The Saver, The Debtor, & The Wealth Creator
Have you ever heard the story of the Saver, the Debtor, and the Wealth Creator? It’s an example my clients often find helpful and I’d love to share it with you.
The Saver, the Debtor, & the Wealth Creator
There are two common types of people when it comes to spending money. You have the Saver who saves money with each paycheck until they have saved up enough to buy what they desire. The Saver’s problem is that once they spend that money, it's gone and they are stuck saving all over again.
Then there's the Debtor, who takes out debt each time they want to buy something and then pays back that debt little by little with each paycheck until their debt is paid off. The Debtor, of course, is constantly digging themselves out of debt.
The Saver and the Debtor have a lot in common because they both always end up back at zero and have to start the process all over again. But there's a lesser known third way, and that is what we call the Wealth Creator.
The Power of Leverage
The Wealth Creator builds wealth for tomorrow but still gets to use it’s value today. How do they do that? Leverage. They build wealth in an asset that they can then borrow against. They take loans against their money as needed and their money continues to grow even while they have an outstanding loan. By the time they pay their loan back, their money has hopefully continued to grow!
This image illustrates the differences in how the Saver, Debtor, and Wealth Creator fund their purchases.
Now, not all leverage is good leverage and some will reduce your growth based on your outstanding loan. When choosing an asset to borrow money against, be sure you consider the following:
What is the interest rate? Is it compound or simple interest?
How much are you able to leverage?
Will my money continue to grow by the same rate as if I never took a loan out?
Is there a set payment schedule you must follow to pay it back? What happens if I temporarily cannot make payments?
Do I have a reliable source of funds to pay back the loan?
A Type of Leverage Used for Over 120+ Years
When we build Personalized Wealth Strategies for clients, we often introduce a type of leverage that has some of the lowest interest rates available and allows you to set your own payment schedule. All the meanwhile, your money continues to grow at the same amount as if you hadn’t taken out a loan.
This is truly the best asset I have ever come across for this purpose. I have personally used it for the downpayment on two houses, funded renovations, paid off a car loan, and used it to purchase a once in a lifetime trip. This will continue to be a tool I leverage to build more of my passive income ideas such as those in real estate.
Others might find a tool like this helps provide some financial stability after unemployment hits unexpectedly. Or similarly, this could be an option for someone building financial resilience into their strategy.
Are you interested in learning more about this strategy and how it stacks up against other ways of leveraging your assets? Schedule a call to get started and we will discuss how this might be a good fit for your goals.
