society as a whole would develop at a much reduced pace
Real-World Business Example:
Imagine you start a business with initial investment X. As you gain more customers and increase sales, you need:
- More raw materials
- Additional workforce
- Better equipment to scale operations
With proper planning, you can secure loans against predictable future revenue. By the time you finish paying the loan, your business has grown significantly in just a few years. Paying everything in cash would result in much slower, limited growth.
Practical Scenario:
Without leverage: Customer wants a cake in 3 days, but you’re overbooked and lack materials/staff. You tell them to come back next month when things stabilize.
With smart leverage: You can take on the order, invest in capacity, and grow your business immediately.
Examples of Strategic Debt Use:
❌ Poor Decision: Minimum wage earner buying iPhone 16 Pro Max financed over 36 months for personal use
✅ Smart Investment: Same purchase to create relevant social media content and build a digital business
The difference lies in whether the debt generates future income.
Recognizing Bad Debt
Unfortunately, we don’t live in a world of only good opportunities. With increasingly sophisticated advertising and endless hours on social media, our consumption has skyrocketed.
The Modern Trap:
- Constant social comparison awakens desires we didn’t know we had
- Impulse buying becomes compulsive behavior
- We forget why we bought items when the bill arrives
My Golden Rule:
Leave items in your cart for at least 24 hours before purchasing. This simple delay helps separate impulse from genuine need.
Strategic Approach to Major Purchases
For significant expenses like cars, homes, businesses, and travel, planning and caution are non-negotiable.
Why Caution Matters:
- Economic conditions change rapidly
- Job loss can happen unexpectedly
- Bad liabilities drain your emergency fund when you need it most
Personal Experience:
This year, I survived 4 months of unemployment specifically because:
- I kept my cost of living controlled
- I avoided bad liabilities like car payments and mortgage payments
- My emergency fund wasn’t being drained by unnecessary monthly obligations
This financial discipline literally saved me during a crisis.
Interest Rates: Your Strategic Compass
The current interest rate environment should dictate your leverage strategy. When I’m writing this, with Brazilian interest rates at 12% annually, the scenario calls for total caution.
High Interest Rate Environment (like now in the US):
- Borrowing costs are extremely high
- Focus on saving and studying instead of leveraging
- Wait for better opportunities to emerge
- Build cash reserves for when conditions improve
Low Interest Rate Environment:
- Strategic leverage becomes more attractive
- Good debt opportunities are worth considering
- Expansion and growth strategi