Break free of Financial Paralysis by Leveraging Good Debt (vs Bad Debt)...

House and condo prices continue to rise as more and more buyers enter the Toronto Real Estate market and with inventories as low as they are, prices are being pushed upward, making an already robust real estate market even stronger. This coupled with an increase in consumer confidence according to the most recent economic report; the real estate market is literally at the helm of pushing our country farther and farther away from the grim clutches of Recession. If you’re a home owner, you can’t help but feel a little content about how the Canadian market is managing in comparison to the U.S. and how you’re home is appreciating while our country is still technically in a recession. But, not all of us are as content.

I have personally witnessed throughout the years, families, both old as well as new, all personal friends of mine that have been caught in the grid of financial paralysis. We live in an age of chronic capitalism, now more than ever, where the availability of credit is substantial and debt is almost common place. But what is financial paralysis and how does one get out it? More to the point, how can you avoid it, what are signs, and how can you put yourself in a position to grow wealth rather than debt but most importantly, how do you put yourself in a position to KEEP IT? It is my sincere intention, that in some way you relate to this article and apply its information in bettering the quality of life for you and your loved ones. Now, let’s continue…

This financial paralysis, as I like to call it, is a self accumulating economic creature. It comes quickly, as most of us know, non-threatening in the least and initially grows systemically from one financial obligation to another. This systemic growth is far more aggressive for those in more vulnerable positions such as pro-longed unemployment, according to an article featured in TIME magazine titled: “Depressed? Don't Go to the Mall”, where the onset of depression due to unemployment means more indulgences as a means of escaping realty if only for a short time such as aggressive shopping, most often followed by buyer’s remorse only to see that credit card balance increase or personal lines of credit reaching new highs and undiscovered heights. Savers are also at risk, as a large, hard earned savings account can nibbled away by the everyday expenditures of a social lifestyle, school commitments or quickly be cut in half by the larger, more profound purchases such as a trip to Europe or that car you’ve had your eye on.

Financial paralysis takes on full form when we find ourselves solely in a self-sustaining state financially; meaning 80% of our pay check goes directly to credit card payments, line of credit payments, car loan payments, and the infamous monthly RENTAL payments.

In the 1950’s the Canadian personal saving rate was roughly at 5%, today it’s roughly -10% for the average North American. Unfortunately becoming a nation of savers is easier said than done because our economy is (for all intents and purposes) structured in a way that it depends on us being a nation of wild spenders as opposed to rational savers. We are unable to get ahead because we are simply too caught up in the fiscal to-dos of everyday life and any owned investment vehicles are performing poorly because so little capital is funneling in. This is financial paralysis and the longer it sticks around the more you and/or your family are affected emotionally as well as financially in the long run.

So, how does was one escape the rusty shackles of debt, well sadly, debt will always be in your life but you can and must learn how to mold debt (i.e. Good debt vs. Bad debt)in a way that not only releases you from a life of financial stagnation but performs as the ideal investment vehicle, offering you a return of 4-10% annually on money that you are barrowed via a mortgage. This strategy is called leveraging and what you are especially doing is making money off of someone else’s cash. Just picture it, a 6% return on a home valued at $250,000 annually; that’s 15,000 in the first year. Oh and any all profits are tax free as it’s your principal residence (which means you live there; additional investment properties, such as a 2nd and 3rd home becomes another matter all together.

I’ve known families, who have been renting for over 10 years with nothing to their name because they have been paying someone else’s mortgage during that time. Over time, the appreciation that you gain from your home can be used to then purchase an investment property, then a 2nd, realizing soon enough that the shackles have fallen off and that there is a very BIG light at the end of the tunnel with capital that is ever increasing and a small financial empire taking form.

Whether you are a young investor, a recently married couple, a family currently renting for a number of years, or just a person who thinks their keeping it simple by renting, look at the numbers and ask yourself, if your grandparents or parents didn’t purchase a home what would they have to fall back on or have to pass on to you and their loved ones? Personally, my grandparents on my mother’s side, whom I love dearly, purchased a 3 bedroom detached home for $12,000 53 years ago, its current market value is $415,000. It is the biggest investment they currently own and it provides a phenomenal amount of financial and emotional assurance for not only them but my entire family, knowing that they have the financial reserves if needed.

For any comments or questions, please email me at info@bogoroscopany.com or you can reach me at 416.558.7362.

Christopher J. Bogoros