mission wealth

Leverage & Debt Management

Alright, let’s talk about debt. It’s one of those things that can feel a bit scary. But here’s the thing: when used wisely, debt can actually be a powerful tool to build your wealth. It’s not about racking up credit card bills, but rather, strategically using borrowed money to invest and grow your assets. And that’s where we come in.

Think of it this way. If you wanted to buy a house, you’d likely need a mortgage, right? That’s debt, but it’s debt that helps you acquire an asset that could increase in value over time. The same principle applies to other investments. A financial advisor can help you explore how to use debt to your advantage, rather than just seeing it as something to be avoided at all costs.

Here are a few ways that Mission Wealth can guide you in using debt to build wealth:

Gearing: Borrowing to Invest

Gearing, or leverage, is basically borrowing money to invest, hoping that the returns from the investment will be higher than the cost of borrowing. It can amplify your gains, but it also magnifies your losses, so it's crucial to get it right. An advisor can help you understand the risks, assess your risk tolerance, and determine if gearing is suitable for your situation. They'll help you figure out how much to borrow, what to invest in, and how to manage the debt effectively.

Debt Recycling: Turning Non-Deductible Debt into Deductible Debt

This one's a bit clever. Debt recycling involves using your investment returns to pay down non-deductible debt (like your home loan) and then re-borrowing that amount to invest again. The interest on the investment loan is usually tax-deductible, which can save you money on tax and free up cash flow. An advisor can help you set up a debt recycling strategy that aligns with your goals and ensures you're complying with tax rules.

Using Property Equity: Tapping into Your Home's Value

If you own a home, you might have built up equity over time. That equity can be used as collateral to borrow money for investment purposes. This is a common way to fund property investments or other ventures. An advisor can help you understand how much equity you can access, the risks involved, and whether it's the right strategy for you. They'll also help you structure the loan to minimise interest costs and maximise tax benefits.

Other Considerations

Beyond these specific strategies, a financial advisor will also help you:

Assess Your Overall Financial Situation:

They'll look at your income, expenses, existing debts, and financial goals to determine how much debt you can comfortably handle.

Develop a Debt Management Plan:

They'll create a plan to manage your debt effectively, including strategies for repayment and consolidation.

Minimise Risk:

They'll help you understand the risks associated with debt and develop strategies to mitigate them, such as diversification and insurance.

Stay on Track:

They'll help you understand the risks associated with debt and develop strategies to mitigate them, such as diversification and insurance.

Why Get Professional Advice?

Using debt to build wealth can be complex, and it’s easy to make mistakes that could cost you dearly. A financial advisor can provide expert guidance, helping you avoid pitfalls and make informed decisions. They’ll take the time to understand your unique situation and develop a tailored strategy that aligns with your goals and risk tolerance.

At the end of the day, it’s about using debt as a tool, not letting it control you. With the right advice and a well-thought-out plan, you can potentially leverage debt to build a brighter financial future.

Our Services

At Mission Wealth we help our clients overcome the common “money roadblocks” that prevent them from leading the life they want with full confidence and less money stress.