Let’s face it, debt has managed to earn itself a pretty bad name in most circles, but in many cases, this stigma is undeserved. Debt, when used properly, can help you secure your financial future. While no one is arguing that improperly used debt is a bad thing, good debt is possible. Commonly, good debt is synonymous with leveraged debt. This refers to the process of using debt in order to create multiple streams of income. You have to spend money to make money and unless you happen to have a bunch just lying around, you’re going to need to go into debt at first in order to secure your future.
There are many benefits that can come from leveraging your debt in order to create multiple streams of income. By going into a little amount of debt, you can take advantage of opportunities that would otherwise not be available to you. Only the independently wealthy have the capability of writing big checks for investments. But they all had to get their start somewhere. No one starts off with everything, you have to work to get it. How many stories have you heard of immigrants with a few cents in their pocket that turned it into an empire? Somewhere along the way they had to go into debt to get the capital they needed to make all of that money.
You can use this same proven formula in your own personal finance. You don’t have to be a financial genius and you don’t have to be wealthy to start making money right now. One of the best ways to illustrate this point is investing in the stock market. Let’s say that you have the opportunity to purchase shares in one of the hottest new companies. You’ve got a little saved away, but it will only purchase you a handful of shares. However, if you were to take out a loan, you could easily buy numerous shares. When these returns start to come in, you’ll have a much larger return, simply because you were able to invest more.
This is one of the main benefits of using debt leverage to secure multiple streams of income. You wouldn’t normally have the opportunity to make large investments that will have larger returns. While you can certainly play it safe, it simply makes more sense to take that small risk for the larger return. If you manage your finances correctly, this won’t be a big sacrifice to you. We’re not saying run out and get into debt over your head in hopes of becoming a millionaire.
You need to manage your debt effectively if you want it to work for you. That means starting off with one stream of income and then when that starts to return, leveraging a little more for the next opportunity. Soon, you’ll have numerous forms of income coming in that will more than cancel the debt you got into to start the whole process.
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Originally posted 2008-11-25 20:10:25. Republished by Blog Post Promoter
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bad debt, Debt, Financial Security, good debt, Income Streams, Investing, Leverage, Money, Personal Finance
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6 comments ↓
Awesome post and blog. It’s refreshing to see someone in the personal finance blogosphere who gets good debt vs. bad debt.
[...] some carbs just taste good – but so does the success you can taste when you’ve managed to leverage good debt into your own little [...]
[...] you don’t have enough free money to do that, consider leveraging some debt. This is a good form of debt that will go to work for you, allowing you to create more than one [...]
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Great observations and ideas. Most certainly this is what entrepreneurs often do to get the cash machines rolling. Two observations to keep in mind:
First, if you finance it yourself, you’re much more likely to work like hell to see that your investment isn’t lost.
Second, you need a solid business plan before you take step one. Too many people think they have great ideas but haven’t thought through the process well enough to make it go. This is where getting into debt can help. A good lender will make certain you have a solid plan before they risk lending their money to you.
Clair
Great article!
Completely agree, debt doesn’t always have to be a negative thing. If managed properly it can create benefits.
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