With great debt comes great responsibility
Hi there,
Do you hear the word 'debt' and panic?
Owing money is never a good feeling, no matter what.
It can be this massive cloud hanging above your head, not just affecting you and your life but the people around you.
Actually, it’s a common misconception that ALL debt is bad.
Stick around and allow me to debunk that little theory...you might learn something new!
There is good debt and there is bad debt.
Think Wizard of Oz style, we've got the Wicked Witch of the East and Glinda the Good Witch.
The debt you are probably most familiar with? Bad debt.
Usually used for things well out of your means.
They're sometimes used for those non-essential purchases like a fancy trip away.
Or maybe the debt is being used to pay other bills which puts you in a bad cycle.
It just drains your wealth and doesn’t improve your financial position in any way, shape or form.
Then there’s our trusted friend. Good ol' good debt.
This is smart debt that can be taken out for a sensible investment such as a mortgage.
It’s the kind of debt that you calculate and budget for so that you can pay it back with no hiccups.
Usually, it isn’t going to impact your overall financial position, which is the biggest difference between the two.
Even credit cards can have great savings and benefits when used right!
There's also a great thing called debt recycling.
This term gets thrown around in the advice industry and it involves turning non-deductible debt into deductible debt.
In simple terms, it's all about being able to claim the interest expense as a tax deduction.
Recommended by LinkedIn
Now, in Australia, we are generally able to deduct the interest expense as a tax deduction —as long as the debt is used for investment purposes.
This doesn't just include investment properties but also other types of investments (like investing in the share market).
If you own a home, have a mortgage and have some equity built up in your home (that's the difference between the value of your home and your debt) — then you may be able to access some of that equity to invest.
And the income we generate from those investments?
Goes towards paying off your non-deductible debt, like your home loan.
Definitely need financial advice for this one to make sure the numbers stack up — but food for thought!
The difference is really all in mindset and how you treat the borrowed money.
If you’re using the money as a quick fix, forget that it’s not actually yours and be careless; it’ll land you in a far worse place than you were in.
I’ve said it before and I’ll say it again.
With great debt comes great responsibility.
So, how do you plan to use the power of good debt?
Comment below and let me know!
Until next time.
Steve
--------------------------------------------------------------------------------
PS: Whenever you're ready, there are three ways I can help you…
1. Did you know that every year, Australians are paying their bank thousands of dollars more than they need to on their mortgage? Many folks don’t realise they’re sitting on home loans year after year which is not the best fit for their situation.
If you want to know if this might be you, book a free 15-min call with our mortgage broker Eddie and he can make sure you’ve got the best loan for your situation
2. Also, if you haven’t seen the latest video training our team has done on:
You can find all 6 videos here:
3. And if you ever want to get some 1:1 help with your personal finances, we can jump on the phone or on Teams for a quick clarity call and find out where you are right now, where you want to be with your money and lifestyle, and if we can help or not.
We can then make a roadmap for the next best step for you to take to get closer to your financial independence.
General advice disclaimer: The information contained within this post is general in nature and does not take into account your personal circumstances. Please reach out if you wish to discuss your personal situation.