"Debt makes a good servant but a horrible master," says Jason Flurry, financial planner and president of Legacy Partners Financial Group in Woodstock, Ga. "Unfortunately it's becoming more and more the case where it's the master."
Certainly, there are instances where it's smart to employ credit and debt, Flurry
witnessed developers becoming entangled in a trap when they snapped up small tracts of land during the real estate bubble and turned them into mini strip malls with a few stores and restaurants.
"They were making a killing off it," he
says, by buying the land, attracting small businesses and then collecting huge rents.
"All of a sudden, it just stopped" when the bubble burst.
Business owners vacated, rents went unpaid and many of these developments were taken back by the banks, leaving the developer in bankruptcy.
There's no rule of thumb for how much debt a person should risk to gain a return, Flurry
says, but from a common-sense standpoint, any money gambled should be discretionary.
"From a planning perspective, we are goals-based.
So we want to make sure there is a solid foundation in place and 100 percent of expenses are covered" not only for your current lifestyle, but for future goals, he
"Leverage should be the last piece of the puzzle."
For those who have a high risk tolerance, take a lesson from the rich.
has a few clients worth more than $5 million who leverage a miniscule percentage of their portfolio for a passion.
The clients have a high level of knowledge about what they're doing and are willing to lose the amount they're betting.
Former developers might invest in small businesses or suburban developments, for example, while former investment wizards might buy on margin or invest in speculative commodities or stocks.
The bottom line for the average person, Flurry
says, especially one who is approaching retirement, is to examine his
portfolio from the perspective of cash flow and look at the big picture.
"Having a solid financial foundation is not that sexy," he
says, "but you have to first make sure that what you have will not get lost."