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Good Debt v Bad Debt

Whilst debt can sometimes be viewed in a negative light, it can be an effective way to increase your net wealth if used for the right purposes and in the right way.

Borrowing money to purchase growth assets – or those which will continue to produce an income – can be considered "good debt" because it has the ability to increase your net wealth over time and help you towards a financially secure future.

"False wealth" consists of depreciating lifestyle assets such as cars, boats, clothes and consumer items.  And even your private house, for while the house land may grow in value over time, the rest will decline in value and any interest and expenses incurred cannot be claimed as a tax deduction and are not producing income and as such are a wealth drain.  This doesn't mean don't buy your home, but consider it as an investment along the lines of any other investment.

One best kept secret to become wealthy is spend at least less than 10% than your Net after tax income and invest that 10% (or more) into real wealth generating assets that work for you, and limit your spending on things that won't.  For an excellent insight into this philosophy, read George S. Clason's The Richest Man In Babylon, and click here for a review.

But you don't have to go without life's luxuries all together.  It is short-term control and investing your money in assets that produce an income that will earn you extra money to make many more enjoyable purchases over your lifetime.