There are some well known financial authors that recommend people transitioning from being employees to becoming full scale business owners or investors. While we do agree that being a business owner or investor is the ultimate way to become truly rich, we disagree that one should transition directly into these positions from that of an employee. The reason for this is because most employees do not have the business maturity that is necessary to transition from employee to business owner, in addition to this, making this transition, in our opinion, is much more difficult than making the transition from employee to self employed, which we will discuss in the next chapter. A big business has at the bare minimum 500 employees, and it takes a lot of effort and risk to build this type of business. Being a successful investor means having the necessary knowledge and capital to invest, and many people, particularly during this day and age, are cash strapped. Some well known financial authors recommend people “going in debt” in order to build riches, meaning they use the money of a bank to purchase assets that provide cash flow.
The problem with this view is that it only works well if you're either rich or have sufficient capital and good credit to begin with, something that many people, especially those that fall under the working poor category, do not have. The bank will not give a large loan to a low income person working at a fast food restaurant, and they most definitely won't give a loan to someone who has bad credit or a bankruptcy in their history. Therefore, the idea of going in debt to purchase assets only works if your credit is good, your income is high, or you already have lots of money. If you don't meet these requirements, the bank will not risk loaning you money.