So after a few digital marketing posts, I figured it was time to switch tack and confuse you all with another personal finance article. I like to keep you guys guessing :)

Those of you who have read The Millionaire Next Door by Stanley and Danko – and I highly recommend the audio book – will know the importance of both good Offence (generating income) and good Defence (keeping income). Most people concentrate on just one side of the wealth equation: they either make a ton of money but increase their lavish living standards and debt accordingly, or they are frugal superstars who struggle to increase their income.

Time and time again, the problem is that both types of people must pay their creditors before they pay themselves. The concept of credit (or debt, when you’re on the sharp end) cannot be fully removed from modern living – mortgages, student loans, even just contracted monthly payments for services like your mobile phone or internet.

Due to the way people mismanage (and often just totally neglect) their personal finances, there’s a misconception that all debt is somehow bad. But this is only true if debt is entered into for the reason of instant gratification; we live in a society that feels entitled to hold the latest gadget, wear the latest fashion, drive the latest car before the money has been earned to afford it. BUT it is possible to take on debt responsibly, with the means to repay it.

There are many services that require credit cards for payment, such as hotels and hire cars, and it’s important to understand that credit cards (as opposed to cash or debit cards) offer the buyer a significant degree of consumer protection, both against fraud and less honourable merchants who might misrepresent the goods.

Another healthy use of debt is using loans to increase your earning power. For example, a gardener might be able to double his income if he invests in some tree tools (chainsaw, branch cutters etc.) That’s just an example of course, and it’s important the debt can be repaid even if the opportunity fails to increase income, but in this case I would consider the loan a sensible move.

Anyway, food for though. Debt itself is just a mechanism with no inherent issues. It is human self control, or usually lack of it, that stops people from playing both great Offence and great Defence.