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How to create passive income with free money made simple? What is Bad Debt? (And How To Use Good Debt Instead) - Not all debt is created equal and why you want good debt over bad debt
Good debt vs. bad debt

Today, many people are living by the old rules of money, the rules of the poor and the middle class. The so-called financial experts continue to preach the values of saving money, getting a good job, buying a house, and investing in a diversified portfolio of stocks, bonds, and mutual funds. How to create passive income with free money made simple?

The problem with these strategy is that savers are losers because as the Fed prints record amounts of money savings lose value, especially as inflation kicks in and grows faster than the interest paid on savings. Getting a good job doesn’t provide the security that it used to, and it’s actually the riskiest thing we can rely on.

A house is not an asset; it’s a liability. And what people preach as diversification is not really diversification and is actually bad financial advice.

The problem is that among the sacred cows of financial advice is that debt is bad. That is what my poor dad believed, and it’s what millions upon millions of people in the world believe as well.

Understanding the difference between good debt and bad debt requires an understanding of assets versus liabilities. Simply put, an asset is anything that puts money in your pocket each month. A liability is something that takes money out each month.

Again, this is all about context. Take for instance a truck. If your truck is a personal vehicle, it doesn’t put money in your pocket. It takes it out of your pocket in the form of a loan payment, maintenance and repairs, taxes, and insurance. Because of this, it’s a liability.

If that same truck were a used for a business as part of making money where the income would cover the cost of a vehicle, such as a construction fleet, it would be an asset because it would put money in your pocket each month.

Looking at the debt behind both scenarios, we can see the difference between good and bad debt. In this case a loan for the truck as a personal vehicle would be bad debt because it is in service to a liability. But a loan for a truck used for business and that makes you money each month becomes good debt because it allows you to obtain an asset.

The riskiness of bad debt

The poor mindset explanation of a credit cards only good for emergencies, and the disdain for us using it for an investment that make us money each month. To the wealthy, taking on debt only in emergencies was the worst debt of all. “It’s funny to me that people think taking on debt in an emergency isn’t risky but that taking on debt for investing is,” he said.

Here at Master Investor, we believed taking on debt in emergencies is a sign of poor financial intelligence. It showed that those folks who uses bad, were living paycheck to paycheck, which meant the probably didn’t have many assets and probably had many liabilities. As we are educated here, it became clear that bad debt was the riskiest debt of all, but somehow most people had been fooled into thinking it was necessary debt, while all other forms of debt should be avoided.

People who are already financially in trouble and needing emergency loans, were also the same people who would not pay those loans off and continue paying interest to the debt holders for many years to come.

The debt is bad when used for luxury items that lost value over time. But we differed from the poor mindset because we believed in using good debt to create cash flow for those things and more, while the poor believed in saving and spending, and only using debt when it was an emergency.

The poor mindset save money and then spend it. The ultra wealthy would borrow money that made money for him to spend many times over. We are teaching all a fundamental lesson that the wealthy know about money—debt can make us richer, when it is good debt.

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