Debt Free vs Financially Free
Growing up we are conditioned a certain way, by our parents, by society, by our education system.
We are typically conditioned to go to school, go to university, get a good job and then purchase a house and pay that debt off over 30 years.
Conditioned that all debt is bad.
Purchasing your owner occupied property is great and paying the debt off is a massive accomplishment BUT this still leaves you relying on the pension into retirement.
Today we are going to break down the difference between financially free and debt free.
Remember there is a massive difference between good debt and bad debt.
Good debt is securing assets that are going to grow in value over time and generate income, bad debt is purchasing liabilities that decrease in value over time and cost you money to hold, or create a liability costing you money every week.
If you can follow this simply principal of only getting into good debt you’re increasing your chances to escape the rat race.
Avoiding trading your time for money and letting your money work for you instead.
Everyone’s idea of financial freedom is different.
Some people may want to fully retire and not work another day in their life.
Some may want to work part time as they like/love what they do or some may want to spend their time giving back to the community through charity/volunteer work.
Some individuals live more lavish lifestyles then others, and will need more income to become financially free.
There is no right or wrong way to create your own financial freedom.
But, how do we become financially free?
We certainly can’t save our way to financial free. We have to put our money to work.
We need our money working for us.
Now getting into good debt is going to allow us to get to financial freedom a lot sooner.
We can use the bank’s money to purchase an asset that for 90% of people wouldn’t be possible to do with cash alone.
This means we can grow a larger asset base, that is growing in value and also paying us an income.
Over time this asset base will grow larger and the income that it pays will also grow larger.
Creating more passive income.
Inflation will devalue the debt that we are holding on this property.
The exactly the same way as inflation will devalue the cash you hold in your bank account.
Losing value everyday.
Exactly why you won’t be able to save your way to freedom.
Getting into good debt allows you to create financial freedom.
Getting into good debt allows you to own a larger asset base.
Getting into good debt allows you to create a larger passive income in the future.
Getting into good debt allows you to become financially free.
Purchasing your owner occupied property is a massive accomplishment and will be one of the largest purchases you ever make.
However, we are conditioned to think that our owner occupied property is an asset.
But, a true asset appreciates in value and creates income for us.
Your owner occupied property grows in value sure, but it costs you a massive amount each week and every year.
This is a liability.
Not paying you an income, and this debt is also not a tax deductions.
You’re not able to claim any of this debt due to it not generating income.
Only owning your owner occupied property still leaves you relying on the pension into retirement.
Even if that property has a value of 5 million dollars.
You are asset rich and cash poor.
You would need to sell the property and downgrade, or sell the property and move to an area with a lower price point.
Having to sell your largest asset to become more free, does not sound very freeing.
In summary, you can be in a stronger financial position with more freedom, with a larger good debt position. Why and how?
Simply because you used other people’s money(the banks) to purchase income generating assets that appreciate in value over time.
As time goes on, your assets appreciate in value, and inflation devalues your debt.
Thus, your overall Loan to Valuation Ratio decreasing over time.
Even if you don’t pay the debt down and just hold this debt at interest only.
Good debt is not as scary as you think if you understand what it will help you achieve long term, and that inflation actually works to your advantage to devalue that debt over time.
Have any questions? Or want to chat through the options of purchasing an investment property? Reach out below: