From my perspective, there is nothing wrong with borrowing (in fact in today's financial model, it is essential to borrow as much as possible as early as possible) as long as:
1. The borrowed funds are used to buy assets . . . . . my definition of an asset is something that (at worst) does not depreciate in value over its lifecycle . . .ie residential property may have a lifecycle (effective useful life) of say 50 years (building not land content)
2. The borrowings can be maintained thru a combination of external (eg rent) & internal (own contribution) even if interest rates rise their previous highest level of the past asset class lifecycle . . . . in the example of residential realestate as in point 1., 50 years . . . . so the highest interest rate over the past 50 years ~18%
This is ultra conservative & in reality can be modified to the average interest rate . . . . so that repayments are made at the average rate. Ie. say the average interest rate over the past 50 years was 10%, then make payments at 10%, which allows a buffer to be built up in case bad time & 18% rates are again revisted. Bonus if bad times don't come is that equity is rapidly gained thru the miracle of compounding.
The trap that too many people fall into is borrowing to buy NON assets. Unfortunately the complete disregard for financial education in our education system and the misinformation passed by the banking and financial sectors has lead people to believe that things like cars, boats etc are assets . . . . . who can blame them when they see them under the asset column on their loan application !!
Anyway, my point is that borrowing and spending per se is NOT bad and in fact is necessary to keep the wheels of our economic system turning.
