(03) 9020 2905There’s a fringe element out there – certifiably crazy, in my opinion, like Charlie Sheen’s spectacular brain implosion – that believes debt is the devil.
These, um, fools, claim embracing debt is essentially Russian roulette, using a revolver with ammo in every cylinder. Forfeit enjoyment until all debt is repaid.
If debt is evil, how would you buy your first home? By saving? Are they sane? Or do they claim a “home” is different, but you should never borrow to invest?
Bollocks. Garbage. Poppycock. Thppppppt!
Look, forget the hysteria. Debt is a tool. Used by the wrong people, it can be dangerous. Used to buy the wrong assets, it can be fatal.
But … used correctly, debt can be powerful for wealth creation.
The right people, predominantly, are Generation Xers, who have rising incomes and enough time until retirement to make debt-based investment strategies work. The right assets are QUALITY property and shares.
I half agree with a warning about debt-based investment strategies when you have a sizeable mortgage. But I also have my own saying, from my book Debt Man Walking, which covers these strategies: “Manage your mortgage, then manage your wealth”.
That is, when your mortgage is under control (usually 3-5 years), that’s the time to start investing. And debt-based investments might be part of that.
If you like residential property as an investment, accept that option doesn’t realistically come with a choice. You must borrow.
Shares come with more of a choice. But your strategy, potentially, could be enhanced with some moderate gearing. And gearing does produce tax benefits, which should be considered as part of the whole.
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and principal adviser with Castellan Financial Consulting.