Three questions before any borrowing decision 🧭

Welcome to The Letter Home, my weekly newsletter about building financial confidence on the path to the life you want 🏡

Each week, we break down one meaningful money concept and leave you with an exercise that you can use to put it into practice.

This week, we’re looking at a three-question test you can run on any borrowing decision 👇️

Every borrowing decision you’ll ever face (take the loan or pay cash, pay extra or don’t) comes down to the same three questions.

Most people never ask any of them. They go with whatever feels responsible, and it quietly costs them real money.

The three questions are Safety, Liquidity, and Return. Before you take on a debt (or rush to pay one off), run it through all three.

Question one: is it safe?

Every loan is a promise to make a payment in a future you can’t see. Safety asks how that promise holds up when the uninvited stuff arrives: a lost job, a medical bill, a furnace in January.

So the question isn’t whether the payment fits your budget today. It’s how long you could keep making it if your income stopped.

A $650 car payment can fit beautifully right up until it doesn’t. If you could only carry it for two months, that loan isn’t safe (no matter how good the rate was).

Safe borrowing leaves you a margin. Risky borrowing spends it.

Question two: how fast can I get this money back if life changes?

Every dollar sits somewhere on a scale: cash you can touch this week, investments you can sell in a few days, and money buried in things you’d have to sell (or borrow against) to reach.

Question three: what will this dollar earn here versus somewhere else?

Paying off a debt “earns” you the interest you stop paying. Which makes some payoffs brilliant and others surprisingly expensive.

An extra dollar against a 22% credit card earns you a guaranteed 22%. That same dollar against a 3% mortgage earns 3%, less than it could earn in plenty of other places.

No single question settles a decision on its own. But most of us decide with zero questions, on feelings instead of numbers.

Once you ask all three, some “responsible” moves hold up (and others fall apart fast).

This week, put one decision through the test. Set aside 20 minutes and work through these three steps:

1. Pick one borrowing decision. One you’re facing now, or one running on autopilot (extra payments on any loan, a car you’re planning to buy with cash, a balance you’ve stopped thinking about).

2. Answer the three questions with numbers. How long would your margin hold if your income stopped? How fast could you get this money back? And what does it earn where it’s headed, versus anywhere else?

3. Find the ignored questions. Most decisions made on instinct answer one question and skip the other two. Write down which two yours skips.