Somewhere along the way Americans began to think it was vital to enter retirement debt free. And while there is nothing wrong with paying off debt, it’s not vital for a successful retirement or financial plan. In fact, sometimes singularly focusing on reducing your debt can hinder wealth and cash flow, both now and in the future.

Let’s look to Warren Buffett for an example. Buffett, someone who most people would consider a savvy investor, has debt, and so do his companies. They have debt for a reason: by balancing debt with what is held in assets, more wealth might be generated. But it’s important to know when debt is a good decision and when it can do harm. To be clear, I’m not encouraging debt just to have it, much less to run up credit card debt for frivolous consumption, but I am suggesting you consider how debt can help build wealth in the long term.

Let’s use the tax system and individual debt as an example. To pay off debt principal, one must earn money. When money is earned, taxes must be paid on the income earned. When those taxes are paid, one has to earn more than what is paid to the bank or mortgage company for the debt repayment, so this person will have to work harder to do that (the Tax Saving Savings Effect). Because of the way tax laws are structured, paying down debt faster means losing that interest deduction sooner. Therefore, this person will wind up paying more taxes and saving money later, which results in less money from not taking advantage of compounding interest. By prolonging debt payments in favor of saving more now, one will earn more in the long run thanks to the interest made from savings.

Find out more about the Tax Saving Savings Effect in Master Your Cash Flow® and by visiting tswealth.com.