The Two Types of Debt:
Fun fact - the top one percent of Canada’s wealthiest families own over 25% of Canada’s wealth. Put another way, around 377,000 people share wealth of around $3 trillion dollars. $3,000,000,000,000. That averages out to almost $8 million each. Staggering. It is these few folks who sit on the tiny little point way up at the top of the Wealth Pyramid. A lonely but luxurious little club.
Here’s what they all understand very, very clearly: non-tax-deductible debt tends to destroy wealth. Tax-deductible debt can create wealth.
If you have borrowed to consume – buy cars, clothes, groceries, gas, an expensive lifestyle with fancy dinners and vacations – these ‘things’ you are buying with borrowed money start to decline in value or even disappear as soon as you buy them. And if you paid $6,000 in interest for the year, you are $6,000 lighter. Wealth destruction.
However, if you borrow to invest with the reasonable expectation of generating income, you can deduct the interest – and if you’re at the 40% marginal tax rate, that same borrowing actually only costs you $3,600. Now throw on top of that the fact that you have bought assets which will likely increase in value. Wealth creation.
If you are a Canadian homeowner with a mortgage, you have the opportunity to start behaving like the wealthy and climbing that Wealth Pyramid. As a Smith Manoeuvre Certified Professional, contact me and I can show you how.