Should You Leverage?

One quality a lot of wealthy people use is leveraging. Surprisingly enough, most of them do not leverage the way you may think.

I am talking about leveraging your money. Utilizing the banks money to allow you to purchase things without needing to bring all the money down. For example, you want to purchase a home. The home is $100k, you do not have $100k, so you go to the bank, they offer to cover $80k of the purchase, as long as you bring $20k and you pay the monthly payments.

I have talked about this kind of leveraging before. I have gone to seminars on how to do this better. Leveraging can be highly important when it comes to deploying your money to work for you. This leveraging allows you to purchase larger properties you would not have been able to purchase if you could not leverage 80% of it. With bigger and nicer properties, you typically get more potential for cash flow, more appreciation, and more tax write offs. This is the main way, highly wealthy people who are in real estate, claim they do not pay taxes. They leverage their loans, so they can utilize high amounts of write offs and save on taxes.

With me saying all of that, it is clear leveraging is a very powerful tool and a lot of wealthy people utilize it. The other part of leveraging, is leveraging assets which are more like liabilities. For example, a personal car loan. Should you leverage a personal car loan? For most people, I would say absolutely not. I know you could take the money you would pay for a car and put it towards real estate and get a cash flowing asset, which could pay your car payment. The problem is, are you actually going to do that? It sounds like a great theory and all, however, most people are not going to do that. Most people are not going to invest in real estate. So, save yourself money and monthly payments of both interest and principal payments. Save up cash, buy a car in full, that is under your means (You can find a lot of good cars around $10k) and do not try to leverage, like these highly wealthy people, who utilize CPA’s and tax professionals to help them reduce their tax liability.

The average individual who ends up being a multimillionaire, is disciplined and lives below their means. Once you can be disciplined and live below your means, then you can start looking for good investment tools to deploy the money you have been saving.

Leveraging can be a highly useful tool if used correctly. I utilize it with real estate a lot. I encourage you to be careful utilizing leverage if it is not related to cash flowing real estate. It may hurt you more than help you.

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-Shaun Tutor