Debt is bad! At least that's what most people think. Are they correct? If not, is debt good then? Well, it really depends. Whether debt is good or bad depends on the reason for incurring the debt, and whether you can afford to repay it.
Debt is a complex concept. If you use debt carelessly and irresponsibly, you'll get into financial trouble. On the other hand, if debt is used in a calculated and intelligent manner, it can help you build tremendous wealth. Therefore, you must be able to distinguish between good debt and bad debt if you want to be successful financially.
What is the difference between good debt and bad debt?
Ever wonder why most people are not wealthy? Without a doubt, people would love to have some extra money. Better still, they want to have enough money so that they never need to worry about finances again. However, given the opportunities that most of us have in the countries we live in, why is it that many people can’t achieve financial freedom and retire young?
Investing is about making money grow over time. The earlier you invest, the more time you let your money grow. Time is critical because of the miracle of compound interest. Compounding means you gain returns not only on the money originally invested, but also on the interest it earns. With the power of compounding, a small investment made earlier in life could generate a larger amount as compared to a big investment made later in life.
You stand to gain much more if you invest a smaller sum of money now and stay invested for a longer period of time than waiting until you have a bigger amount of money to invest later. Therefore, it makes sense for you to start investing as soon as you can afford, and as early as you can. To illustrate, say you invest $10,000 at 12% returns compounding annually. At the end of 10 years, you'll have about $31,100. At the end of 20 years, you'll get $96,500. If you stay invested and take out the money at the end of 30 years, you'll gain close to $300,000!