Wednesday, December 22, 2021

I changed My Mind on Debt!

We live in a financial system designed to make us work until the day we die if we let it. It's our responsibility to learn about the rules of the game and how to apply it to our advantage.  The sooner we learn about these rules the better it'll be for us as the earlier we begin the better it usually is.

Recently, I came across some information that changed my mind on debt. Before, I was against debt but there's some very specific situation where debt can be to our best interest and the secret is to look at the interest rate on that debt vs the interest rate you would get from investing that money. 

You have 10, 000$ in the bank to buy a new car and you can have a loan to buy this car at 0% interest for 5 years. The best thing you could do in this situation is take the loan and invest that 10,000$ somewhere that will likely have a return better than 0% over that 5 years. If you want to play it safe, you can invest in things that have a guarantee that you won't loose the money you invested. At the end of 5 years, you will have paid that car and made money on the investment that you've made.

Obviously, this requires us to investigate the market at the time of purchase/investing but doing so definitely has benefits that I hadn't considered before. Debt, in those conditions, can be a benefit. When it comes to investing, however, I will always follow the rule of "never invest what you can't afford to loose".

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