I’d like to start this post by dispelling a common myth: borrowing to invest is not a sin. We borrow for all sorts of things in life – homes, cars and university – but for some strange reason borrowing to invest is considered taboo. I’d like to show you how, when done properly, borrowing to invest can help you come out ahead financially.

Low Rates are a Boon for Borrowers

With interest rates showing no signs of rising anytime soon, there’s never been a better time to consider borrowing other people’s money. Borrowing to invest, or leverage, as it’s commonly referred to, is how the rich get richer.

The low interest rate environment has made it harder than ever to earn a decent return. Gone are the days when you could simply get by on parking your money in fixed income. While savers are having a tough time, it’s a boon for borrowers. Today you can get a HELOC for only 3.10 percent (prime rate plus 0.25 percent).

Unfortunately, a lot of people have it backwards with debt. There are two types of debt: good debt and bad debt. Good debt is things that go up in a value like your home, education and investments (when done properly). Bad debt is things that depreciate or are consumed immediately like a car or vacation. By borrowing only for good debt, you won’t need to borrow later on to spend. You’ll have money in the bank waiting for you.

 We Can’t Afford to Save for Retirement

The sad reality is most Canadians just can’t afford to contribute to their RRSP’s. The numbers speak for themselves: only 24 per cent of Canadians contributed to an RRSP in 2011, according to Statistics Canada.

If you’re most people, you’ll pay down your mortgage before saving for retirement. Once your mortgage is paid off in your 50’s or 60’s, you’ll start saving for retirement. The problem is there isn’t enough time to save, so many people downsize from a house to condo. Think about it for a moment: you spent your life paying off your house, only to sell it before retirement. Do you see something wrong with that? That’s where borrowing can help.

Clearing Up Misconceptions About Borrowing

There’s a misconception out there: borrowing to invest doesn’t mean investing in a hot stock tip you got from a friend. There are plenty of low-risk ways to build your net worth. An RRSP top up loan is the perfect example. Let’s say you’re in the 40 percent tax bracket and have $3,000 to invest in your RRSP. By temporarily borrowing $2,000 and contributing $5,000 (instead of $3,000), you’ll receive a tax refund of $2,000. This can be used immediately to pay down your RRSP loan.

This is one of the many ways borrowing to invest can help build your net worth. If you’re interested in learning other powerful strategies, join us at our next meeting for the Toronto Wealth Creation Club.

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians, available now on Amazon and at Chapters, Indigo and major bookstores, and as an Audiobook on Amazon, Audible and iTunes.