Understanding debt. Debt is one of those words that makes a lot of people very nervous. They come from that old fashion background where you want to reduce the debt, you want to have no debt, owe nothing to the banks, you’ve got to own your assets debt free – that’s the greatest Australian dream. However, understanding debt is critical in the process of accumulating wealth through assets and investing. I’ll tell you what, people who don’t understand the difference between good debt and bad debt, don’t understand how the wealthy get wealthy.
Okay, let’s have a look at a couple of key things now. Firstly, what is an asset? This is another misconception too. So, is your own home an asset? The definition of an asset is this: it’s something of value that generates an independent income.
An asset that does provide income is investment property because it increases in value and it generates income through rent and your tax return. Business is an asset because it increase in value and generates income. All those sorts of things. So ask yourself that question: what is an asset? How many assets do you actually own.