How many stories have we all heard about the entrepreneur that came to America with five cents and turned it into an empire? It’s stories like this that make us long for a piece of that American dream. We all wish that we could turn our nickels into big money, but most of us don’t know how to do it. The secret is using debt wisely to leverage more income producing streams. No one can turn five cents into five million dollars overnight, but by taking chances and finding ways to use debt smartly, you can become financially independent, just like the entrepreneurs of old.
The thread that binds all of these success stories together is that somewhere along the way, these entrepreneurs had to go into debt to make more money. Unless you’re Rumplestiltskin and know a way to spin straw into gold, you’re going to have to start taking chances. While it’s perfectly acceptable to put money aside every month or even put it into an interest bearing account, you’re going to nickel and dime yourself for years. You might be able to put aside a nice little nest egg, but what if you want to become really wealthy?
In order to accomplish that, you’re going to have to extend what you already have. It’s pretty frustrating to look at your checkbook and see the cold hard truth that your dreams of wealth are not panning out. It’s even tougher to spot a great opportunity, like a hot stock, and not have enough money to take advantage of it. However, there are ways that you can take advantage of that opportunity, even if you don’t have a lot of money in the bank.
Let’s say that you have the chance to purchase some shares right now. You don’t have the money on hand, but instead of giving up, you go to the bank and you get a loan for the money you need. You buy those shares and in five years, they’ve returned 500% of your initial investment. If you hadn’t taken that risk of going into a small amount of debt, you never would have been able to reap those rewards. Instead, you’d be muttering into your coffee as the news comes in on how well that stock you could have had is doing.
While most of us think of the word debt and blanch, when used properly and managed well, it is the key to becoming wealthy. Do you think billionaires spend their own money when they want to buy a new building? No, that would be silly. They put together a plan and get financing to pay for it. Then, when the rents for the building come in, they pay off that loan and go find another property. That is leveraging debt at its finest. You’ve got to have money to make money and unless you’ve already got it, you’re going to need to go into debt, at least at first, to make those big dreams a reality.
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Originally posted 2008-11-21 18:47:37. Republished by Old Post Promoter
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Debt, Leverage, Money, Personal Finance, Stocks, Wealth
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4 comments ↓
A series of debt can lead to a very difficult cycle of unmanageable finances. We should find ways on reducing debt the cheapest way possible and enjoy financial freedom. Thanks for the article!
[...] Leveraged debt is good debt. Overspending on things you don’t need is bad debt. Learn to separate the two and train yourself to stop before purchasing something you don’t need. Ask yourself – should I spend $5k on a new television or $5k on some stock that is going to pay be back four times over? This makes it a lot easier to get your priorities on the right path. [...]
[...] technique is called debt leveraging. Simply put, you got into a little debt in order to create a new stream of income. One of the [...]
Remember the flip side of this argument, which is when assets you bought using debt crash in value. Everyone has seen this happen recently with stocks and real estate. There are tons of people out there that tried this very strategy and received margin calls on stocks that have gone south and real estate they can’t make the payments on any longer.
One of my financial planners has often talked about the strategic use of debt to build wealth, but remember this strategy has a very serious downside if the worst happens.
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