The King of Pop made the best-selling album of all time, Thriller (which came out 34 years and two days ago!), with sales of around 65 million copies. Yet in spite of the huge revenues he continued to receive from such recordings, Michael Jackson died broke. How could this be? The answer to this question reveals some important lessons for anyone who wants to achieve long-term financial freedom.
Michael’s main problem was that as his income dwindled in recent years, he never changed his spending habits. In 2005, a forensic accountant testified that Michael was spending $20-30 million more per year than he earned and was in debt by as much as $285 million. In 2001, he borrowed $200 million from Bank of America just to stay afloat. His 2,600 acre private estate, Neverland, cost $5 million a year to maintain and faced repossession twice.
Unfortunately, Michael didn’t understand the difference between good debt and bad debt. Borrowing money to pay for living expenses and possessions that never pay a return is bad debt. It may give you short-term pleasure, but it offers no long-term value.
Instead of buying the latest big screen TV and taking exotic cruises, set more money aside so you can eventually start investing in assets that will increase in value over the long term. Good debt is things that will generate income for you over time. Some examples are borrowing to pay for post-secondary education, seminars, books, retirement investments, strategic renovations to your home, or the purchase of a revenue property.
It’s true that Michael did choose some good debt, like buying the rights to 259 Beatles’ tracks. Today, his estate has an estimated value of over $2 billion.
Here’s the key lesson you want to implement. Live within your means and set aside at least 10% of your income to invest in cash flow producing assets. Do this, and you will never have to lose any precious sleep worrying about how you will make ends meet.
If you would like some tips on using the equity in your home to start investing in return-producing assets—so you can enjoy financial security, talk to your Dominion Lending Centres mortgage professional. We can offer objective advice and give you access to innovative, affordable financing so you can position yourself for an abundant future.