The age old debate. Good debt vs. bad debt
Good Debt is debt used to buy an asset that goes up in value.
Bad Debt is debt that is used to buy an asset that goes down in value.
There’s an old saying that goes “no one ever got rich without getting into debt.” Let’s clarify that: “no one ever got rich without getting into good debt.” Debt can be your best friend and it can be your worst enemy. You want to use debt to buy real assets that go up in value and are producing an income. That income then pays off your debt. That’s the smart way to use debt to your advantage.
On the other hand, if you’re using debt to buy liabilities like cars, jet skis, holidays and weddings, stop! Those are classic examples of bad debt that make you lose money. It’s the reason why many people spin their wheels early on in life because they get into a lot of bad debt which consumes all of their disposable income. They then become stuck in a hamster wheel, working hard to pay off their debt.
The key point to note is that cars, holidays and the like are ‘lifestyle’ decisions, not ‘investment’ or ‘business’ decisions. It is perfectly fine to spend your money on lifestyle decisions, after all, that’s often part of what we really want the money for! Just as long as your investment decisions are making you more money than you are spending with your lifestyle decisions. That way you will continue to move forward financially.
Stay tuned for more insights from Wealth Through Property.