Some might say it’s budgeting or saving, but in my opinion it’s financing. Knowing how to get the best deal when money is borrowed will give a savvy person leverage to eliminate cash flow drains, obtain assets that cash flow, and to borrow money below cost.

To understand finance one just needs to understand the future value of money and how compounding works. The only concept you really need to understand is that of percentages, particularly in how they relate to interest rates.

Unsecured loans and consumer credit are by far the worst options for borrowing. Secured loans offer lower rates, allow you to borrow capital generated from asset appreciation without paying taxes, and are subsidized by tax benefits of ownership, asset appreciation, and cash flow. The interest rate is also effectively reduced by inflation. Assets that cash flow such as rental property or businesses allow the owner to establish a hedge against inflation by increasing rents or prices which subsidizes the cost of borrowing even further over time.

The best assets to borrow against are stock portfolios and real estate, but many assets can be borrowed against including business revenue and inventory.

The first step in getting great financing is to obtain assets that appreciate in value and then leverage them after sufficient time has elapsed for value to accumulate.

Assets that can be borrowed against at 2-5% are usually pretty good, but the more accurate way is to find something with a spread of 2-3% over the rate of inflation. This rate of interest is nominal when backed by solid assets like shares of an ETF that are indexed to the S&P 500.