How much business risk to take on depends partly on life stage

Q I'd like to have your opinion on an ongoing issue that my wife and I disagree on. She listens to a certain radio talk show personality and has interpreted his evangelizing as, "All debt is bad." She realizes that we wouldn't have gotten where we are without having incurred debt. She qualifies it with, "at our age, we shouldn't have any debt." I completely agree with her as far as "consumption debt" is concerned and we have a small mortgage that was due to be paid in 2018. I've been make double payments to cut 5 years off to 2013 (30 months away). My wife and I are both 57 and in good health.

I started my main, technology business in 1981. It is a 4-day-a-week job, but the business hasn't been very profitable. I have diversified our holdings to income-producing mineral rights, commercial real estate, financial services, a chain of three popular fast-food restaurants and a couple of other small businesses. With my 34-year-old son as a partner, I recently acquired another small business. A mortgage on another commercial property required her signature. She signed it, but said "That's the last one!"

I'm an entrepreneur, business person, and have a degree in business administration and a minor in accounting. Should I find another opportunity, I'd like the flexibility of leveraging an asset to pursue it. Do you think that is unreasonable? Thank you.

RUSS

A Whew. I'm always wary of getting between a couple when it comes to money. But in this case I get to say, "You're both right." Here's what I mean. It's all about risk and reward and being on the same page about the trade-off.

You're an entrepreneur, a risk-taker. Most entrepreneurs need to borrow at various points. So, you're right, not all debt is bad, especially when it goes toward building or acquiring a productive, income-producing enterprise.

"It is often forgotten, but from Plymouth Rock to the present, American dreams have usually required a lien on the future," wrote historian Lendol Calder of Augustana College in "Financing the American Dream."

The Pilgrims that settled in Plymouth Bay in 1620 were backed by London merchant adventurers. The Pilgrims eventually bought out their investors, paying off the debt in installments. That story has been repeated again and again throughout our history.

But as you well know, not every business succeeds. Many fail. Your wife is right that you're entering those years where you want to limit your risk of a financial bet going bad. In other words, you don't want your standard of living at risk if one of your current or future debt-financed ventures doesn't succeed. "So in part what the credit system does, it lets people borrow money that they pay off when they reach that stage in life when they make more money," says Claude Fischer, sociologist at the University of California, Berkeley. "In some ways it lets people borrow from their future selves."

Well, you're starting to enter that future-self stage. At this point in your entrepreneurial life perhaps it's better for you to become an equity investor rather than relying on bootstrap financing. Even more important, if you haven't already done this, is for you and your wife to work with a professional adviser to walk both of you through your finances. How strong is your financial safety net? Where are the risks embedded in your various ventures? A detailed conversation like this could go a long way toward putting both of you on the same financial page.

Chris Farrell is economics editor for American Public Media's "Marketplace Money." Send questions to cfarrell@mpr.org.

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