Many people think that debt is only associated with individuals who are facing financial problems.
However, the truth is that many millionaires and large companies also use debt as part of their financial strategies.
The difference is that they do not go into debt to spend excessively, but use debt as a tool to build more wealth.
For them, well-managed debt can help accelerate asset growth and increase investment returns.
Most rich people do not spend all their cash on buying an asset.
Instead, they choose to take out loans with low interest rates, while the cash they have continues to invest in other assets that have the potential to provide higher returns.
In this way, they can maintain cash flow while growing the value of their wealth.
In addition, debt allows them to buy assets such as real estate, businesses, factories, stocks and land.
If the asset is able to generate a higher return than the cost of the loan, they still make a profit after paying interest.
For example, someone with RM200,000 in capital can get a bank loan of RM800,000 to buy an asset worth RM1 million.
This strategy is known as leverage, which is using a loan to control an asset that is larger than one's own capital.
However, not all debt is beneficial. Consumer debt such as credit cards, personal loans or the purchase of luxury goods usually does not produce income.
On the other hand, productive debt is used to purchase assets that can generate cash flow or increase in value over time.
This is why wealthy people are more likely to choose debt that has the potential to provide returns.
In conclusion, debt is not necessarily bad. What distinguishes whether debt is good or not is the purpose for which it is used.
When used to acquire income-generating assets and managed with discipline, debt can be a financial tool that helps build wealth in the long term.
