Financial freedom has more impact in your life than debt freedom.
Why pay off a car loan with a 4% interest rate?
Instead, you have the opportunity to invest those dollars into something that produces an income stream, perhaps paying you an 9% rate.
That’s called “financial arbitrage” – you’re borrowing at a lower rate to invest at a higher rate. You created 5% arbitrage.
Importantly, you want to invest in something that pays you income every month, like rental property.
You see, if you get an 9% capital return from stocks, you aren’t paid that as income until you sell. A capital gain is more speculative anyway.
You need income (from your tenants’ efforts) to pay your car loan, not a “paper return”.
Look, retiring debt does not produce income.
When you focus on PROducing rather than REducing, you are on your way toward financial freedom.
You can only reduce your lifestyle so far. When you do, now you’ve lowered your standard of living.
There is an unlimited amount of passive income (income you don’t work for) that you can produce.
“Financial freedom” means that you have sufficient passive income to cover all of your living expenses.
“Debt freedom” means that you don’t owe anyone anything, but that says nothing about your best-and-highest use in your own personal economy: increasing your income.
This is why I owe millions of dollars in “good debt”. It’s debt that’s outsourced to tenants that produces income for me at the same time.
Though I have the ability to retire the debt, doing so would be financially reckless.
Being financially-free beats debt-free. When you grind, work overtime, eat dirt, or eat beans and rice to try to retire debt, ask yourself: “What kind of life am I designing for myself?”
Use arbitrage to create wealth for yourself. Don’t live below your means; expand your means.
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