Getting into debt isn’t a bad thing if you purpose to use the debt wisely. It’s important to note that most of the wealthiest people today got to where they are by using other people’s money (or debt if you like). It’s not a secret. Many wealthy people have been on record attesting to this fact. Large companies also get ahead by taking on debt so what is it about debt that tends to work for the rich? Here’s what you need to know
Borrow to buy assets
Rich people follow this debt rule religiously. You should never borrow to fund a liability. Liabilities are things which take money out of our pockets. A good example is a personal car. Your personal car will never put money into your pocket unless you hire it out or use it in your business. Personal cars need insurance, maintenance, fuel, etc. but they only seem to offer convenience, and in most cases, public transport is more convenient. So, taking out a personal loan to buy a personal car isn’t smart. Rich people don’t do it. You shouldn’t do it either. You should instead take out loans to buy assets i.e. things that will put money in your pocket like a rental apartment.
Borrow to start a business
Many rich people also seem to have gotten their big breaks when they took out loans to start businesses. Taking a loan to start a business is by far the smartest way of using a loan. It’s hard to regret if you take a business loan provided you have a solid business plan. Furthermore, it is very hard to become rich when you are working for someone else. This is precisely why you should think of taking a loan to start a business before you think of anything else.
Borrow when the projected returns are greater than the cost of the loan
Sometimes you may be borrowing to take advantage of a money making opportunity that may not necessarily be a business. For instance, you be looking to buy a cheap house, stock, etc. that you can later sell a high price. Before you take a personal loan to take advantage of such opportunities, make sure the cost of the loan is lower than the projected returns. The rich never take on expensive debt. Everything has to make business sense. If they won’t make some money out of debt, you can rest assured they won’t take it.
Borrow if you can afford to lose the collateral/security
This is another loan secret rich people adhere to. Have you ever asked yourself why rich people never suffer even when they claim to be unable to repay their debts? Well, it’s because they never secure debt with assets they can’t afford to lose. If you can’t afford to lose your house, don’t secure your loan using your house. Taking debt is usually a risk regardless of how solid your plans are so you should always ensure you are protected in case the worst happens. Everyone faces credit risks. However, the rich are usually better prepared for the worst which is why they are able to bounce back faster than everyone else.
The more money you have, the easier it is for you borrow
You should also know that the rich have easier access to loans than everyone else so boost your net worth and have unlimited access to loans. It’s easier to borrow when you are rich because you have more assets which translates to lower risks for lenders. This is the main reasons the rich keep getting richer and the poor have a hard time getting rich. This point alone should motivate you enough to seek loans and spend those loans wisely i.e. buying assets or starting businesses.
Debt can make you rich. Many rich people who start out poor become rich because of taking up debt and using it wisely. First and foremost, understand that it takes money to make money. You also need to know when to borrow and how to borrow. If you’re smart about loans and money in general, you won’t have any problem taking and repaying your loans. You’ll also get rich in the process.