Essentially the strategy is to load the company down with a lot of debt, to make it stronger. While this seems counter-intuitive, because the company has to make a lot of debt repayment schedules, it has a very strange effect that the debt payments:

1) Focus the mind of the company (no matter what, we have to pay that monthly/quarterly/semiannual repayment coupon) so that there’s a higher level of operational efficiency;

2) Focus the mind of the company that they are no longer judged internally by making a profit of any level, but making enough of a profit that they’re able to make the debt repayments and STILL make a profit (e.g. “we have to make a 5% return on investment just to break even; that means that we have to do better than that in the future”).

3) Limit unnecessary capital investment, which is particularly important where you have a company which is really cash strong and should focus on just maintaining its cashflow rather than growing the business (a mature industry is prone to this): fishing expeditions for new investment ideas often just waste money because the company just can’t invest that easily and profitably, so the debt stops them because they don’t have the spare money.

Of these three, #1 is definitely applicable to personal finance (you have to make that mortgage payment no matter what; you don’t have to get a latte no matter what); #2 is definitely applicable to the self-employed where you can raise your income directly through working harder/more hours (you have to work harder just to have enough at the end of the month to afford that latte); #3 is definitely applicable to personal finance (if you’ve got a higher mortgage payment, you don’t have a lot of money left at the end of the month to splurge on things you really know you don’t have the money for).

So what my long comment boils down to is that you’ve hit something that the private equity guys have known for a while: higher non-discretionary monthly payments can also focus your mind quite a bit and keep you “on track” financially by limiting your options for deviating from the right path.

I am not remotely disciplined. Its more a case of laziness and forgetfulness than anything else. I mitigate this by saving automatically (pay yourself first) and setting a cap on the amount of fun money I can spend every month.

I’m always open to new sugestions though.

There are so many plans that maximize profits and potential of things, but the problem is they require financial discipline. Which of course most people dont have. I am talking about the average person that is mostly in debt.

We can give the best possible plans to save money and gain wealth, but it all comes down to the individual being in charge of his/her money. The more you put it to yourself to do things the more you risk encountering the human nature factor.

Its easy to say I can write an extra check at the end of the month to go towards my mortgage, but will we? I dont think so. Its easy to say we can write the extra payment at the end of the year. Will we? I dont think so, Christmas and New Years is too much of a force.