For most, the word “leverage” or “debt” has a negative connotation. Responsible leverage, on the other hand, showcases how debt is actually a financial tool.
Consider that responsible leverage can help individuals achieve personal independence while also fostering long-term financial well-being. How? It’s actually pretty simple.
Defining Responsible Leverage
First, it’s crucial to note that not all leverage is alike, and “Responsible leverage” refers to borrowing money with careful consideration and a clear understanding of the associated responsibilities. It involves utilizing leverage as a strategic resource to support financial goals while maintaining financial stability and minimizing undue burden.
There are many pros and potential cons to using leverage, and understanding them ensures you can utilize it to your advantage and avoid the cons.
The cons are widely known: owing money means you must have a steady source of income to pay off the debt on time, to avoid fees.
Utilizing leverage responsibly means the amount of leverage someone takes on is significantly lower than their threshold to pay it back.
“Going into debt” is often tied to a situation where someone has spent more than they make, often continually, and are unable to catch up.
Conversely, the pros of going into debt are not as widely known. More often, people refer to this as utilizing leverage.
Responsible leverage is when people use the bank’s money to pay for something when the money they already have is more useful elsewhere.
Here are some examples:
Taking a business loan instead of using capital
Making car payments instead of buying in cash
Taking out a HELOC instead of using savings
Responsible leverage is obtained for meaningful purposes - the goal is to keep your nest egg working for you long-term, while someone else’s money buys what you need in the present.
Conclusion
At the core, all of our EFS Life solutions center around responsible leverage. We offset tax burdens by leveraging the tax payments so our clients retain more value. Whether that’s in their real estate portfolio, their retirement accounts, or their pension plans - we recognize that responsible leverage is a tool to be used in the right circumstances
By embracing responsible leverage as a strategic tool, you can navigate the complexities of borrowing with confidence and pave the way for a financially empowered future.
Questions? Reach out! jeff@efslife.com or call 773-318-9608.