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The Value of Debt: How to Manage Both Sides of a Balance Sheet to Maximize Wealth by Thomas J. Anderson

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Chapter 6

Holistic Financing of the Expensive Things You Need and Want

A Better Way to Buy: In the Company of Holistic Financial Thinkers

While it is said that money can’t buy you love, there’s no question that we need money to buy pretty much everything else. This includes, but isn’t necessarily limited to:

  • The necessities of life, such as food, shelter, clothing, and medicine.
  • Durable items and assets, such as appliances and automobiles.
  • Major home improvements, such as a new roof or a new kitchen.
  • Luxury items, such as high-end cars and boats, fine jewelry, and collectibles like paintings, antiques, or rare coins.
  • Real estate, including second and vacation homes.

Returning for a moment to the What would a company do? metaphor that was made use of in Chapter 1, consider what happens when a company needs to buy new desks for all of its employees. Does the CFO of the company walk down the street to the nearest bank and say, “Please tell us about your desk financing options?” and then accept whatever interest rate the bank is willing to offer for a loan at that moment? Of course not!

Instead, the CFO looks at the entirety of the company’s balance sheet—its assets and its liabilities—and then considers all of the plusses and minuses of all of the different financing options available. The CFO wants to determine the best way to finance the desks, which means determining the lowest cost of capital that will accomplish the company’s objective. It’s a holistic and pragmatic approach, ...

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