For most of us, when we hear the word credit, red flags start flying! We’ve all heard of the horror stories of what can happen to a person’s financial stability should they go into serious debt. For some, it can be devastating, for others it is a necessary tool.
How is it a necessary tool you ask? Well hopefully over the course of this post I am accurately able to answer this question as it is absolutely essential that you switch your mindset to using other people’s money to your advantage.
Through the smart use of going into debt through the utilization of credit, you will be able to attain your goals that seem to be further than they actually are. Lets start out by defining what I mean by leveraging “other people’s money”.
OPM (Other People’s Money)
When you are just getting started in life, it is hard to find the capital needed to be able to sustain the necessities of living. Most of the U.S. population, doesn’t have hundreds of thousands of dollars in order to go invest in real estate or even start a business.
Because of this, we have to look towards another source of funding to be able to make these goals become a reality.
Enter OPM or other people’s money.
Financial guru and real estate investor Robert Kiyosaki hits this point extremely hard. He believes that if you want any hope of scaling any venture large enough, you must take advantage of utilizing the money that other people have. He argues that if you go to the bank and take out a loan, then you are effectively using your resources to be able to achieve your dreams.
Think about some of the things in your own life that you would like to achieve, however you might not have the money to be able to do it. It is important to realize that in order to get anywhere in this life, you must be able to practice LEVERAGE.
Think about it. Some of the biggest companies today practice leverage on their customers almost every opportunity they get. For example…
- Uber is a taxi company that uses other people’s cars
- Airbnb is a home rental company that uses other people’s homes
- Door Dash is a food delivery system that uses other company’s food
- Netflix is a streaming service that uses other people’s movies
We have to begin to realize how important it is to use the power of LEVERAGE. Leveraging your current assets in order to push your agenda is a phenomenal way to achieving goals quicker.
Now I know this isn’t for the faint of heart so I will make sure to go into this concept a little deeper so hopefully you can begin to see where I am coming from when it comes to gaining access to this large pool of money.
Credit is an Abundant Resource!
Credit is used by the most elite in our society! One of the biggest secrets that the rich understand is that they are able to pull resources in from other places when they don’t have enough.
It happens all the time, some banks even take on the debt of other people in an effort to collect some sort of monthly revenue while other banks are selling off this debt that they have gained. Corporations are effectively trading your debt all the time to turn a profit!
Why exactly would the rich take on the risk of other people’s debt? Well it turns out that according to Ray Dalio, $50 trillion dollars circulating the United States is credit. Only $3 trillion dollars compared to that $50 trillion is actually liquidated money flowing throughout our economy.
That seriously puts the emphasis behind how important credit is in todays society. It soon becomes evident that the people who are trying to achieve great things in this life have to be tapping into this larger pool of money using credit, as it is a much more abundant source than that of actually liquidated cash.
That being said, it is important to take into account what your current credit situation is like. Most of the time, in order to qualify for any substantial type of bank loan, the bank would like to see you have two years of work experience as well as a good credit score.
If you are serious about using credit to your advantage one day to achieve your goals, then I HIGHLY suggest putting great regard on your qualifications. The more that you pay attention to this, the more you qualify for. Which in total, means the more you are able to achieve!
Take special account into where you currently are in life. If you are just now starting out on your financial journey, maybe focus more on building credit. If you’re further along however and you have been building a good credit score, then it’s time to start thinking about the different ways you can leverage this tool.
Be careful however! There is a fine line when it comes to what you should be willing to go into debt for and what you should be weary of. Here is a description which hopefully trains your eyes to realize the optimal financial opportunities.
The Distinction Between Good and Bad Credit.
This might be one of the most important concepts of this entire post so if you take anything away from this please take note of this…
Credit is only good when it is used to purchase assets
Keeping this concept in mind, using credit to purchase assets is one of the most important leveraging tools that we the common citizen have. The only time that I would ever recommend going into debt is because you want to use that money to possibly create some sort of cashflow.
Some of these assets may include…
- Investing in a house that you eventually rent out
- Purchasing a Bitcoin mining rig which pays you monthly
- Building a business that eventually turns a profit
Let’s focus on that investing in a home concept using credit. Say for example, you qualify for a $300,000 loan and you want to go and purchase a house as an investment. You find out that if you take out this home loan you will have to pay $1,500 a month to be able to pay off the debt that you are now in. If you can eventually rent out this home for more than what you are paying a month, you effectively create positive cashflow!
Eventually you will pay off the house and the whole time you were getting paid monthly. Now you are able to pay off the loan in full and hopefully turn the house over for a profit since time has elevated the price evaluation of the home.
The opposite of this of course is using credit to purchase liabilities. Liabilities will drain the money from your bank and create a giant hole in your pocket. This is the dangerous territory that everyone associates debt with.
Just so that we are familiar with what I mean as far as purchasing a liability, here are some examples of bad uses of credit purchases…
- Purchasing a boat that has monthly payments and possible repairs
- Purchasing monthly subscriptions
- Purchasing a brand new TV when you already have one
It can be difficult as an American consumer watching new shiny products get produced every day, I get it. But we have to try to overcome the urge to buy the new upgrades that are burning huge money pits in our wallets.
By distinguishing the correct purchases form the wrong ones, debt becomes an effective tool that can be used to gain the goals that may seem out of reach. Hopefully now this helped you gain some insight into how to exactly use this resource and how it can actually put money IN your pocket instead of take it OUT.
If you have any questions regarding this concept don’t hesitate to reach out. Also if you learned something today and liked what you read, share with a friend! It is always greatly appreciated.
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Andrew Martinez, owner and writer of Minerva Money
YouTube: Andrew Martinez