We’ve been looking at Warren Buffett’s “10 Ways to Get Rich” as the “10 Rules to Success.” Today’s post is on rule #6 Limit What You Borrow.
Limit What You Borrow. Buffet claims to never have borrowed a significant amount of money. His advice is to remain debt-free, and then save and invest money. This is a very counter-cultural contrast to those who preach getting rich using Other People’s Money.
I have seen far too many small business owners who have allowed credit to be used as if it is operating income. What I’m talking about is business owners who tap into their line of credit to pay everyday bills, hoping by year’s end this balance is paid off. In most cases, it rarely is.
Be strategic how you borrow: know why you are borrowing money – specifically what your credit will be used for in regards to growing your business. If the funds are not going to grow your business, don’t borrow. Also have a defined payoff plan. In any new venture, I recommend that all income coming out of borrowed money be applied to paying down the loan. Why? Because your business didn’t receive the money from income for goods or services. Then why should it be spent on operating expenses for your existing business? That simply does not make sense.
A final point in regards to credit cards: they should only be used by key employees who you trust and whose expenses can be tracked.