Money and capital

Recently I met a young professional who just got married. I was astounded to learn that he is carrying the burden of $100,000 debt from his education.  What however was more depressing was that he has resigned himself never to be out of debt. Everything he imagines about his future includes living in the shadow of that debt.

Because I am very familiar with debt – having once maintained contemporaneously an active line of credit with every chartered  bank in Canada –  I tend to look at debt  perhaps differently than most. For me it is foremost an instrument to be used for other purposes, not merely an obligation.

Money is something most people have worked for at one time or another; capital on the other hand is something only a few people have had working for them. The trick is in knowing how to translate capital into money. While this may sound trite, it is actually more workable  than most people expect. The shift in thinking is no more complicated than thinking like an employer rather than an employee; that is, you have to start thinking about telling others what to do, rather than being told what to do. This isn’t just a choice about demonstrable control, it is a decision about being active or passive. And surprisingly the way forward isn’t that difficult.  It is also important to keep in mind that the capital of which I speak is a person’s personal qualifications and imagination; the money used to implement those qualifications is merely the lubricant.

Interestingly the young professional I mentioned has decided he does not want to run his own business, purportedly to avoid becoming a slave to work.  While there is some truth in what he says, it avoids the other truth that he will simply be a slave of a different order.  This is not to suggest that one must capitulate. Instead it demands that one must think of an alternate way to refashion one’s capital.

The little idea I had for him to pursue is the acquisition of a three-unit commercial building.   If he can align three tenants (one of whom may include his wife who also has professional qualifications),  he may be able to convince a bank or other lender to put up the funds for the initial acquisition. Having the covenant of both him and his wife should help. The young chap tells me that he has some skill with renovation.  If he is over time able to increase the capital value of the property, he may remortgage the property and use the excess capital after paying off the original debt to retire all or part of his student loan.  Gradually he would replace non-deductible debt with deductible debt. If he incorporates his enterprise he may be able to pay himself and his wife a salary or at least Directors’ bonuses. Plus he will have the advantage of running his own business without being a complete slave to it. I might usefully add parenthetically at this juncture that I learned years ago that a good landlord actively courts good tenants. It illustrates once again the underlying thesis that to be successful one must  think of what people want then show them how to get there,  an undertaking which costs little more than the employment of one’s “little grey cells”.

Obviously this or any other scheme involves a plan which is nothing  more grand than deciding what you want to do then showing others (like bankers and prospective tenants) how to get you there.  I have already cautioned the young gentleman not to be dissuaded by any initial resistance he may encounter. The fact of the matter is that bankers and lenders rely upon imaginative people as their own capital resources, so the two parties must eventually work together. It may however mean that the idea must be shopped around a little before it is accepted.

Aside from the important factor of ingenuity in this formula, there is another well-known feature of this business formula, namely time (an indisputable resource afforded only a select few). The capital resources which this young gentleman has are his professional qualifications, personal ingenuity and time.  The other factors of principal and rate are mere details to be determined, the unavoidable (and comparatively far less dynamic) variables of any transaction.

It is important to keep in mind that this or any other scheme  to make money also requires time for its fruition. Likely the success of this scheme will also involve the recognition that one cannot have both money and things –  which means that the ultimate profit will entail the sale of the asset to convert it to money (which  in turn provides new capital for different investment, perhaps in the stock market).

And finally – as I am wont to observe – if all this sounds inordinately complicated, just think of all the jerks who have already done it!