Books, payroll and the year

Debt by itself is not the problem. Not tracking it is.

I have a mortgage at well under three per cent with a few years left on it. I could write a cheque tomorrow and clear it. I am not going to.

The money that would clear it is working somewhere that returns more than the mortgage costs. Taking it out of that and putting it into the mortgage would feel wonderful for about a day, and it would leave me measurably worse off. That is a feeling, not a strategy.

All debt is bad is the misunderstanding

It is one of the most common things I have to unpick, and it comes from a good place. Someone got hurt by debt once, or watched a parent get hurt by it, and the lesson became a rule. The rule then gets applied to situations that look nothing like the one that caused it.

The real question is not whether you have debt. It is what the debt is doing for you.

Leverage, and where I draw the line

Debt that buys something producing income is leverage. A rental property that carries itself and throws off cash. Equipment that lets you sell something you could not sell before. I added equipment to my wellness centre on exactly that logic, because the equipment opened a service line that did not exist without it.

The line I draw is around lifestyle. Financing something that produces nothing but a feeling is the one kind of debt I am against. A purse on a card is the easy example, and it is easy because nobody argues with it, but the same structure shows up in much larger purchases that get justified as business.

The question was never whether you have debt. It is what that debt is doing for you.

What gets measured gets managed

Most of the trouble I see is not the borrowing. It is that nobody is watching it. Owners who could tell you their revenue to the dollar cannot tell you what their debt costs them a month or when any of it matures.

It is driving from Georgia to California without knowing your route or your fuel level. You will move. You will move for quite a while. You will find out the hard way, somewhere with nothing around.

Three things to track

Cash flow direction, and why it moved. Not the number on its own. For a business owner cash flow only ever moves for one of two reasons, an expense changed or revenue changed, and knowing which one it was is the whole value of looking.

Your buckets. I use four: stability, growth, legacy and opportunity. I watch them so that when an opportunity turns up without warning, and it always turns up without warning, I already know whether the money is there to say yes. Deciding that in the moment is how people end up borrowing badly.

Debt, tracked as a question rather than a yes or no. What is it costing, what is it buying, when does it mature, and would I take it again today at today's rates. That last one is the useful one.

Who this is not for

This is not for anyone carrying high-cost consumer balances. If the rate on the debt is well above anything your money can reasonably earn, the arbitrage argument does not apply to you and paying it down is the plan. The mortgage reasoning at the top of this article only works because the rate is low and fixed.

It is also not for anyone whose income is genuinely unstable. Leverage assumes the payments keep being made. If revenue swings hard and there is no reserve behind it, the right move is the reserve first, not the opportunity.

None of this needs an elaborate system

A paper journal with a new page each month works. A simple spreadsheet works. I have seen beautiful dashboards built by people who never opened them again, and I have seen a legal pad do the job for a decade.

The clients who build real wealth are rarely the ones with the most beautiful spreadsheet. They are the ones who know their numbers even when the system is a little messy.

This is a planning question

What your debt is doing, and whether it should still be doing it, is decided during the year rather than on the return that reports it. Build the dashboard this week. It only has to be something you will actually open.

This is general information, not advice on your own situation. Whether any of it applies to you depends on facts this article does not know.