How you purchase a major capital asset has a tremendous impact on your ability to generate wealth.
You finance everything you buy.
There are two common ways to finance your major capital purchase.
1. You pay cash or
2. You borrow from a financial institution (loan, credit card, lease)
So in theory you either pay up interest or give up the ability to earn interest. If you pay cash for your major capital purchases, that is a form of self financing. Since we finance everything we buy the person who pays cash has to save once again to replace the money they withdraw from their account to get back to the same position they were in before the purchase.
The majority of the population is not aware that there is a third way to make major capital purchases. We call this the Wealth Creator Way.
The wealth creator will save just like the saver, but in instead of using their own cash, they will collateralize their purchase – in other words, they will borrow against their own money and use it for the purchase. They will pay back the loan in the same way that they would had they financed it through a bank. They don’t touch their money so it continues to earn uninterrupted compound interest.
Which method would you like to use when acquiring your next large capital purchase?