All Debt is Not Bad Debt


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As I’ve written often, there are four paths to wealth:

  1. Saver/Investor Path – Save and invest 20% or more of your income.
  2. Big Company Climber Path – Climb the ladder to senior executive in a large, profitable company.
  3. Virtuoso Path – Become either a Knowledge-Based or Skill-Based expert in your field.
  4. Dreamer/Entrepreneur Path – Pursue a dream that can be monetized.

For those who have chosen the Saver-Investor Path and/or the Big Company Climber Path, the accumulation of debt will make building wealth nearly impossible. So, if you are on either of those two paths, debt is and always will be Bad Debt.

For those on the Virtuoso or Dreamer Path, however, using debt to acquire knowledge/skills or start a business is almost always necessary and can actually be critical to building your wealth.

Virtuoso Debt

Roughly 19% of the participants in my study chose this path. Virtuosos are among the best at what they do in their profession. They are paid a high premium for their expert knowledge or expert skills, which sets them apart from the competition.

It took the Virtuosos in my study about 20 years to reach an average net worth of $4 million. Some worked in the medical field, while others worked in law. A handful either worked for large, publicly-held corporations, or they were small business owners with highly profitable enterprises.

Virtuosos aren’t born, they are made.

Knowledge-based Virtuosos devote at least three hours a day, for many years, studying/learning in order to accumulate expert knowledge. Formal education, such as advanced degrees, is usually a requirement for Knowledge-based Virtuosos, which requires a significant expenditure in not only time, but money.

Skill-based Virtuosos spend about four hours a day, for many years, engaged in Deliberate and Analytical Practice in order to acquire, maintain and perfect their skills. Continuous practice, coaching and mentoring, is usually a requirement for Skill-based Virtuosos. Practice facilities, coaching and mentoring often requires a significant expenditure in time and money.

Not everyone has the time or money to become a Virtuoso. If you have the time, but lack the money to become a Virtuoso, debt is often the only means to acquire the money you need to gain Virtuoso knowledge or skills.

Virtuoso Debt is Good Debt in that it helps finance the creation of an income-producing asset (you), which pays financial dividends for the rest of your working life.

Dreamer Debt

Approximately 28% of the folks in my study were Dreamers, and they accumulated the greatest amount of wealth among all of my Rich Habits millionaires – an average net worth of $7.4 million, over a period of about 12 years.

This is perhaps the hardest path to building wealth because it requires the pursuit of a dream, such as starting a business, becoming a successful actor, musician or author.

Dreams must be funded. For those not born into wealth, which is most, the pursuit of a dream requires money. And, like Virtuoso’s, Dreamer’s often have no choice but to fund their dream with debt.

Dreamer Debt is Good Debt because it allows them to create an income-producing asset (their dream/business) which pays financial dividends, that can extend beyond their lifetime.

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Thomas C. Corley About Thomas C. Corley

Tom Corley is a bestselling author, speaker, and media contributor for Business Insider, CNBC and a few other national media outlets.

His Rich Habits research has been read, viewed or heard by over 50 million people in 25 countries around the world.

Besides being an author, Tom is also a CPA, CFP, holds a master’s degree in taxation and is President of Cerefice and Company, a CPA firm in New Jersey.
Phone Number: 732-382-3800 Ext. 103.
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  1. Antonio Falvo says:

    Tom, I’m a little confused as a saver/Investor , debt in growth producing assets like investment property & or equities with a strategic long term view has been thought about as good debt. This is fundamental in leveraging your way to wealth creation.

    • Tks for your blog comment Antonio. Debt used to create assets that produce current or future cash flow = good debt. Saver-Investors who invest in real estate rentals often use debt to fund the purchase of their rentals, so that is good debt.

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