When it comes to debt, there are two kinds—bad and good. When your financial adviser tells you to stay out of debt, she means stay out of bad debt.
Bad debt comes in the form of borrowing money for liabilities such as using credit cards to buy TVs and take vacations, borrowing a line of credit on your personal home, and more.
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Staying out of bad debt is good advice, but the problem is that your financial adviser won’t tell you about good debt.
Good debt is debt used to purchase assets like rental property.
When you use the bank’s money to purchase cash-flowing real estate, you use less of your own money to secure an asset by paying only a down payment instead of full price, and your tenant’s rent pays off your debt while you own the asset and pocket the profit.
When it comes to taxes, the rich understand that governments write tax codes to encourage specific types of behavior. If governments want you to build affordable housing, they give you a tax cut. If they want to encourage oil exploration, they give you a tax cut. If they want to see higher employment, they give you a tax cut.
The secret is that most tax benefits are made to help entrepreneurs and investors. With the right financial education, you too can utilize the tax code to not only get richer, but also pay nothing in taxes.
Utilizing good debt and getting richer through taxes takes a high level of financial intelligence. But everyone can learn and put these principles into practices.