( Exerts from Garret B. Gundersons Book, "Killing Sacret Cows" )
Here are a few general rules to follow conserning liabilities:
#1.) Never have destructive liabilities. Get rid of anything in you life that destroys your human life value and your ability to produce.
#2.) Choose your consumption wisely. Never incur consumption liabilities that exceed your assets and therefore put you into debt. For example, a trip to Hawaii may be consumptive, but if it doesn't put you into debt and it directly increases your ability to produce by giving you much - needed rest and relaxation, then you can feel great about it. ( A word of caution: be very careful never to use this rule as justification to be overly and irresponsibly consumptive. It's very easy to slip into the habit of justifying purely consumptive purchases with the thought that it will increase your productivity.) this gets complex when people use this idea to consume more than is reasonable, or in such ways that lead them closer to being in debt. For example, if people use this rule as justification to eat out at a five star restaurant every night and they don't currently have the cash flow to support such a habit, Then they're abusing this rule.
#3.) Never borrow to consume. A good way to make sure you stick to rule to is to pay cash for everything that does not directly produce for you. For example, if my only use for a big - screen TV is to put it in my home and use it only for me and my family, this is consumption; I should not put it on credit. On the other hand, if I own a home theater installation business, it may be productive for me to put a big screen TV on credit to place in my show room. If by doing so I increase my income greater than the liability of the TV, then this is an acceptable use of credit.
#4.) Focus on increasing productive liabilities, or the liabilities that come with greater corresponding asset. If my cash flow created by incurring the liability is greater than the liability, then this is a productive use of liabilities.
* Definitions:
- Productive Liabilities: Result in present or future increase of cash flow ( rental property, student loans, small business loans )
- Consumptive Liabilities: Cost more than any increase in cash flow, but may contribute indirectly to productivity ( sofa, car, nice shoes )
- Destructive Liabilities: Do not increase cash flow and destroy human life value ( drugs, excessive junk food )
