Wealthy people have learned that credit is an asset or a liability. Those who understand credit, earn it… those who don’t pay for it…
Let’s look at the practical side of understanding credit.
Wealthy people understand that credit can be an asset in ways that most people do not understand and don’t apply. Let’s look at what they see that most do not.
First – OPM or Other Peoples Money – is a strategy of applying for credit so you can use their money without cost to you… For instance, using a credit card will give you 30 days of free access to money as long as you pay off the debt before an interest charge is applied. Depending upon how much credit you have access to will allow what you can do with that money in such a short period of time. In a FBP or Family Banking Plan situation, you can use the credit to pay off bills, pay for gas and groceries and then pay it off at the end of the month with your Family Bank. Remember, you have to pay the Family Bank back with interest for the system to work. So instead of paying a credit card company the interest, you pay yourself and your Family Banking Plan grows. Very powerful!
Second – Utilizing Assets in your Home Equity – It’s great to have a home paid for, but most people don’t… and that creates huge liabilities for you. We will discuss in a future blog what that means but it can be catastrophic and was for millions of people back in 2008 – 2010. There is a strategy used by the wealthy that most people just don’t get or have never heard of and that is using the assets of your home to build wealth. Most people think that real estate or your home is an investment.
Let’s look at what an investment is. An investment is the action or process of investing money for profit or material result, usually done on speculation. In other words in brings an increase in value or assets. A home is a place to stay, to grow a family, to eat, sleep, clean up and entertain in. Most people will get a mortgage and make payments each month where most of the payment goes toward the interest, even when the interest is at a good rate of 5% or less.
However, a home does not bring you a rate of return, it costs you a rate of return and so therefore is not an investment for profit. Some people will argue that the home can go up in value and so therefore it is an investment. OK, sure, it can go up in value and it can go down in value and you will never realize that value until you sell it or lose it in a foreclosure. so, the value of the property means nothing until it is sold or put into a Reverse Mortgage… something that can be used for those who are trying to retire or have some other need to bleed the assets out the home over a long period of time.
The wealthy will instead of paying off the home, they will use the assets or equity of the home’s value and put it into an investment with a higher rate of return than what their mortgage rate is. The wider the gap, the greater the return. However, you will need to be wise like a wealthy person who will do everything they can to make the investment as risk free as possible. You could lose it all o the stock market like what happened in 2008 where there were drops of 43% or more. This is why we teach about the Family Banking Plan… there is no risk and you get a guaranteed rate of return and historically there are dividends as well. Also, there are tax savings and other benefits as you come to realize that your money is working for you in multiple ways, sometimes 2, 3 or 4 different ways. When the wealthy can make their money do 3, 4 or 5 different things at the same time, how powerful is that?
I suggest watching the videos attached to this website www.FamilyBankingWorks.com and see for yourself if the wealthy are smart or dumb.
Lawrence M Law