I bet that if I asked you if debt was bad and should be avoided at all costs, you would say yes. You would only be half right. There is a misconception that debt is this awful, terrible thing. In reality, this couldn't be further from the truth. Taking on debt the correct way can help you capitalize on your money and turn it into more money. Don't believe me? Let me explain.
When you pay off debt, your money is now gone. You don't have it anymore but you also don't have any debt. Sounds great but there is a better way to pay off the debt and grow your net worth at the same time. The craziest part, you don't pay off the debt with the money you have.
Let's say you won the lottery and got one million dollars. Instead of buying a house and car cash, you should take a loan out on it. Then you should invest your one million dollars. The return from the investments then pay for you house and car. You also now have an asset that is worth money and can be liquidated at any time.
For example, you buy an apartment complex for $500k by borrowing against the one million dollars. You could have paid cash but by using a loan, you get to hold onto your money. Now let's say that there is 20 units in the complex. You rent each one out for $1000/month. That comes out to $20k/month from the rental. The $500k complex costs around $2600 per month with no down-payment. This would mean you have $17.4k left over. Then you use that to make your own mortgage payment and your car loan. This would leave you with about $15k per month from the apartment complex. So you hire a property manager for the apartments that way you don't have to worry about a thing. You pay them $4k/month to manage it. Now you have around $11k still left over as a take home profit.
In the above example, you would also be able to write it off on taxes and pay less taxes on your money. This helps keep more money in your pocket. You also own an apartment complex that can be sold at any time to regain your investment if necessary and make returns as the property value increases for the time period in which you own it. That's not even the best part, you still have the one million dollars left that you borrowed against and used to get the loan. So, now you can invest that in the likes of cryptocurrency or stocks or any other number of things.
If you do the math, your net worth was one million and by borrowing against it, you now have a net worth of $1.5 million woth the apartment complex you own. This is how high society grows their portfolios. You ultimately create a new form of revenue, an assest, and diversify your investments all in on step. Form there, if you invest the one million, you can turn huge profits and reinvest that into more revenue streams. One of the best sayings I have ever heard is, "Once you've made your first million, the second is inevitable."
This is a trick used by the wealthy that very few people understand and they have never been taught. Banks love to give out loans to the rich and the rich know how to leverage that to their advantage. Knowledge is power. So instead of paying off your debt, invest that money and make the returns pay it off for you.
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