In today’s hustle and bustle world, people run behind money to pay off their debts while painting a gloomy picture of the indebted lives. Interestingly, not all debts are grim reapers waiting right at the doorsteps to take away lives. Some debts are manageable and can leverage the money to accumulate more wealth, such debts are considered as ‘Good debts’. A Good debt is indeed an influential resource—an investment to increase your net worth.
For instance, investing in education confers a high chance of being employed in a high paying job—or investing in a small business or shares can benefit in a long run. On the other hand, reaching out for a personal loan or vehicle loan can amount to Bad debt— a kind that does not generate any monetary benefits. It involves investing in assets that depreciate. Good debt is a powerful tool. But bad debt can kill you- Robert Kiyosaki The stark difference between a ‘good debt’ and a ‘bad debt’ is the former add a value to your future and are most of the times tax deductible while the latter drains your wealth and incurs an absolute loss. Here are ways that can make good debts to work in your favor.
It is necessary for you to live under a roof and the choice of monthly-rented apartment is just ravage of money. A home is an asset, and it is worth spending your hard-earned money on it. Home mortgages are wise choice for the ones who could not afford money in a lump sum. Home Mortgage is a good investment for future security.
Oftentimes, mortgage seems daunting but with an investment eye, having a mortgage worth $500,000 seems that you have an asset worth that amount. The steep rise of the housing price is an added benefit that when you become mortgage-free you would have acquired a home worth more than you invested. Nevertheless, housing prices tend oscillate over time and one cannot count on it. The amount borrowed in the mortgage is secured against the asset hence the interest rates are low, typically less than your credit card interest. In addition, other benefits such as tax deductions are applicable as you are already help up with the mortgage interest thus giving an opportunity to save money.
The acquired lump sum—for instance, a huge lottery jackpot or family bequest can be either used to settle the incurred bad debts or invested properly to gain returns. Sensibly investing these huge amounts in stocks or managed funds can be one of the ways to increase wealth. Nevertheless, investing in stocks has high market risks it is preferable to read the offer related statements before investing.
Investing in managed funds is highly beneficial as the investment is diversified to a wide range of assets and brings out capital gain when the value of the share rises. In addition, an internally geared managed fund cuts back the need of opting for a marginal loan. These geared managed funds are tightly regulated under tax law and would give a good return. However, the potential risks pertained to managed funds are low compared to investing in stock market. In this case, the investment is spread through many assets and products. Hence, it can withstand fluctuations in the market. Gear the right way Sometime, borrowing money (gearing) to gain a good return seems to be a good idea.
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