The fact of life is, and has always been, whether to live today and allow the future to take care of itself, or to act prudently and patiently and work towards a positive future in order to manage all the ups and down of life.
Advocates of both views can put forward positives for either philosophy, yet rarely and critically, evaluate the risks of either strategy.
It really doesn’t matter which approach you take, as long as you accept responsibility for your own actions and do not ask other people and/or governments to bail you out if your earlier decisions have negatively affected your future.
“Debt is like salt – a little enhances everything, too much ruins the meal.” Larry Fink – CEO of Blackrock
The main problem these days is the promotion of the use of debt is seen as being more important than that of savings and cash. This dominate thinking is put forward by many businesspeople, homeowners, politicians and central banks decisions actively advocate that debt is good whilst cash and savings are bad.
Under such circumstances, we can appreciate why many people, particularly those without any savings are willing to go into debt and/or spend their way to success and happiness.
The problem is however, by the advocating the above, it maybe that there will be little or no savings to fund future requirements or to cover unforeseen difficulties. Throughout the ages there have always been good and bad times. If there are no contingency funds or easily liquidated assets for your business or family to use, not only are you in trouble so are the rest of us when bad times and emergencies occur.
Unfortunately, in today’s business environment, and not just in Australia, too many business customers are in debt, facing insolvency or bankruptcy, whilst desperately trying to pay their bills with limited savings or access to finance.
Worse still, are the government and do-gooder mandated “hardship” legislations and societal ethos, which insists that when your debtor customers get into financial trouble, your business MUST support them. As a result, for whatever reason, your indebted customers can soon put the financial viability of your business at risk. Regretfully, the government and do-gooders do not seem to care that your business might also be suffering hardship because of these mandates and decisions.
When reviewing debt
“Debt is like salt – a little enhances everything, too much ruins the meal.” Larry Fink – CEO of Blackrock
When using debt, you have made the decision to live today and allow the future to take care of itself. Whether that be in your business or personal life is not the problem. Whilst good debt can assist in growing wealth. It is when there is too much good debt used inappropriately, that it also becomes bad debt.
Good debt is usually described as:
- buying access to a business asset at a bargain price, or to help with an unexpected opportunity to buy out of a competitor,
- to overcome an unexpected debt or recover from a disaster (but with an expectation this debt will be paid off as quickly as possible), or
- in our personal lives, buy an appreciating asset such as a home or an investment property, etc.
Bad debt on the other hand is usually described as:
- believing the business can afford to go into debt because it provides a tax deduction,
- forgetting when your business goes into debt, that your business is now depended on the goodwill and/or the financial liquidity of your creditor(s),
- being used to cover day-to-day living expenses,
- buying “… look-at-me goods and services” which depreciate in value, when basically they are just to impress other people or as a means of covering up your own self-esteem issues,
- for a flash car or holiday or special event when using savings would be a better strategy,
- too much good debt can also become bad debt even when used to buy good assets or a home or to buy a business asset because these examples are usually because of the FOMO principle, etc.
Irrespective of whether you are taking on good or bad debt, we note almost on a weekly basis these days, the best businesspeople and many politicians still seem to be unable to successfully manage debt. The question therefore which is rarely answered or considered follows.
How is the general public going to cope when they are in debt and with few savings if circumstance change for the worse in the future?
When reviewing cash
“A healthy company has cash coming in that greatly exceeds how much it needs to spend to continue operating ….” By Zhe Chen in Using AI to avoid coming up short, in AFR Markets, 1/09/2025.
This quote applies equally to our personal lives, as it does to a business, because unless you on average save more than you spend, your family's finances are not in a healthy position and you may be unable to ride out difficult times, cover the costs of an emergency, or miss out on a great bargain.
Reviewing the negatives of cash
There are a number of great risks for businesses and the general public which exist when they have what is perceived to be, to be financially rich in cash and assets. These are as follows:
- being targeted by scammers, fraudsters, and others of dubious character,
- an easy target for friends and family members seeking financial support,
- spend unwisely and without thought of value and waste money,
- if you are in business, you may expand it too quickly and run out of cash or finance,
- for a business, the costs of managing cash safely,
- failing to stick to a spending budget on a day-to-day basis,
- missing out on buying an asset or valuable experience because you are fixated on building a large cash holding and refuse to use any of it if for your own benefit, etc.
Reviewing the benefits of cash
- financial and emotional security,
- paying bills as they become due,
- maintaining a solid payment history,
- buying business assets and services to deprive them from being used by your competitors,
- access to funds without going into debt to cover unexpected emergencies and asset purchasing opportunities,
- providing a history of savings, which is essential for obtaining future credit at the best rates,affording occasional treats and attending special events without going into debt, etc.
In Summary
There are currently two great business and personal conundrums. The first is to go in to debt to get what you want today and risk your financial and emotional status in the future. The second is to be patient today and save to have a strong financial and emotional future.
The main problem is that it appears the use of debt is more important than savings and cash. This dominate thinking can be seen when many businesspeople, home owners, politicians and central banks advocate that debt is good whilst cash and savings are bad. The problem then is there will likely be a lack of savings to pay for future requirements or unforeseen difficulties.
In today’s business environment, and not just in Australia, too many business customers are in debt, facing insolvency or bankruptcy, and are desperately trying to pay their bills with limited savings or access to finance.
Worse still here in Australia, there is the government and do-gooder mandated “hardship” legislation and societal ethos, which says that when your debtor customers get into financial trouble, your business MUST support them. As a result, your indebted customers can soon put the financial viability of your own business at risk. Regretfully, the government and do-gooders do not seem to care that your business might also be suffering hardship as a result of their mandates and decisions.
Therefore, it has never been more important for our future, irrespective of whether we are in business or in our personal lives, to make the right decisions on the use of debt, or to save.
Want to know more, contact Kim at kim@creditmatters.com.au, or 0411 649 261, or have a look at what we offer via our website at www.creditmatters.com.au
