You can enhance your financial position and create long-term wealth by leveraging debt to invest in appreciating assets such as real estate, consolidate high-interest debts to improve cash flow, use high-yield savings accounts or borrow to acquire profitable businesses.
To build wealth, select debts that cost less to service than the returns you make with the debt. That slice of difference in the middle is your profit. If you can scale that up with more debt, you'll make tons of money.
1. Earn Money. The first step in building wealth is earning money. While this might seem obvious, it's crucial—you can't save or invest without income.
Good debt can be a powerful tool for building wealth, while bad debt can drag you down. Think about it: ❌ Bad debt, like credit cards and car loans, only drives your net worth down. ✅ Good debt, on the other hand, is an investment in your future. It's the debt you take on to purchase income-producing assets, like re.
Net Worth**: It's important to note that not all millionaires earn over $100,000 a year. Some may have accumulated wealth through investments or inheritances, which do not necessarily relate to their annual income.
They stay away from debt.
Car payments, student loans, same-as-cash financing plans—these just aren't part of their vocabulary. That's why they win with money. They don't owe anything to the bank, so every dollar they earn stays with them to spend, save and give! Debt is the biggest obstacle to building wealth.
Ninety percent of all millionaires become so through owning real estate.
When it comes to net worth, the threshold is even higher. To be part of the top 1% in the U.S., a household's net worth needs to be at least $13.6 million. This measure includes everything you own – homes, investments, savings – minus debts.
Wealthy family borrows against its assets' growing value and uses the newly available cash to live off or invest in other assets, like rental properties. The family does NOT owe taxes on its asset-leveraged loans because the government doesn't tax borrowed money.
They avoid debt
In fact, 73% of millionaires surveyed in the US have never carried a credit card balance,1 while 56% of active credit card accounts in the United States currently have a balance. One big exception is mortgages, and even some of the super-rich use mortgages when buying their homes.
Banks create capital by creating loans (assets) and destroying bank liabilities, which occurs when loans are repaid. This process increases bank equity, enabling banks to create commercial bank deposit liabilities (money) for their own use. In this way, banks create and manage their own capital levels.
Kiyosaki: Debt Isn't Always Bad
The difference between the rich and poor, according to Kiyosaki, is how they think about debt. The wealthy understand the difference between good and bad debt — and then use good debt to increase their fortunes faster.
Others will object to taxing the wealthy unless they actually use their gains, but many of the wealthiest actually do use their gains through the borrowing loophole: They get rich, borrow against those gains, consume the borrowing, and do not pay any tax.
Probably 1 in every 20 families have a net worth exceeding $3 Million, but most people's net worth is their homes, cars, boats, and only 10% is in savings, so you would typically have to have a net worth of $30 million, which is 1 in every 1000 families.
Based on that figure, an annual income of $500,000 or more would make you rich. The Economic Policy Institute uses a different baseline to determine who constitutes the top 1% and the top 5%. For 2021, you're in the top 1% if you earn $819,324 or more each year. The top 5% of income earners make $335,891 per year.
As of the second quarter 2024, the average American household had wealth of $1.17 million. The average wealth of households in the top 1 percent was about $35.5 million. In the top 0.1 percent, the average household had wealth of more than $158.6 million.
1. Financial Services. The financial services sector has produced more millionaires than any other industry, according to the Wealth Report. The sector plays a critical role in managing, growing, and deploying money worldwide.
The people who have all the money often go by unnoticed, dressing well, but without flash, driving used cars and living in the first house they bought in a modest neighbourhood. The authors called them the quiet millionaires. They often work in, or own, unglamourous businesses that spin off steady streams of cash.
Good debt is money you borrow for something that has the potential to increase in value or expand your potential income. For example, a mortgage may help you buy a home that can appreciate in value. Student loans may increase your future income by helping you get the job you've wanted.