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.

When it comes to debt, as I say, a lot of people get very nervous about it, understanding the difference between good debt and bad debt is vital.

So good debt is a debt attributed to owning assets that are going to increase in value and provide you source of income. Bad debt, is obviously the opposite of that. Things that depreciate in value obviously don’t provide income at all. So as I said, understanding the difference between good debt and bad debt is vital and those who don’t, don’t understand how the wealthy got wealthy because no one ever really became wealthy without borrowing money first in order to invest in assets that are going to create their wealth and make money for them.

I call good debt “green debt”. I know that the more green debt I have, the better my position because they are going to assess assets that are increasing in value, building my capital growth, building my wealth and then allowing me to create that future that I always wanted which is to be able to get out of the rat race and to have a passive income from my portfolio. So good debt vs bad debt.

Any questions, feel free to shoot through any questions to the info@onpointpi.com.au and we’ll talk about your understanding of debt and how we can help you.