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Only Borrow Money to Make You Money

 

Of all of the financial principles we teach in Camp Millionaire and The Money Game, this principle alone would have kept Americans from getting into debt they couldn’t get themselves out of.

Borrow

Making Money Borrowing Money

If you don’t understand the world of money, then you can’t understand how your could actually make money by borrowing it.

Borrowing money in and of itself isn’t what makes you money. It’s what you DO with the money you borrow that makes you money.

Good Debt vs. Bad Debt

Think of it this way…when most people borrow money, what do they use it for?

Answer…buying liabilities. You know, those things that go DOWN in value. Things like:

  • Cars
  • Houses to live in (stay with me)
  • Phones
  • Boats
  • Clothes
  • Electronics
  • Garden tools
  • and everything else that goes down in value

If you borrow money to buy these things, YOU are then liable for paying back the money you borrowed, be it from a friend, a relative or your all too friendly credit card company. This is why we call them Liabilities.

What if, instead, you used the money you borrowed to buy something that went UP in value. Things like:

    • Real estate that brings you a positive monthly cash flow
    • Creating a profitable business
    • Inventing or creating a product you could sell for years to come and maybe for the rest of your life

We call these things Assets and sssets are things you buy that bring make you money on a regular basis.

Yes, stocks and bonds are also considered assets but you generally wouldn’t borrow money to invest in stocks or bonds because the risk is too high and/or the return probably won’t out perform the interest rate you’re paying on the money you borrowed, i.e., the loan.

The cool part about good debt is that ‘usually’ someone else is paying down the debt.

      • In the case of rental real estate, your tenants are paying your mortgage down.
      • In the case of a profitable business, your customers are paying down your business debt.
      • In the case of investing or creating a product or service, you can sell the entire thing to a business for a profit or turn it into a business yourself where again, your customers/clients are playing down the debt.

All of this is a very good thing when it comes to making money work for you.

And now you see, debt can be a good thing or a bad thing…it’s all in how you use it.

      • Good debt is debt you use to invest in assets
      • Bad debt is debt you use to spend on liabilities, aka piddlyjunk.

Only Borrow Money to Make You Money

So, next time you think about borrowing money to buy something, ask yourself this very important question:

Do I have to pay this debt down myself or will someone else be paying down this debt?

If it’s you doing the paying, you might want to think twice before borrowing the money.

It’s often that we think we just have to borrow money to buy a certain thing but in reality, we don’t have to borrow money to buy anything.

But What About a House to Live in or a Car to Drive

Well, what about them? Here’s the thing:

      • That house you live in that you borrowed money to buy? It’s not an asset in the sense that it doesn’t bring you money on a regular basis, unless you’re renting out enough rooms to more than cover your mortgage payment.  It’s really the bank’s asset…it’s bringing the bank regular monthly income as long as you keep making your payments.
      • The car you borrowed money for? My guess is that you could have driven the car you had prior to this one for a few more years and saved up to buy a car that was adequate without buying a new one that required you to borrow money. It’s just a guess mind you but I’m often right.

If you want a new car, why not create an asset that generates the passive income you need to cover the car payment?
Again, just a thought and another way of looking at borrowing money.