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How Debt Can Help You Build Wealth

7/21/2019

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Anyone who casually watches television or listens to the radio likely hears about someone selling a strategy to pay off debt. After all, debt causes many problems in people's lives. For many, they choose to avoid amassing any deficit in the first place. Debt, however, can serve a valuable purpose. You can't pay cash for everything all the time, so borrowing becomes a viable option. You can't go overboard, though. Borrow strategically. Doing so could help you amass wealth.

Good Debt vs Bad Debt
Maxing out your credit card with unnecessary vacations and eating out twice a day adds up to bad debt. You throw money away when borrowing nonessentials to live beyond your means. Borrowing money to purchase a reliable computer to help your business, however, makes sense. The new computer could help the business generate income in many different ways. Yes, there is both good debt and bad debt. Good debt works to your advantage and helps you further yourself in life. Bad debt serves no purpose and harm's your life. Bad debt drags down credit scores and takes away funds better served in an investment vehicle. Before you borrow, think about the pros and cons of the resulting debt.

Gearing Up
Borrowing excessively to launch a business can create troubles. Using your own capital, however, may deplete all your savings and liquidity. If the business' cash flow doesn't generate enough funds, you won't get your losses back. If the business folds, you may end up in dire financial trouble. Also, you may not have enough money to run the business properly. Undercapitalization can drag a company down. Saving money makes sense but cutting out necessary items due to a starvation budget isn't beneficial. Borrowing money incrementally at strategic points could lead a business to a stable footing. Be wise with any financing plans and business investments might benefit.

Things to Watch Out For
The lending and borrowing landscape could change in the coming year. The Small Business Administration may come up with an interesting new loan program. Private lending sources might free up additional funds at lower rates. And then there is CECL: current expected credit loss, a new type of accounting standard. CECL will be implemented in 2020, and while it will affect lenders, you don't have to worry about it affecting your investing strategy too much. Educate yourself about CECL to become aware of how it works.

Debt isn't always a bad thing. Learn how debt works for and against you. Then, leverage it properly to achieve your goal of building wealth.

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What to Look Out for While Planning Your Retirement

7/20/2019

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Most people look forward to their retirement years. If you've planned your retirement wisely, then these years can be a time to travel, spend time with loved ones, and enjoy a favorite hobby. However, an ill-planned retirement can put a damper on these plans, but it doesn't have to be that way. A well-planned retirement allows you to enjoy these years with grace and ease. If you're just starting the process of retirement planning, then you'll want to keep these three things in mind.

Investment Opportunities
The trick to securing good investment opportunities before and during your retirement years is to keep a balanced portfolio of assets. You'll want most of your assets to be "safe" assets, like bonds, your IRA, and your 401K.

Other investments, like the stock market and real estate, can be a bit more volatile, depending on the status of the market. You can have some of these types of investments in your portfolio, but you don't want them to be the bulk of it. Finally, a visit with a financial advisor can help you decide on what kinds of investments would best serve you in your retirement years.

Find Good Insurance
Just because you've stopped working doesn't mean you stop needing insurance. As we age, we often acquire age-related diseases, which require long-term care and insurance to pay for it. Fortunately, seniors have quite a few insurance options, including Medicare/ Medicaid.

Some seniors also buy supplemental insurance. If you're in that boat, then you will want to keep your eyes open for signs of insurance fraud while you look for the right insurance for you. Don't be pressured into buying coverage that you don't need. You may also want to check your insurance bills to see that you aren't paying for services you don't want. It's best to read the fine print on new policies and review your policy statements regularly to avoid getting scammed.

Pay Off Debts
When you retire, you go from having new income coming to living on a combination of your pension, social security, and savings. Most people take a pay cut during these years. It's for this reason that carrying debt into your retirement years is so dangerous. In the event that you need to to enter an assisted living facility, then your retirement fund will be key to affording a retirement community that suits your needs. 

Debt at your previous income may have been manageable, but debt on your reduced income may not be. In light of this, your goal should be to achieve debt-free status before you officially begin your retirement.


The best retirement planning includes provisions for investments, insurance needs, and debt-reduction. If you get a handle on these three things, then you stand a far better chance of having a retirement that you enjoy. Ignore them, and your retirement years may become far more challenging than they need to be.

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    Author

    My name is Dan Hopwood and I first started my career in the insurance business back in 1988.  2023 will be the start of my 35th year in the business. 

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