In a world where debt can be accumulated in a variety of ways such as your home, your car, your college education, and your credit card, people will only reflect negatively on your accumulation of it. For a majority of people, their current financial situation can be described as the accrual of an excessive amount of debt which binds them to severe restrictions on their financial freedom.
It’s very difficult to shift one’s mindset on something as imposing as the concept of debt, unless we look at it in a new light. As a finance intern who has experienced both personal and corporate finance, the parallels that run between a corporation’s budget, and the budget of one person, are strikingly similar.
One of the most basic accounting principles is the contrast of a company’s assets from their debts, to determine their total equity. However, for a company to grow over time, they must fund their assets one of two ways; with debt or with equity. When looking at any company’s balance sheet, obtaining and maintaining assets of increased size requires increased sizes of debt to contrast it. It’s very rare for a large company to find itself with a large quantity of assets, but few debts.
If it’s okay for a business to take on debt as a means of growth, then why do we not do that with our personal debt? For example, I am currently a college student who is accumulating debt to sustain my academic career in hopes of establishing a business career. I am willing to take on this debt so that I may become a more substantial candidate for opportunities that wouldn’t be available if I had decided to not attend college. My work for Indium Corporation would not be a reality if I chose not to attend college. Despite the cost of universities doubling within the last decade, we use this debt as a means of growing ourselves, of growing our knowledge of the world and our future industry of work. Despite what others may lead you to believe, debt should not scare us.
However, debt should be taken in moderation. It is what frightens us, when we hear stories of debt overwhelming people to the edge of bankruptcy. In many companies, the same scenario arises, and the same crises ensue. For them, the amount of profits they earn can’t keep up with the accumulation of debt, and they lose money as a result. For you, taking on too much debt can prevent you from beginning new developments, like starting a business or buying a home.We should not be so critical of debt and its negative aspects within society. Perhaps if we stayed optimistic, yet prudent, then we could further our financial success down the line without the fear of accruing too much to pay back.