How Smart Borrowing Can Accelerate Your Journey

We've talked about four different pillars so far: earnings, savings, spending, and investing. Another crucial aspect is borrowing. Borrowing can include car loans, home loans, credit card loans—you name it. It's essential to understand that borrowing is a tool for wealth creation and financial freedom.

Let me give you a quick example. Suppose you're part of a dual-income household and can save a good amount of money. In that case, you can consider taking on more debt to invest in real estate, provided your debt-to-income ratio allows it. This ratio is calculated by taking all your debt payments, like mortgage, car payments, minimum credit card payments, and a few other bills, and dividing that by your total household income.

Banks generally allow a debt-to-income ratio up to 43 to 45%. I personally believe that as long as you're below that threshold, you should continue to invest in property. Real estate is a good investment when bought with leverage, i.e., debt. I've done it myself; we have our primary home and had two other properties, though we sold one earlier this year.

As a rule of thumb, any debt with an interest rate under 5% is generally safe to take on. For interest rates between 5 to 10%, ensure the debt serves a good purpose, like education or purchasing appreciating assets. Anything above 10% is generally not advisable, as the high-interest payments can become burdensome.

So, look at your debt-to-income ratio. If it's below 40%, you have room to invest in more property.