Using This Financial Strategy Could Mean You're 'Upper Class'

When you think of debt, you usually think about credit cards, car loans, or other forms of consumer debt. For many, the idea of debt may be uncomfortable, but there's a simple way to tell the difference between good debt and bad debt. When used correctly and strategically, debt can actually lead to financial gains. Known as financial leverage, this technique involves taking on good debt to make an investment with potentially high returns. The ultrawealthy often leverage assets to have a large chunk of dollars invested in the market and growing while still remaining liquid enough to cover their expenses.

Even if you don't have millions to invest in the market or real estate, financial leverage can be both beneficial and a sign that you're in the upper class. Leveraging debt might look like using a home equity line of credit to fund a home's renovations and increase its value, or taking out a low-interest loan to start a business. Done wisely, leveraging allows your money to work in multiple places, helping you build wealth without draining your savings.

Before taking out any amount of good debt, you need to have a good financial base. You should be free of high-interest consumer debt like credit cards or medical debt. Additionally, having enough money in your emergency fund to cover at least six months of expenses can protect you if things go south. It is always best to consult with a financial advisor to find the best solutions, but common ways to use financial leverage include HELOCs, second mortgages, low-interest loans, or margin trading accounts.

It's equally important to start small and avoid taking on more debt than you can manage comfortably. Leverage is most effective when borrowed funds are directed towards appreciating assets that grow in value rather than ones that lose value over time. And while leverage can accelerate wealth-building, repayment should always remain top of mind. Many people cover the costs of their debt by setting aside a portion of their investment gains, while others rely on savings or their income to stay liquid. When approached thoughtfully, financial leverage isn't just a tool for the wealthy, it can be a practical way for everyday people to grow their wealth.