The Difference Between Good & Bad Debt
There is a golden rule for wealth creation - "only borrow to invest". We examine which debts can be considered "Good" and what debts can be considered "bad" and how your lifestyle can detemine how much you end up with of each.
Good Debt is money borrowed for and investment that advances you financially or towards one of your life goals. For example suppose you have always dreamed of owning and living on your own yacht. If you went out and just borrowed the money to purchase the yacht, that would NOT be an example of good debt - in truth you do not own the yacht, nor do you have the wealth to maintain it. Investing in something that will bring you the wealth to purchase the yacht of your dreams - that is good debt!
A home can be considered an investment because basic living requirements are necessary to support you in your wealth creation activities, investing in yourself is an important part of enabling your growth and advancement to your dreams.
Debt should only be used if it is going to bring you a good return, whenever you consider taking on debt, be sure that what you purchase is what you need to take you towards your dreams ANYTHING else is simply diminishing your ability to achieve your dreams.
Well baisically, bad debt is everything else - any debt incurred that does not advance you, diminishes you. It really is that simple. When looking at bad debt people often fail to distinguish between their WANTS and their NEEDS. We all NEED shelter, food, safety, security, love and companionship, having these thing is vital for us to be able to function effectively. Spending on these things is an investment in ourselves but the boundary is often stretched. It is one thing to NEED a car to get to work, it is quite another to borrow money to purchase a Ferrari or some other super car and say to yourself - "Well I NEEDED a car".
To be successful and take control of your finances, you need to be HONEST. Self-deception is an exercise in futility that leads to failure. If you NEED a car, then you can buy whatever car you like if you can easily afford to purchase it and maintain it and you can still complete your plans. Hey! Congratulations - your wealth has allowed you to own the car of your dreams! If you borrow money to buy the car or you have to stretch yourself financially so that some other plan has to be set aside, you diminish yourself and you are trading away your financial freedom for more car than you need.
Good Lifestyle Choices
Everyone has their own unique set of lifestyle choices that makes their life unique. It is your choice on how you choose to live but if you want to live life to the full and maximize your life potential - You need to get your attitude about money and your life goals sorted.
Knowing what you want and choosing to advance yourself towards achieving your dreams and the wealth that will enable them is a winning strategy. But it is you who must make the choice to do something about it, you have to turn the ideas presented on this site into ACTION in your life.