Table of Contents - Benefits of Calculated Leverage & Smart Debt Vs. Bad Debt
Scott Dillingham: [00:00:00] Welcome to the wisdom lifestyle money show. I'm your host. Scott Dillingham. The goal of the show is to show you how you can grow personally, financially, have a larger net worth and leverage your largest asset to help develop you into the person you want to. I take you through all the steps I did coming from nothing being told, I was nobody and that I was never going to accomplish anything.
[00:00:26] Getting kicked out of high school to owning a multi-million dollar real estate portfolio. And my own company, you'll meet our partners, you'll , meet our friends and you'll quickly discover how you can improve your life.
[00:00:37]So listen in and enjoy the show. Thanks for tuning in today. Today, I'm going to talk about so calculated leverage and what that means compared to regular leverage. I'm going to talk about your mindset and help and how it can help you to grow personally and financially, we're going to go over what good debt is versus bad debt. There's multiple ways of leverage.
[00:00:58] So we dive into what those are and we put it all together to show you how you can make more money. So first thing I want to speak about is mindset. So there are many things investors out there, or just regular people who are scared to invest. They have a a mindset which sets them up for failure. They think, you know, if I buy this GIC or this mutual fund, my money could go down.
[00:01:25]I don't really want to invest because I don't want to take a loss. When really it's, it comes down to knowledge. So in life, in everything you do, you must have a growth mindset or a positive mindset, and it works for everything. I imagine you're meeting your spouse for the very first time. And, and you're one, ask this person out on a date.
[00:01:50]If you're fearful that you're going to be rejected. You're not, you're not going to make that introduction conversation. You're going to just walk away and you didn't make that connection. But if you have a positive mindset or a growth mindset saying, you know, I want to grow, I want a relationship.
[00:02:05] I want to talk to this person. You're going to get out there. You're going to talk to them and you're going to create success now. Not everything is going to work perfectly, but it's all about the mindset, right? You can't win every single time. But you need to get out there with everything in life, whether it's your job relationships financially with anything you want to learn and you have to take a positive and say, what did I learn from this?
[00:02:31] How can this help me with my day-to-day life and improve on it from there? So with investing, it's incredibly important to have a positive mindset because there's ups and downs with investing, right? It's like a rollercoaster sometimes. A stock or an investment is going up and sometimes it goes down. So there's tricks that you can learn to kind of see the overall big picture.
[00:02:55] So you're not really concerned if it goes up or down in a day, right. You look at it from a month by a year, by the past five years. Right. There's things that you can do to eliminate that fear of the roller coaster. And by eliminating that fear. That is how most people became wealthy. It's all about your mindset.
[00:03:15] So everyone who's, who's really happy, really healthy. Really financially strong have the mindset of, of growing in success and positivity. So regardless of what you're doing or the purpose of listening to this today, you've always got to have that strong mindset. As far as calculated leverage. So a lot of people are scared to leverage when it comes to their finances, but the leverage with everything else, uh, I'll give you an example, say your wife or your husband says, you know what, I'm going to mow the lawn, but if I'm on the lawn, you know, could you massage my back after.
[00:03:55] That's, that's leverage, that's a form of leverage, right? You're doing something and you're getting something in return. It doesn't matter what it is. Right. You could cook and clean because you want to night to go out with your friends, right? That's that's leverage. So you're doing something to create a result.
[00:04:11] And when you leverage, you can create leverage in any types of money, scenarios, relationships with friends and family members. You can leverage your time for different activities and you can also leverage your mind. So when I was speaking to you about mindset and having a growth mindset, that's leveraging your mind to grow and to get to where you want to, where you want to go.
[00:04:35]One of the books that I read was thinking grow rich and, uh, I loved it. It was one of the first books ever. And in it, it speaks about how, when you want something so badly, you imagine that you already have it. So when you have time to yourself and you're thinking about life, imagine where you want to go, what you want to do, and imagine it already has happened.
[00:04:58] So when you create that illusion in your mind that you have what you already designed. It naturally will come to you. And it's a really weird thing when I read it. I didn't know if I believed it or not, but I read other books. And they talked about it as well. Right? The universe gives you what you ask for and the best way of asking for it is to believe you already have it.
[00:05:19] And it just, it just comes. And it's, it's a really weird concept. I don't know how it works. I can't explain it to you, but the fact is it's true. So that comes. Anything you can think of whether it's a financial goal, personal goal, anything that you want. If you sit down, think about it, believe you have it.
[00:05:39] It will come there. So this is all leverage. Now, mainly I'm going to be speaking about leverage for investing. So when you leveraged to invest I don't think people should. Borrow from their line of credit and buy any investment or take out a mortgage and just get anything. That's why I refer to it as calculated leverage.
[00:06:01] You want to analyze the investment opportunities and you want to analyze your expenses and you calculate what that looks like before you make a decision. Now, before we get into some examples. Yeah. I want to speak about good debt and bad debt. So we grew up in a world, at least I did in my friends and people I know did.
[00:06:23] So I'm assuming you did as well, but where your parents, you know, said debt is bad, you've got to pay off all that debt in school. You know, they don't teach you too much in school, but in school they do talk about debt and how it's good to pay it off. And, you know, you should pay your highest interest.
[00:06:41] Bill's first and, and all of that is good. But there's good debt and bad debt. So for an example, bad debt would be, you went out to, and you bought a car and that car costs you $500 a month. That would be bad debt. Now, if you used leverage and calculated leverage. You know, a different scenario would be was you want this car?
[00:07:04] The payments are $500 a month. So instead of saying, how can I qualify for debt to buy this car? Right? Which leaves you with a monthly liability. Instead, you can say, what assets can I purchase that will give me income that I can pay off this car. So for an example, let's say you bought a rental property, the rental property.
[00:07:28]If you bought it correctly, should have a positive cashflow. And for our silly example here, let's just say the cashflow is $500 a month. So the example of good debt would be, you would buy a rental property to create a $500 a month income, and you would use that income to then buy your car. So now it's a wash.
[00:07:50] You you're not gaining, uh, an income from the rental price. Because your profits you're using for the car, but that's still smart debt because it's working for you. You're not having to pay out of your pocket to get this, and it doesn't have to be real estate. It could be dividend paying stocks that you purchase.
[00:08:08] There's, there's so many different options and investment strategies out there. And we dive into them more like inside the club. We have specialty investors that are within our investing club and they've got mini courses and they'll talk about things and they even talk about specific investments and that's all in our club.
[00:08:27] So if that's something you want to like be a part of and to really grow to join, it's invest dot Len city.ca is the website it's 29 95 a month. And then you have access to all of the ongoing trainings and things that are, that are in there. But. From that example, you can see that good debt has a benefit and I'll touch more on good debt.
[00:08:48] And then we'll talk about a few other strategies here. As soon as we come back after this quick break.
[00:08:53] All right, welcome back. So in the first part, I ended off with good debt versus bad debt. So I want to touch on a few more examples of that, and then I'll give you more examples of how you can use leverage to really grow. I've got some really cool numbers here to share with you. So I used an example of using good debt to pay for a vehicle.
[00:09:17]Now you don't always have to use. Good debt to pay for an expense, but if you want to purchase something and have an expense, you should always try to look for ways that you can make money that would pay for what you're looking to buy. That way. You're always in a positive scenario. You're not in a negative.
[00:09:36]Canada's like major corporations and companies are all speaking about it. You can see it then. There's people around the world that are worried about Canada's debt level. And most of it is bad debt. It's not good debt, so you want to be extremely careful. Okay. I'm not trying to suggest everybody goes into debt, but what I am trying to say is that if you do it smart, you can make good money and I'll, I'll touch on that in a minute.
[00:10:03] But there are many different ways to to use debts. So I'm going to give you an example of an investment that I have personally done. I'm not a stock picker. I'm not certified to give any advice about stocks or anything like that. But I purchased one I'll share in the club, I'll share which one it is.
[00:10:22] So then you can actually see, and you can track the performance and see that in confirm everything that I'm telling you. Now we do have certified people to speak about those certain events. Within the clubs. So you can go there and get some advice. But here, I'm just going to touch on an investment that I made.
[00:10:38] So I borrowed 200,000 from one of my rental properties and I purchased an investment now. Interest on mortgages, you know, currently it's two, two and a half percent, depending on the lender, the loan devalue, your credit score, you know, all of those good things. So let's just call it two and a half percent for calculation sake.
[00:11:04]So I borrowed 200,000, two and a half percent. Okay. And I used that money to purchase an investment. So here's another cool thing. And, and I recommend speaking to your accountant, I spoke to mine and they said that this was good. So with CRA, they will give you a tax deduction on your interest. When you borrow from your home or other borrowing avenues, like loans, lines of credit, that type of thing, they will give you a tax deduction for the interest paid.
[00:11:36] As long as you use that money. For other investments. So it's a really cool scenario because you're borrowing money from your equity. Then you're getting a bit of a tax write off now, not all investments apply. So this is why you need to speak to your accountant. Make sure you're purchasing ones that do apply for this tax deduction.
[00:11:57]But in my case, I got the tax savings, right? So the interest I was able to write off, which was great. So. Then I was able to purchase an investment, which had a great return. So the investment that I purchased it has since it came out in 1999. And actually, let me take one step back. I apologize, but I don't want to leave this point out.
[00:12:17] It's very important. There is a proven fact from all the different fund managers and professional investors and all that good stuff, the numbers of stocks. This investment that I purchased 90% of the time beats all the professional stock pickers fund managers. In performance on an annual basis, 90%, yeah.
[00:12:40] Of the time. So it's huge. It's so easy to win and to make money with this type of investment. Because it's so good. Now I will introduce you to people that are stock pickers that actually do beat this performance that I'm about to share with you by picking stocks. But it's very rare that they can write only 10% of the time.
[00:13:01]Can they beat, I'm sorry. 10% of the stock pickers can beat the performance of this investment. And you will meet the ones that do it. But anyways, this return pays or paid me an average of 26.6, 2% on an annual basis. So the return all times. Is so this is, if, if you invested in 1999, the return from that point to this point would be 585% return, which is amazing.
[00:13:36] But on an annual basis, it works out 26.62%. Now, what I was mentioning about the rollercoaster is some investors get scared, right? When the market goes down, they get scared and they want to. Don't do that. You have to look at the market as a whole, and you have to consider past returns. Now, a past return does not mean there will be a future return, but at least it's a history.
[00:14:00] It's a bit of a track record to give some, you know, updates and some knowledge for you to, to invest with. So for an example, this investment that I purchased in 2000, when we had that crash, the.com crash. Yeah, one down and it kept going down until about 2002. So there was a two year period there where this investment went down.
[00:14:23] So if you had started investing in 1999, you'd probably be like, what the heck? Right? The sucks it's going to. Yeah, but then if you look at the chart and I'll put the, or the chart in the club, it goes up and up and up. Every single year, it came down a little bit in the 2007, 2008 recession. It dropped a bit, but only dropped four.
[00:14:43]Looks like about six months from the timeline on the chart. And then it went up and up and up and up, and then it went down again when COVID came, it went down I don't know the percentage, but it, it went down quite a bit and then it automatically jumped back up right after that. And it's, it's almost double the price that it was pre COVID.
[00:15:02] So investments over time. Generally go up and there's a chart that's called an index. So it's A N D E X. You can look at it. It's the growth of your money over the years. And it shows you all the different recessions and stuff and what you could have invested in and what your money would be worth. Now, if you bought it back then, and, it's a great tool that you can see that over time, based on past history.
[00:15:27]Everything is going up, but when you come back and you look at it, so I borrowed the money at two and a half percent, but I'm averaging a 26.2% annual return. That's smart. That's calculated leverage. And the investment is actually quite a safe investment. I know the banks like to push GICs and things like that.
[00:15:52] Those investments are better for the bank. The more money that you park at a bank, the more that they can lend out. So they really like to push those and say how safe it is and you should get it because it's good for them. These types of investments that I do, that I speak of and the other professionals that are going to be on the show, speak about our investments that are going to be good for you.
[00:16:15] So that's what our focus is here. We're not trying to make the banks happy. We're trying to make you happy. So, Again, in the club, we'll show you the item that I purchased. You'll see the chart. You can see the numbers and confirm everything. If you want to check that out right away, it's invest dot lend city.ca and you can check that out.
[00:16:37]Also be sure to tune in next week, I'm going to dive into the pros and cons of the different borrowing options that are out there for investing, whether that's investing in real estate, equities, ETF's, mutual funds, you know, whatever the case may be. I'll show you the pros and cons of all the different investment vehicles that are out there that I have personally used.
[00:17:01] And then I set up for my customers at LendCity. And then you can determine what is best for you and your investing strategy. And then after that, we're going to be diving into some personal growth tips on future episodes as well. And with featuring special guests, that again, we'll talk about these specific investments, returns, case studies, all of these things.
[00:17:24] So you can see what others are doing that you may not see, but we get to see this because we're in the financial world. All right. I look forward to seeing you then take care.
[00:17:34] If you're serious about investing and you want to get to the next level of your life with the least amount of time and without all the mistakes, then you're going to want to sign up for our club. It's only 29 95 a month to join, visit invest.lendcity.ca.
[00:17:58]Inside you can chat with me and you'll learn about all the investments that we're speaking of in our episodes. We have classes in courses that you can join, as well as the networking opportunities you have with your peers and other experienced investors that are inside the club to help you to grow.
[00:18:19] We look forward to seeing you on the inside. And as a bonus, this membership is free for all of our mortgage customers. See You Soon!