I believe leverage is one of the most important skills to master for anyone serious about building wealth.  The most significant thing I’ve noticed about the wealthy people I know is that they are all masters at using leverage.  So, what is leverage anyway?  Let’s start out by looking at what Wikipedia has to say about a lever.  Wikipedia defines a lever as “a rigid object that is used with an appropriate fulcrum or pivot point to multiply the mechanical force that can be applied to another object.”

What I love about that definition is the part on the multiplication of force.  What a lever allows someone to do is to multiply their power beyond what they could normally produce solely by themselves.  Above all else that multi-millionaires good at, they excel at knowing how to multiply their power.  When it comes to creating wealth, power multiplication (i.e., leverage) comes in three basic flavors: continue

Popularity: 44% [?]

I was doing some reading over at MSN’s Money Central and I ran across this article by Liz Pulliam Weston.  Liz talks about some of the best rewards credit cards, but that’s not what prompted me to write this post.  Instead, it was this comment in particular that got my attention:

“Deadbeat” is the credit card industry’s code word for people who pay their balances in full every month.

As readers of my tutorial on free money know, I am a staunch supporter of paying off balances in full every month.  So as the saying goes, “if the shoe fits…”

In all seriousness though, Liz’s article is a great overview of the various rewards cards out there.  In the cash back credit card category, she recommends the Amex Blue Cash and the Chase Freedom credit cards. I agree completely.  In fact, I would go so far as to say these two cards are the best ones to use period.

What do you think?  What’s the rewards credit card you use and why?

Popularity: 45% [?]

Yep, that’s right.  I have no intention of paying off this debt any time soon. For all I care, the bank I’m indebted to can continue to milk me for interest for many more years to come.

The above statements may sound a bit insane, but don’t call the asylum truck on me just yet.  Now that I have your attention, I’d like to elaborate more on why I would say such craziness.

To illustrate the rationale here, allow me to start with a simple example.  As I elaborate in my tutorial on free money, you can make money by putting all your purchases on a cash back credit card.  By paying off your credit card off in full, the bank is effectively giving you a renewable 0% loan each month.  So while you’re using the credit card bank’s money for 30 days, your money is busy earning you 3.50% APY interest in an online savings account.   So each month, you’re borrowing money at 0% to make a 3.50% APY return.  This strategy is a form of leverage and is the model upon which banks are based — using money at one rate to earn a higher return on that money somewhere else.  The difference is profit.

In my case, I borrowed $24,000 a couple years ago to purchase an income-producing asset.  That investment now produces monthly revenue of $670 and is still growing.  The debt costs me $85 a month.  After debt service is paid, this asset cash flows $585 per month.  This is a passive income stream I would not have otherwise had without borrowing the money, because at the time I didn’t have $24K in uncommitted cash just laying around looking for something to do.

On a future post I’ll talk about the particulars of this investment, however to keep things on topic, there are a couple points I want to highlight here: continue

Popularity: 56% [?]