Borrowing to Build Wealth – 4 Ways You Can Make This Risky Strategy Work

in Finance

So you’re hunting for ways to increase your cash flow, and someone suggested that you borrow a little to get started? It sounds scary, and for good reason, you are technically putting yourself into debt after all, but if done right it can be quite rewarding. What you don’t want to do is wander down to the loan shark on the corner and borrow $10K (but if you’re here, you probably already knew that). You’re about to undertake a risky venture, and it pays to do your research. However, it isn’t always easy to know where to start. So, we’ve put together this article to help you out.

Get the right loan

Obviously, the first step is getting the capital to get started, and while this can be done just about anywhere, that doesn’t mean it should be. Money loans vary greatly, but what you want to look most closely at are the interest rates and whether there are any hidden clauses. Your aim here should be to pay things off as quickly as possible, but many loans have a lot of sneaky fees and conditions that aim to stop you from doing so. Find a lender that’s upfront about what you’re getting yourself into and secure a good interest rate before you go any further.

Invest it right

With the capital side of the equation sorted, you’re going to want some “safe” investments to get you started. You’re not necessarily going to get the biggest return on these initial investments, but that’s okay. They’re intended to be your backup plan if your next venture doesn’t pan out as expected. Investing doesn’t always go according to plan, so this safety net is what’s going to ensure you can still pay your loan without having to stress about where the money will come from.

Get professional help

Here’s where things get a bit riskier. You’ve got a loan that needs paying and you’ve already tied up some of your capital forming your fall back strategy. If you’re confident looking into things alone and managing more daring investments yourself, that’s great. If not, now is the time to find a good financial advisor. While this may seem like an unnecessary expense, you’re better of thinking of it as another investment as you’ll definitely need one once you move on to larger ventures. Find someone you trust now rather than making a costly mistake that damages your future.

Know your limits

Last, but not least, keep in mind that a big part of the risk involved in investing comes from its addictive nature. When you see your profits growing, it can be tempting to pump more money into the system in a bid to improve returns. While there’s nothing inherently wrong with this, you need to establish your limits so you don’t spread yourself too thin and risk losing everything. Make sure you keep a separate savings account and don’t spend any money that’s specifically allocated to your household budget for other things.

If you follow these ground rules, you should be able to get your portfolio up and running, pay off your loan, and secure yourself a nice supplementary income for the future without compromising your safety or stability. Remember that the most important thing is to make sure you have a solid plan in place before you start, stick to it, and the rest should naturally fall into place.

Image Credits: Alexander Mils

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