Debt Reduction Is Not The Path To Wealth Creation
I have to admit that I am one of those debt loving people who believe I can do more with my money by carrying a big debt at 3%, than by paying off my house and eliminating my access to all that cheap money. Anytime I can borrow at 3% and earn 8% … I will be all over that.
I am also very skeptical of financial institutions … I always gotta think … what’s in it for them? When they promote ideas like quick paying your mortgage … the conspiracy theorist in me is thinking, they just want people to run tight and rack up credit card debt or other high interest debt costs … that’s how they really make their money.
Like you probably did, when I got my first mortgage all I wanted was the best rate. And I actually made the “mistake” of taking a 10 year amortization … it was the Dutch parental influence. Truthfully, it wasn’t a big mistake, cause I quickly built up equity in my home that I could access to implement real wealth strategies.
IF YOU WANT TO CREATE REAL WEALTH, YOU NEED TO START THINKING OUTSIDE THE BOX.
TRADITIONAL WAY OF THINKING
THINKING OUTSIDE THE BOX
I want to be debt free.
I want to borrow and invest, earning more than the cost of borrowing to increase my cash flow and wealth.
A 20 year mortgage will help me pay off debt sooner. I pay less interest over the long run and I win.
A 20 year mortgage leaves me tight on my monthly cash flow and I and up with credit card debt at much higher interest rates. I pay more in interest over the long run and the bank wins.
A 30 year mortgage keeps me in debt longer affecting my overall net worth negatively.
A 30 year mortgage lowers my monthly cost leaving more money for RESPs and the grant money, RSPs and tax breaks, investments earning more than the cost of my mortgage, and permanent insurance that I can use to augment my retirement very tax efficiently.
If I borrow more money I will have more debt.
If I borrow more money I can buy an asset that pays me and appreciates, like a rental property or dividend fund. While I have more debt, my net worth is higher because of the appreciating asset I bough and my improved monthly income.
Paying down the mortgage should be my first priority.
If I put less towards my mortgage I can participate in the matching pension money my employer offers.
We should do a new TV show … something the opposite of “Till Debt Do Us Part” … something like … “Debt Made Us Rich” or “Living with a Million Dollars of Debt” … next year’s project.