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Debt vs. Saving for Assets: The Psychology and Strategy Behind the Choice
- CheesyGoulash
- Aug 17
- 6 min read
Imagine this: you spot the perfect investment — a property, a business opportunity, or even just your dream car. The catch? You don’t have enough saved. Do you wait until your savings catch up, or do you borrow and seize the chance before it slips away?
This age-old dilemma divides personal finance experts. Dave Ramsey preaches debt-free living, while Robert Kiyosaki champions leverage. The real answer? It depends not just on the math, but on psychology, strategy, and timing.
Let’s explore the factors that shape the choice.
If you are already in debt and still thinking to invest instead of paying of your debt, read this first.
Content
Conclusion: It’s About Behavior as Much as Math
Traditionally, the “save first” method is viewed as safest. You avoid interest, reduce risk, and own the asset outright. But increasingly, people are using (private money) loans to purchase assets. On the surface, that seems counterintuitive — especially with Ramsey’s warning:
“The borrower is slave to the lender.”
However, behavioral finance research suggests there are psychological, strategic, and even mathematical reasons why some people choose debt over savings. Let’s break them down.
1. The Immediate Gratification Bias
Humans are wired for present bias — the tendency to prefer smaller, immediate rewards over larger, delayed ones (O’Donoghue & Rabin, 1999). This explains why many opt for loans instead of waiting to save.
Dave Ramsey sees this as dangerous:
“If you can’t wait, you can’t win. Debt is nothing but tomorrow’s paycheck already spent.”
Robert Kiyosaki takes the opposite stance:
“Opportunities don’t wait for your savings account. If I see a great deal, I’ll use other people’s money to grab it before someone else does.”
Both have merit. Research shows impatience often leads to poor purchases, but acting quickly can be advantageous when opportunities are truly time-sensitive (Frederick et al., 2002).
💡 Takeaway Tip: If you’re borrowing out of impatience, stop. If you’re borrowing because the opportunity has a clear and time-limited advantage, run the numbers first.
2. Debt as a Commitment Device
Behavioral economists define commitment devices as tools that lock us into a desired action. Debt, oddly enough, can serve that role.
Loan repayments are non-negotiable. You must pay, which removes the temptation to “skip” saving this month. Suze Orman notes:
“A payment due date has a way of making you budget — even if you’ve never done it before.”
Research supports this: automatic or enforced contributions, such as loan payments, often result in higher savings rates than purely voluntary systems (Thaler & Benartzi, 2004).
💡 Takeaway Tip: If self-discipline is your weak spot, structured loan payments can be a form of enforced saving — but only if the repayment amount fits comfortably into your budget.
3. Assets vs. Liabilities: The Kiyosaki Distinction
Kiyosaki’s famous line is:
“An asset puts money in your pocket. A liability takes it out.”
Debt for liabilities — cars, consumer goods, vacations — destroys wealth. But debt for productive assets, like rental property or a business, can work if returns exceed costs.
The risk: many think they’re buying assets but are actually financing liabilities with negative cash flow. As Ramsey warns, this is how people stay trapped in debt cycles.
💡 Takeaway Tip: Before borrowing, ask: Will this purchase produce income or appreciate? If not, it’s likely a liability — avoid financing it.
4. No Credit Score Advantage in Europe
In the U.S., debt can help build a credit score, reducing future borrowing costs. In the Netherlands, Hungary, and most of Europe, there’s no equivalent FICO system.
Mr. Money Mustache puts it bluntly:
“In Europe, the only reason to borrow is if the deal is solid. No fake points, no games — just math.”
This means the justification for debt rests entirely on the investment’s performance, not any side benefit to your credit history.
💡 Takeaway Tip: In Europe, don’t rationalize borrowing as “credit building.” The deal has to make financial sense on its own.
5. Interest Rates and the Leverage Equation
Leverage works only if the asset’s return is greater than the borrowing cost. In 2019, a private loan (in The Netherlands) was only 3.5% which making property purchases quite easily viable
Ramit Sethi warns:
“When rates rise, your margin for error shrinks fast.”
With Dutch rates closer to 7% today (private loans), the same purchase might not produce net gains, meaning leverage is riskier. So a private loan would maybe not be viable. With mortgages (which are much harder to get) you can possibly get a much lower rate.
💡 Takeaway Tip: Your loan rate should ideally be several percentage points lower than the asset’s expected return to provide a safe buffer.
6. Forced Savings Through Loan Repayment
Paying down a loan builds equity — a form of illiquid saving. Research on mental accounting shows people treat mandatory payments differently from voluntary savings, often prioritizing them more (Thaler, 1999).
Kiyosaki calls this “building wealth by default,” while Ramsey argues you can do the same without the risks of debt — if you have the discipline.
💡 Takeaway Tip: If voluntary saving has never worked for you, structured repayments can help — but they should be part of a plan to eventually own the asset free and clear.
7. The Emotional Impact
Owning an asset sooner can boost confidence and feelings of control. Studies on goal attainment show that achieving tangible milestones improves motivation and follow-through (Bandura, 1997).
Suze Orman warns:
“Don’t mistake excitement for security.”
Still, that psychological boost can be a powerful driver for continued financial progress.
💡 Takeaway Tip: If early ownership motivates you, great — but avoid letting that excitement justify a financially unsound purchase.
8. Our Vision: Debt as Motivation, Not a Crutch
While the theories of Ramsey, Kiyosaki, and others frame the debate in absolutes, our personal experience sits somewhere in between. We know ourselves well enough to admit that consistent saving has always been a challenge. But when it comes to debt repayment, we thrive. The structure and urgency of owing money push us to stay disciplined in ways voluntary saving never has. In fact, behavioral studies show that people often experience greater satisfaction from eliminating debt than from accumulating equivalent savings (Garcia et al., 2015).
For us, the psychological reward of making extra payments is powerful — especially when we know the underlying asset is already producing a return greater than the loan’s interest. Every repayment amplifies that return, while also reducing the stress of carrying debt. We dislike being in debt, and that dislike itself becomes a motivator: it makes lifestyle sacrifices easier, knowing each cut speeds up the journey toward full ownership.
In short, our vision is to use debt strategically — never excessively, never for liabilities — and always with the intent to repay quickly. For us, combining limited leverage with income-generating assets isn’t just about financial returns. It’s about harnessing our own psychology to move forward faster.
Conclusion: It’s About Behavior as Much as Math
The safest strategy is saving first. Borrowing can be effective for true assets if:
The asset’s returns clearly exceed the costs.
You have a realistic repayment plan.
You avoid over-leverage.
As Ramit Sethi puts it:
“Money is a tool. Used correctly, it accelerates your goals. Used poorly, it becomes a shackle.”
Ultimately, the question is not just “save or borrow?” — it’s whether the decision will make you happier, wealthier, or keep you slave to the lender.
References
Bandura, A. (1997). Self-efficacy: The exercise of control. W.H. Freeman.
Frederick, S., Loewenstein, G., & O’Donoghue, T. (2002). Time discounting and time preference: A critical review. Journal of Economic Literature, 40(2), 351–401. https://www.nber.org/papers/w10848
O’Donoghue, T., & Rabin, M. (1999). Doing it now or later. American Economic Review, 89(1), 103–124. https://eml.berkeley.edu/~webfac/rabin/papers/PresentBias.pdf
Thaler, R. H. (1999). Mental accounting matters. Journal of Behavioral Decision Making, 12(3), 183–206. https://www.jstor.org/stable/2646921
Thaler, R. H., & Benartzi, S. (2004). Save More Tomorrow™: Using behavioral economics to increase employee saving. Journal of Political Economy, 112(S1), S164–S187. https://www.nber.org/papers/w8593
De Nederlandsche Bank. (2024). Statistics on interest rates. https://www.dnb.nl/en/statistics/
Garcia, D., Jimmefors, A., Mousavi, F., Adrianson, L., Rosenberg, P., & Archer, T. (2015). Self-control explains the link between happiness and perceived stress in a large sample of university students. Frontiers in Psychology, 6, 301. https://doi.org/10.3389/fpsyg.2015.00301
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