Day #6 – Buy Thing That Appreciate in Value
In certain circumstances debt can be a very useful tool for making money. You made have heard of people getting into a lot of debt in order to purchase a house or to purchase stocks, this can be a great way to make money.
The goal is to use debt to purchase things that appreciate in value. Most people get into bad cycles of debt because they buy things that depreciate in value. A new sports car for example depreciates 20% as soon as you drive it out of the car dealership. It is now only worth 80% of what you paid for it and you and you need to continue to pay interest on that 20% that you lost.
However if you bought a house, and you bought it for $500,000 and it went up 10% per year you could make $50,000 per year, and if your repayments were 7% per year you would pay $35,000 in interest. You would therefore make $15,000 / year.
Things such as clothes, food, entertainment and technology all decrease in value over time as they get used and as new technology is created that is better than what you have bought. You should try to avoid buying these things on credit as you will pay more for it than what it is worth. Try to buy these things with money that you actually have and instead buy things that appreciate in value with money you have borrowed. This way your wealth will continue to grow.
Note: Items such as cars and computers can be worth purchasing with borrowed money as they may allow you to have the ability to work from home or travel to work which you wouldn’t have been able to do otherwise. In this sense they are items that are helping you earn money.
Go to Day #7 - Do You Really Have To Borrow?
