What is the Fastlane stance on Debt?

[Bonokucho]

I have a few questions about the mention of debt from The Millionaire Fastlane because it was never really elaborated on. These are some points MJ DeMarco makes about debt:
"I take advantage of Banks, Banks don't take advantage of me" in reference to the garnering point rewards from credit cards while describing his reality.
"[Fastlane] Debt Perception: Debt is useful if it allows me to build and grow my system" when listing the Fastlane mindposts.
As someone who grew up following Dave Ramsey's advice, I see debt as undesirable in regards to personal finance. Of course, it's important not to finance a lifestyle on debt as is done on the Sidewalk, but what are some ways a Slowlaner or better yet a Fastlaner can utilize debt as a progressive tool?

 

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[BizyDad]

I took out a car loan last year at 3.2%. It was obvious rates were going to keep going up.

The money I could use towards paying that loan off is currently sitting in a savings account at 4%.

With inflation raging, I'll be paying it off with cheaper dollars.

And when the right business opportunity comes along, I will have cash on hand to move on it.

Those are three reasons why, in my case, it made sense to take on that particular debt.

Edit... Voice to text still needs work.

 

[Bonokucho]

I took out a car loan last year at 3.2%. It was obvious race we're going to keep going up.

The money I could use towards paying that loan office currently sitting in a savings account at 4%.

With inflation raging, I'll be paying it off with cheaper dollars.

And when the right business opportunity comes along, I will have cash on hand to move on it.

Those are three reasons why, in my case, it made sense to take on that particular debt.

This scenario makes sense. In many cases though, the interest rates on most debt is insanely high, and I don't know many other secure savings funds that return interest at a rate higher than banks and other loaners charge. I am curious about hedging against inflation though. I noticed Blackrock doing it back in 2020 & 2021, as they shorted the US dollar with real-estate while the US dollar was rapidly losing value at the time. I suppose the general question is how to hedge against or short depreciating assets, that being the dollar, houses, cars, or anything. Also, where does one find secure saving accounts at high interest? (5 - 8%) The most I see offered by commercial banks are CDs with APY around 4.8% at most.

 

[BizyDad]

This scenario makes sense. In many cases though, the interest rates on most debt is insanely high, and I don't know many other secure savings funds that return interest at a rate higher than banks and other loaners charge. I am curious about hedging against inflation though. I noticed Blackrock do it back in 2020 & 2021, as they shorted the US dollar with real-estate while dollar was rapidly losing value at the time. I suppose the general question is how to hedge against depreciating assets, that being the dollar, houses, or cars. Also, where does one find secure saving accounts at high interest? (5 - 8%) The most I see offered by commercial banks are CDs which is around 4.8% at most.

Do you have significant dollar exposure to inflation? The fact that you're asking this question makes me think you don't, so respectfully, I would say stop worrying about it and go build a business.

You're looking for a solution to a problem you don't have.

Comparing yourself to Black Rock, for example, is a complete waste of time. Every second you spend doing that, is a second you spend not building a business...

 

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[Bonokucho]

Do you have significant dollar exposure to inflation? The fact that you're asking this question makes me think you don't, so respectfully, I would say stop worrying about it and go build a business.

You're looking for a solution to a problem you don't have.

Comparing yourself to Black Rock, for example, is a complete waste of time. Every second you spend doing that, is a second you spend not building a business...

Well said. I shouldn't be obsessing about the actions of big businesses as if they have more control over my life than I do; I'll get back on track. That last question was geared more towards the win-condition of the Fastlane, cashing out. When one does choose to cash out a large sum in a liquidation event, how should it be protected?

 

[Kevin88660]

I took out a car loan last year at 3.2%. It was obvious race we're going to keep going up.

The money I could use towards paying that loan office currently sitting in a savings account at 4%.

With inflation raging, I'll be paying it off with cheaper dollars.

And when the right business opportunity comes along, I will have cash on hand to move on it.

Those are three reasons why, in my case, it made sense to take on that particular debt.

Depends on if the 3.2 percent is effective rate.

 

[Johnny boy]

Debt is cool because you can buy cool shit like a Hellcat.

Just go worry about your income and make it double every year.

Finance that car you can't afford, double your income, then go finance that boat you can't afford, double your income and go buy that house you can't afford, double your income and then run out of places to keep your money. Then you will have a nice car, a nice boat, a nice house, and a F*ck load of money and you won't be some NERD talking about interest rates and inflation.

Your frugality is boring, and it creates a financial buffer so that you are not motivated. So now you're boring and unproductive. Better to work hard and play hard. Make 5k/mo, spend it. Make 10k/mo, spend it. Make 50k/mo, spend it.
Make 200k/mo, accidently only spend 100k and then you didn't even think about it and saved 100k in one month, oops.

 

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[Subsonic]

Debt is cool because you can buy cool shit like a Hellcat.

Just go worry about your income and make it double every year.

Finance that car you can't afford, double your income, then go finance that boat you can't afford, double your income and go buy that house you can't afford, double your income and then run out of places to keep your money. Then you will have a nice car, a nice boat, a nice house, and a F*ck load of money and you won't be some NERD talking about interest rates and inflation.

Your frugality is boring, and it creates a financial buffer so that you are not motivated. So now you're boring and unproductive. Better to work hard and play hard. Make 5k/mo, spend it. Make 10k/mo, spend it. Make 50k/mo, spend it.
Make 200k/mo, accidently only spend 100k and then you didn't even think about it and saved 100k in one month, oops.

Man you need to start being a influencer and collaborate with tate.

 

[Jeix]

I have a few questions about the mention of debt from The Millionaire Fastlane because it was never really elaborated on. These are some points MJ DeMarco makes about debt:
"I take advantage of Banks, Banks don't take advantage of me" in reference to the garnering point rewards from credit cards while describing his reality.
"[Fastlane] Debt Perception: Debt is useful if it allows me to build and grow my system" when listing the Fastlane mindposts.
As someone who grew up following Dave Ramsey's advice, I see debt as undesirable in regards to personal finance. Of course, it's important not to finance a lifestyle on debt as is done on the Sidewalk, but what are some ways a Slowlaner or better yet a Fastlaner can utilize debt as a progressive tool?

The answer is leverage.

Let's say I buy eggs and flour to bake cakes and sell the cakes. If the eggs and flour needed for a cake cost $10 and I sell the cake for $20, I pocket the difference each time.
Hoping to grow the business, increase the amount of ingredients I can buy and the amount of manpower needed to bake those cakes, I take out a loan to invest in new equipment, people and materials.

Any loan I take with a lower interest rate than the ROI I get on my cakes is a great deal because I can put that money to work at a much better rate than what the bank wants back from me.
In this scenario, debt helps a business grow by allowing it to scale, letting it act as if it were much bigger than it is (in terms of purchasing power).

Without debt, the business would need to slowly wait until it has gathered enough liquidity to make a new investment, which could take years and a lot of market conditions could change in the meantime.

Businesses want to seize the day. If Christmas is coming up and you sell Panettone, you want to ride the holiday rush right now and match demand with an adequate amount of production.

Debt, when used well, allows a business to grow a lot faster and to make a lot more money than what they owe to the bank.

This natural phenomenon can't be harnessed by individuals because they don't own means of production. Any loan they take is used towards spending and the money needed to pay it back must be generated elsewhere with other means.
Although debt is handy, for example I can buy a comfy couch and pay it over four years rather than sit on the floor while I save enough to pay for it, it's just a different way for a person to spend money and never a way to make more.

Businesses just have different rules and lots more advantages than individuals, they are the winning side of capitalism.

 

[Kevin88660]

I have a few questions about the mention of debt from The Millionaire Fastlane because it was never really elaborated on. These are some points MJ DeMarco makes about debt:
"I take advantage of Banks, Banks don't take advantage of me" in reference to the garnering point rewards from credit cards while describing his reality.
"[Fastlane] Debt Perception: Debt is useful if it allows me to build and grow my system" when listing the Fastlane mindposts.
As someone who grew up following Dave Ramsey's advice, I see debt as undesirable in regards to personal finance. Of course, it's important not to finance a lifestyle on debt as is done on the Sidewalk, but what are some ways a Slowlaner or better yet a Fastlaner can utilize debt as a progressive tool?

Bootstrapping is preferred. You are your boss and keep all your earning. No bankruptcy if business fails.

If you need outside money getting an investor is preferred. When you gets into debt you still have to pay back the money.

In theory small companies could borrow some quick cash under the corporate name but any amount significant enough becomes essentially a personal loan. The founder usually has to put up some personal collateral to the bank.

bootstrapping > Getting Investor > Borrowing

 

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[BizyDad]

Man you need to start being a influencer and collaborate with tate.

Great, now I will forever hear Andrew Tate's voice when reading Johnny boy posts.

 

[constant]

Great, now I will forever hear Andrew Tate's voice when reading Johnny boy posts.

Noooo why did you point that out
I cant unhear it anymore

 

[Guest-5ty5s4]

If you can get a return higher than the interest rate on the debt, it makes sense to borrow. Big “if” …

This statement is a starting point in your financial education. There are a billion avenues to go from there.

 

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[Kak]

Debt can be the biggest catalyst to growth or the biggest burden you ever experience.

Be very careful about debt structure and your pay off plan. It needs to make sense. Never take debt to speculate.

As far as personal finances are concerned, don’t trap yourself so make choices that you can easily afford. Debt or not, make sure your home, cars and whatever are things that don’t stress you out or trap you to an income that requires you to do things you don’t want to do.

 

[BizyDad]

Depends on if the 3.2 percent is effective rate.

Nope. Can't let this seemingly smart sounding reply slide.

This is getting bogged down in minutiae. Stop sharpening your pencil and build a business.

If the effective rate is 3.2 or 3.5 or even 4.5, it doesn't impact two out of the three reasons for taking the loan. And if savings rates rise high enough, then even the 4.5% effective rate still wouldn't matter.

Besides, a 1% difference in effective rate on a hypothetical $50k loan is...

$500.

A year. $40ish bucks a month.

I'd still be better off hypothetically eating that $500 and having my cash waiting for the right business opportunity. With cash, I can move faster on closing on a business opportunity. If I paid cash for the car, I'd have to hope and pray a bank approved my loan for the business, and I might lose the opportunity to make way more than $500... per month, not year.

Side note... I did end up buying the business. It did end up paying me back my investment within the first 100 days. And I still haven't paid back the loan because I am saving to buy an even bigger business next time around.

This comment is a classic example tripping over dollars to pick up pennies. I will again thank biophase for his post that opened my eyes to this tactic, and hopefully someone else's eyes are now open.

 

[ZackerySprague]

"[Fastlane] Debt Perception: Debt is useful if it allows me to build and grow my system" <- Exactly as the statement says, for me cash is king, If I don't have the cash, I won't borrow. I had to learn a very hard lesson when borrowing money from lenders. I'm not saying that applying for a credit card or loan is bad, but I would only use it if it were to help me get my Fastlane business off the ground or I know I can afford something because I have a 3% APR on a house or car, which basically states that I am paying back the principal and not paying any interest, and my business or income allows it. Otherwise, I am okay with what I have until I sell a Fastlane business to buy everything straight out. Until then, I'll take my time.

 

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[MJ DeMarco]

Direct from The Great Rat Race Escape ...

 

[Guest-5ty5s4]

Direct from The Great Rat Race Escape ...

View attachment 47166

I wish I could like this 100 times!

Here is another great quote on debt:
"Borrow big, pay back promptly." (might be better to say, pay on time)

And another:
"If you owe the bank $1 million, that's your problem. If you owe the bank $100 million, that's the bank's problem." - J. Paul Getty

Edit: Walter's post below is awesome too; you don't need to use debt, necessarily!

 

[Walter Hay]

HOW I AVOIDED DEBT IN MY BUSINESS VENTURES. It's simple, but few entrepreneurs do this.

My method was to sell with very high profit margins. In order to achieve that it is neccessary to:

• Buy at low cost.
• Be daring enough and capable of selling at a high price. (i.e. Convince customers of the value.)
• Reinvest profits into the business so that you have capital for buying product/s.
• If possible produce the product from raw materials.
• Maintain low overheads. (Waste not want not.)

Walter

 

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[biophase]

It all really depends on how you use the debt. Like in MJ's case, I just purchased a house using mostly cash. I could have easily gotten a loan at 6% (maybe 5%) but in hindsight, what I did makes so much more sense now.

I'll make the numbers even for my example. Let's say the house was $1m, and I had $1m in cash, interest rates were 5%.

Many people would say, put $200k down, finance $800k. Then take the remaining $800k and invest it into something that returns more than 5%.

I was thinking of getting a loan when I closed back in October 2022. But in hindsight, was I realistically going to deploy $800k in an investment in Oct 2022? No. Interest rates were rising, real estate was tanking, stock market was dropping. The most ideal thing to do was to sit on the cash and wait for a crash. So I had 0% chance of investing the $800k within a 6 month or maybe even a 1 year period.

Thus, paying cash for the house made sense. Because I could always refinance and take out $800k if I needed it in a year for an investment. I also calculated that if I took the loan I would be paying $110/interest per day. Do you know how much furniture I can buy with that. Wait 14 days and I have a new sofa. Wait 10 days, new dining table.

In my case, I clearly made the correct decision because so far, nothing has come up that I want to invest my $800k in.

 

[socaldude]

Debt is important because it might be cheaper(cost of capital) and better strategically(control) than to source capital from an investor or partner.

Most people just fund their business with their credit cards.

Once you’ve proven a valuable concept you can approach high net worth individuals and sell them on the opportunity. They’ll write you a check if you convince them on how big the opportunity is and whether they like you or not(how you look as well).

It’s basically the WACC concept in finance. Weighted average cost of capital.

Debt is a whole different story if you used it to finance a Dodge Demon with a 550 credit score or bought a Gucci belt with your credit card.

Definitely something to know. Imagine you can’t communicate or decide debt for your business to a partner or investor. Cringe and embarrassment. LOL

 

[Kevin88660]

Direct from The Great Rat Race Escape ...

View attachment 47166

I understand you could borrow when the cost is low, and use it on other opportunities.

But I am curious to know why one would not to pay it down in full, and borrow using the house as a line of credit later, at a similar rate.

Because in practice when you took up a mortgage loan, there are strings attached that you couldn’t fully repay it fully within the first few years, even if you have the money.

 

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[MJ DeMarco]

Because in practice when you took up a mortgage loan, there are strings attached that you couldn’t fully repay it fully within the first few years, even if you have the money.

There are no such strings attached, I made sure of it. There is no early payment penalty. I can pay off as I please.

 

[fmvpinho]

If you can get a return higher than the interest rate on the debt, it makes sense to borrow. Big “if” …

This statement is a starting point in your financial education. There are a billion avenues to

I understand you could borrow when the cost is low, and use it on other opportunities.

But I am curious to know why one would not to pay it down in full, and borrow using the house as a line of credit later, at a similar rate.

Because in practice when you took up a mortgage loan, there are strings attached that you couldn’t fully repay it fully within the first few years, even if you have the money.

It is a matter of returns vs the cost od debt. My husband and I were actively looking for our first rental property to invest in. We had cash put aside but we thought we would take advantage of the low interest rates - this was back in July 21. So we would put the minimum 20% down payment on the house and that was it. It turned out that when the opportunity came we were offered to buy 2 rental properties on a discount if we bought the 2 together. We would not have done it without debt. Now we have the rental properties paying the loans and we still have money left on the rent as income. Our only regret is that it is a floating rate loan and when the interest payment resets in July it will increase aignificantly, but... we have cash set aside so we will pay down that debt in the summer. But had we fixed the rate back then, we would keep it. We bought a house for ourselves in 2022 also on a loan but we fixed the rate a relatively low level, so will leave it be as is. Debt needs to be looked at relatively to the cash flows it generates.

 

[Bonokucho]

Hey guys, thank you for the replies and insight. Here are my major takeaways from the thread:

• Debt is a tool to utilize somebody else's money now. Fastlaners utilize the tool to leverage the cost of money, while slowlaners/sidewalkers use it as a tool to leverage affordability.
• While there are opportunities to take advantage of debt/interest rates in personal finance, it's more often used to scale businesses.
• Understand the details of a loan agreement and never use debt to speculate. Debt loses it's utility when it includes servitude of any kind.

Also, thanks MJ for your clarification on debt with the Great Rat Race Escape excerpt. It's now been added to the reading list.

 

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