Debt Makes the Rich Richer. Debt Makes the Poor Poorer.
What’s the Difference? How they use it.
Your relationship with debt today can either shackle you or set you free. Debt to the rich is not feared. It is a smart tool for investing, a weapon used in building financial freedom. Others let it weigh them down. What's the difference? Mindset and strategy. It's time to stop thinking of debt as a four-letter word and apply it as a tool for your own good to get money. Throughout this blog, I am going to show you just how.
Let me get one thing straight: debt is neither good nor bad. It's all about how you use it. Rich people don't become rich by staying away from debt. They know how to leverage it. Good debt helps you acquire assets that will make you money, while bad debt drains your finances by paying for stuff that will lose value.
If you want to be in the top 1% of rich people, it's time to change your relationship with debt. Debt is supposed to work for you, not against you.
The rich buy assets that go up in value using debt: real estate, businesses, or stocks that pay dividends. They understand that one may borrow money to appreciate assets and create cash flow or long-term wealth. Why save for years to buy a property when you could borrow the money today and let the rental income pay the mortgage? That’s not just smart—it’s how wealth is built. Leverage the bank's money to help you build wealth.
The wealthy know a secret: it’s not about how much you have. It’s about how much you can leverage. Using the bank's money to invest translates into the ownership of more assets to multiply your returns. Think of it this way: you borrow money to buy an apartment building, and the rent pays the debt while you pocket the profit. You are not using just money. You're using leverage to accelerate wealth-building.
Debt doesn’t buy you assets. It can also reduce your taxes. Tax write-offs can be considerable for mortgage interest and payment on business loans. The rich take full advantage of these, reducing their taxable income to keep more of what they make. As I said, it doesn't matter how much one makes but how much is kept.
Smart debt generates cash flow. If you borrow to invest in an asset like a rental property or a cash-flowing business, you're locking in predictable revenue to reinvest for even more wealth. This means rich people are not only servicing the debt but, in fact, turning it into ongoing profit.
Smart investors use debt to protect and build their wealth. Set up structures that protect your personal assets, like LLCs, and take on measured positions of debt to scale on business ventures without setting oneself up for reckless gambles. The real mistake is playing it too safe—avoiding debt entirely out of fear costs far more in missed opportunities than the debt itself ever could. The wealthy know that while others worry about owing money, they use debt to capitalize on opportunities and build their financial future. Opportunity doesn’t wait, and neither should you.
Now that you know how the wealthy use debt, it’s time to apply these strategies to your own life. Here’s how to get started:
Shift the mindset from viewing debt as purely negative to seeing it as a tool for wealth creation. Instead of fearing debt, see it as an opportunity to invest in assets that grow over time. Understanding good vs. bad debt is critical here. Good debt includes investments in assets like education, real estate, or businesses that can generate returns. Bad debt, like excessive credit card spending, drains financial resources and should be minimized.
Having a clear picture of your finances is crucial whether you're just starting or already on your path to financial freedom. Assess your income, debt types (credit cards, student loans, and mortgages), and credit score to create a solid wealth-building strategy. Understanding the terms of your debts, including interest rates and due dates, allows you to prioritize which debts can be leveraged for growth and which should be paid off quickly. This self-awareness is key to taking control of your financial future and making informed decisions.
Knowledge is your greatest asset. If you don’t understand how to use debt to your advantage, you’ll always see it as a threat. Read, learn, and invest in your financial education. A great place to start is with my Wall Street Journal best-selling book Money Shackles. If you prefer your education in video form, I also put together 44 educational videos covering each principle I cover in my book free of charge. You can’t win the game if you don’t know the rules. Start building your financial literacy to achieve your goals.
Once you've developed solid financial literacy and self-awareness, it’s time to seek alternative investments that yield returns over time, such as real estate, stocks, or other alternative assets. Focus on acquiring assets that generate cash flow and appreciate in value, which will help you build lasting wealth. It's essential to have a clear plan when borrowing. Strategic debt involves investing in assets that appreciate and generate cash flow at a higher rate than the interest charged on the debt. Consider consulting with a financial expert to map out your next moves and ensure that your investments will outperform the interest on any debt you take. Instead of hastily paying off low-interest debt, prioritize opportunities with higher returns. For instance, if you can earn a 10% return while paying only 5% interest on a loan, it makes more sense to invest first. Use borrowed funds judiciously to invest in assets where you can achieve a higher return than the cost of the debt.
Diversification is a crucial strategy for reducing risk and enhancing the potential for consistent returns, as it involves leveraging various types of investments, such as stocks, bonds, real estate, and alternative assets, to spread risk while increasing the chances of generating higher returns. Learn from others’ examples that strategically deploying debt can create passive income through assets like real estate or businesses, aiming to build cash flow that exceeds your monthly debt obligations. This allows the income generated by your investments to cover your debt and contribute to wealth growth. Real estate investments can provide rental income that pays off your mortgage while the property appreciates in value.
With the knowledge and plan, it’s time to take action and avoid getting stuck in analysis paralysis. Waiting for the perfect investment can lead to missed opportunities. Start investing, monitor your progress, and make adjustments as necessary, as adaptability is crucial in the ever-changing financial landscape. Remember that there’s always more to learn, so stay open to acquiring new knowledge. Additionally, reinvest the returns from your investments into new opportunities to harness the power of compounding interest and returns, which can exponentially increase your wealth over time. For example, you can amplify your overall financial growth by cycling your investment returns into paying down debt and reinvesting.
Building wealth by leveraging debt necessitates discipline, patience, and a well-defined plan. It’s crucial to monitor your investments, manage risks, and refrain from using debt for unnecessary lifestyle upgrades while adhering to a financial strategy that aligns with your long-term goals and making calculated decisions to avoid overleveraging. Although navigating debt can be challenging, you don’t have to do it alone. Leveraging experts can provide valuable knowledge and access to opportunities that help you get started and scale. If you're unsure or lack the time to leverage debt effectively, consider partnering with a team that understands how to use debt strategically for wealth building.
Debt isn’t your enemy—it’s your ticket to building the wealth and freedom you deserve. The strategies the wealthy use aren’t reserved for them alone. They’re available to anyone willing to learn, take action, and embrace the power of leverage.
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Don’t wait—book a consultation with our team today. Let’s build your wealth, break free from the limitations of fear, and unlock the financial life you’re destined for.
Dutch Mendenhall views are his own. These are not promised outcomes and do not indicate future results. The content provided is for informational purposes only and should not be considered professional advice. For more information, visit https://dutchmendenhall.com/disclosures/.
This work includes content generated with the assistance of artificial intelligence (AI).