How to measure the real impact of debt

A friend recently asked me to create a financial calculator. He wanted a tool that would measure the impact of overall net worth, mental and physical health between using debt and using cash to buy assets or operate a farm. He wanted to analyze which approach would provide the best result, considering all factors involved.

Wouldn’t we all?

I was glad to receive his request and I am looking for a way to provide something of the sort. It likely won’t entail the detail he requested due to my computer programming limitations. But I believe the concept is appropriate and deserves consideration.

Now I know what my answer is to that question and you probably do to…but sometimes we have to step back and look at the bigger picture. Financial management is such a dynamic array of elements. You have to consider the pure mathematics of the expense or investment and you have to examine the risk-to-reward ration. You have to analyze the opportunity cost of saying yes or no and you have to measure the amount of mental and emotional stress.

Unfortunately, the latter is often the hardest to quantify…and the most important to realize.

I know everyone has different levels of stress they can endure. Some people almost thrive on high-pressure activity. It gives them an adrenaline rush and they enjoy the challenge of beating the odds to win. For these people, high risk and high pressure is a game.

Other folks get nervous at the slightest bit of uncertainty or pressure. If the plan isn’t clear and well thought out, there is a tremendous level of anxiety and fear. The “what-if” can almost be unbearable. And if the slightest thing goes wrong, they assume the worst is going to happen.

Then there are the folks who take on risk in the smallest form possible, but with bravery and confidence in the outcome. They understand the consequences, but are committed to attempting success regardless. These people know that nothing is won without effort and believe in approaching the challenge with wisdom, discernment and grit. They won’t go too far, but they won’t settle for average either.

It doesn’t matter what camp you fall into. But it’s important to be cognizant how the decision will affect you. It’s easy to be in the last group and have a higher level of confidence until reality hits and you realize the potential outcome of your decision. It’s also easy to be in the first group and accept more risk and stress than you are actually able to handle. And it’s easy to be in the middle group and be too scared to take on any form of risk…therefore missing out on the reward.

Don’t approach money with fear. Don’t approach money with arrogance. Approach money with a clear understanding of its impact. Approach money with a strong appreciation for its power. And approach money with a clear and level frame of mind. Take advantage of opportunities that increase your ability to succeed. And be aware of opportunities that limit your ability to succeed.

If you need help determining which direction an opportunity will take you, schedule a free consultation and get an outside perspective. Click here to schedule your call.

In the meantime, I’ll keep working on that calculator 🙂