Using leverage wisely to build your long-term wealth.
Commonplace financial advice out there warns that debt is bad, all debt, and that you should focus your resources on paying it off as quickly as possible. And yes, there is debt that in no way can be considered helpful in moving you forward. Things like credit card debt, personal loans, and really any money borrowed without the purpose of building your wealth over the long term should be avoided at all costs. Debt accumulated for the purpose of maintaining your lifestyle in the current moment and not incurred to help improve your life in the future is not wise or part of any successful financial plan.
However, building wealth beyond what one can simply acquire by saving and investing over a long period of time often requires borrowing someone else’s money. Prudent use of leverage can improve your life in a myriad of ways—growing your balance sheet, increasing your cashflow, or enhancing your quality of life.
Leverage To Improve Your Finances
Utilizing leverage is not a strategy for everyone. In fact, it’s an unlikely strategy for probably 40—50% of Americans. If you are struggling to pay your bills, living paycheck to paycheck, depending on Social Security for retirement, are risk adverse, or morally opposed to debt, then do not even worry about leverage as a financial strategy. Focus on the basics—budgeting, paying off your debt, and saving enough for the future.
However, for those who might be able to use leverage to incrementally build their wealth beyond what they could do by simply saving and investing, it can be a very powerful tool and should be thoughtfully considered.
When You Should Use Debt
Before you even consider the details of financing a loan, you must confirm that the use of leverage is substantially likely to improve your long-term financial success. I say substantially likely because, you must diligently evaluate the risks; there are times when even with the best plan and intentions, borrowing harms your long-term outcomes.
Here are some times you might consider using leverage:
Buying a home. Buying a home improves your life in many ways. Financially, it is one of the best ways to build your long-term wealth. In the United States, 91% of first-time home buyers use a mortgage, making it one of the most accepted uses of leverage in our culture.
Improving your education or income-earning skills. Investing in yourself is one of the best ways you can allocate your resources. If you can spend money to obtain an education or improve your professional skills so that you are more valuable and therefore earn more, it’s worth considering borrowing money to increase your earning potential.
This increase in earning potential must be quantifiable. For example, if you spend $10,000 on a training course, and you know your salary will increases by $5,000 the following year and thereafter, then you can quantify the value of that investment. It will take two years to earn back what you spent and after that you will earn $5,000 or more in income each year. Obtaining additional education or training to “expand your horizons” or “broaden your knowledge” with no outcome directed towards improving your earning potential is not an investment in your wealth. It might be personally satisfying, but education for the pure enjoyment is something you should think twice about borrowing to accomplish.
Buying or growing a business. Investing in an already established business or acquiring a business is also an excellent use of leverage. Oftentimes, businesses require an influx of cash to grow to the next phase. They may need to hire additional staff, acquire inventory, build facilities, etc. and do not have enough capital to accomplish this. Or, there may be an already profitable business you want to add to your balance sheet, but to acquire it requires more capital than you have available.
Caveat: using leverage to grow an already existing business or acquire a new one is one of the most risky uses of leverage for two reasons. First, quantifying the future growth of the business is difficult. It often depends on the industry, economy, and your ability to utilize the borrowed capital strategically. Second, if all goes wrong, remember you are likely borrowing to grow or acquire the very entity that you are relying on to generate the revenue to pay back the loan.
Economic & Personal Factors To Consider Before Acquiring Debt
Once you establish that the use of debt will improve your financial circumstances, and not just your immediate desires such as in the case of credit card debt expanding your lifestyle, before you borrow, there are a number of factors you must consider to determine if leverage is the best option for your situation.
Interest Rates
The interest rate environment will play a significant role in whether you can afford to borrow money, where you can borrow it from, and how much is available. The higher the interest rates, the more costly it is for you to borrow.
For example, if you need to borrow $500,000 for a 30-year mortgage at 6.7% (the current average rate as I write this), your monthly payment will be roughly $3,300 and the total interest over the lifetime of the loan will be about $664,000. That same $500,000 borrowed at 3% only costs around $2,100 a month and a total of $260,000 in interest over the lifetime of the loan.
Unfortunately, interest rates are an economic reality we cannot control, but will afffect whether your leverage strategy is viable. Do not depend on the hope that interest rates will decrease in your favor at some point in the future, allowing you to refinance to a more reasonable rate. Sure, it could happen—but at the moment of borrowing, be sure you are planning based on whatever your rate is at the time. Hope is not an investment or financial strategy. If you borrow money, assume the current rate is the best you will do for the lifetime of the loan.
Your Cashflow
Related to the interest rate environment, if you are going to borrow, make sure you have the financial bandwidth to assume a payment each month for this loan. Going into leverage thinking “I’ll make it work” without sitting down and evaluating your current cashflow, the amount you truly have in excess, and how this new cost will impact your budget each month is a mistake.
One recommendation: if you have a few months before you assume a new loan—maybe while you are looking for a home, or going through underwriting, etc. live as if the loan exists and put the equivalent of that new loan into a savings account each month. See how your cashflow feels and how manageable this leverage is on your day-to-day life.
Timeline
Be realistic about how long you want to be indebted to another person or institution. While leverage might improve your long-term outcomes, indebtedness is the opposite of financial freedom. Owing other people money means you owe other people your time—after all, it is your time you exchange to make money to ultimately pay back this loan.
So think seriously about how much and how long you want to owe others money and if this indebtedness will impact your psyche. While I encourage leverage in certain cases to advance your goals, financial freedom is just as much a valid goal as balance sheet growth, depending on your preference.
Risk Appetite
Ultimately, the risk must be “worth it” and understood. In some cases, borrowing is pretty standard. For instance, purchasing a home you plan to remain in for some time that is well within your affordability is something manageable, and the parameters of home mortgages are well established in our society.
However, if you are borrowing for a more unknown outcome—perhaps to grow a business, or if you have to borrow at high interest rates which impact your cashflow substantially, things start to get risky. In these scenarios I encourage you to consider your age—how long you have to recover if this strategy fails. I generally believe that people can go bust every decade until about 50. This is not a rule of thumb the average American should use, but for entrepreneurs who routinely take risks, failure is part of the process.
Another question is who is dependent on you? If you are single and youngish, taking on leveraged risks is a lot more reasonable than if you have a spouse and children depending on your financial outcomes.
How It Helps Your Life
Suggesting that leverage can be a key element to building your wealth is not nearly as popular as saying your number one priority should be paying off your debt. The reality, though, is that financial success is not black and white. It can be achieved following a lot of different paths and much of the time, the choices you make will depend on your circumstances and your end objective.
Debt is simply using other people’s money to finance a choice that will improve your financial situation in the coming years. This is an effective tool for those who are able to utilize this strategy effectively and realistically. The question you must ask yourself before you use debt as a wealth building tool is, “can I afford this now and how much will it advance my net worth in the future?”. Ultimately, is it worth the risk?
This article was originally posted on October 16, 2026 on my Substack.
Debt Isn’t Your Enemy by Jenny Logan
Using leverage wisely to build your long-term wealth. Read on Substack