Advanced Guide to Getting Out of
Debt
This publication is designed to provide competent and reliable information regarding the subject matter covered. However, it is provided with the understanding that the author is not engaged in rendering legal, financial, or other professional advice. Laws and practices often vary from state to state and country to country and if legal or other expert assistance is required, the services of a professional should be sought. The author specifically disclaims any liability that is incurred from the use or application of the contents of this book. Copyright © 2015 by Robert T. Kiyosaki. All rights reserved. Except as permitted under the U.S. Copyright Act of 1976, no part of this publication may be reproduced, distributed, or transmitted in any form or by any means or stored in a database or retrieval system, without the prior written permission of the publisher. First Download Edition: July 2015
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Introduction In 2015, the average U.S. household has over $15,000 in credit card debt. If that isn’t enough, many of you have student loans averaging $35,000 and an average mortgage balance of $157,000 to go along with your daily expenses to support you and your families. When you add it all up, it can be daunting and seemingly insurmountable. There are steps you can take to get yourself out of bad debt. This is the Advanced Guide to Getting Out of Bad Debt. We’re not talking about saving your spare change to put towards your credit card balance. We’re talking about a bold move to increase your assets, to take control of your bad debt and your life. This is a big step up from our tried-and-true methods to get out of debt identified in Freedom from Bad Debt (available for free on RichDad.com). In Freedom from Bad Debt, we started with the essential steps necessary to begin chipping away at your bad debt. While the mechanics are solid and easy to do with some discipline, many of you noticed the part in the book that says: Q: Do you have to be debt-free before you invest? A: No. This is your choice. We had quite a bit of debt when we started investing.
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Introduction: Advanced Guide to Getting out of Bad Debt
Many people contacted us dumbfounded. How could you be investing while still in so much debt??! The answer is: The investing helped us get out of debt. Due to the number of inquiries, I decided to shed some light on this advanced method. From the outside looking in, it looks like a gambler’s way out of debt. That could not be further from the truth. The Advanced Guide to Getting Out of Bad Debt can be broken down into six steps: 1. Stop spending—Find your financial emotional maturity 2. Start saving—Pay yourself first 3. Look for opportunities 4. Create/build/find your asset 5. Pay down your debt with your cash flow 6. Celebrate. Repeat.
Each of the above steps is very important. Do not take short cuts. Most people need instant gratification. You’re not most people. This process works. It requires discipline and persistence but the rewards are worth it. If you follow the process, you’ll have cash-flowing assets paying down your bad debt. Let’s get into increasing your cash-flowing assets and reducing your bad debt.
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1. Stop Spending Find Your Emotional Maturity It is important to point out that financial intelligence is also emotional intelligence. Warren Buffett, the world’s richest investor, says, “If you cannot control your emotions, you cannot control your money.” The reason many people fail in the process of getting out of bad debt is they cannot live without instant gratification. Many will sacrifice a richer tomorrow for a few indulgent purchases today. I did not make much money in my 20s and 30s, but I make millions today. The need for instant gratification is so great in today’s society. That is why so many get-out-of-debt educators make you cut up your credit cards. They’re addressing the symptom instead of addressing the cause. Why? Because it’s easier and it’s quicker. They take the easy route to “helping” you with a symptom instead of addressing the cause. There are two reasons why I do not tell you to cut up your cards: 1. It’s a band-aid for a bigger problem and doesn’t solve the problem 2. Your credit cards may be the key to getting you out of bad debt (I’ll explain in Step 4)
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Step 1: Advanced Guide to Getting out of Bad Debt
Instead, take steps to improve your emotional maturity and intelligence. There are many great authors and teachers that will get into the nitty-gritty details and help you. In the Rich Dad sphere of influence, we have Blair Singer and his book Little Voice Mastery. Right now though, take the first step to improve your emotional maturity and take the “instant” out of “instant gratification.” When you’re looking at purchasing something, spending time watching TV or perusing the Internet, ask yourself, “How is this helping me reach my next goal?” Be honest. And, don’t pat yourself on the back and lie to yourself that you deserve a reward because you spent 20 minutes “researching” your business or investment. Again, be honest. It’s great to celebrate all wins and to give yourself a reward. Just be honest on what a “win” is and if it truly merits a reward. I’ve been there and lied to myself plenty of times. It wasn’t until I started having the emotional maturity to be honest with myself and making sure my actions were in line with my goals before I started making actual progress towards those goals. I would say that when it comes to money, emotional intelligence is the most important intelligence of all. It is more important than academic or professional intelligence. Develop your emotional intelligence so that you have the fortitude to stop spending money on things that do not help you get out of bad debt. If you don’t, your tomorrow will be just like your today—or worse.
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2. Start Saving It has probably never happened before, but I am telling you to save money. Normally I tell you savers are losers. Before I explain why I’m suggesting that you save money, I am going to explain the danger of saving money.
Savers End Up Losing In the days when the dollar was backed by gold and banks paid a healthy interest rate and inflation did not really exist, saving money was a solid, although boring, way to make money. Those days are over. The U.S. Dollar is no longer backed by gold. This has created the huge credit explosion we live in today. But with credit, and no gold backing the dollar, debt has run rampant. I’m not talking about individual debt; I’m talking about government debt. And the government’s answer to excessive debt is to print more money. This allows the government to pay off their debt with cheaper, lessvaluable dollars. When the government prints this money—basically out of thin air- then your savings will be worth less and less. This also forces people to work harder just to keep up with the cost of living. Think of it as the lessons you learned about supply and demand. When supply is more than the demand, the value drops. That is what is
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Step 2: Advanced Guide to Getting out of Bad Debt
happening. There are more dollars than necessary, so the value of the dollar drops. This causes prices to rise because your dollar becomes worth less and less; this is called inflation. When there is inflation, debtors are the winners and savers are the losers. In 2008, the U.S. government and Federal Reserve Bank began printing trillions of dollars, causing millions of savers to be losers via the loss of purchasing power due to inflation, higher taxes, and low interest rates on their savings. The entire modern monetary system is based upon inflation. The banks and governments want inflation. Why? One reason is so that debtors can pay back their debt with cheaper dollars. Another reason is because consumers spend money faster if they expect prices to go higher. All I am saying is that’s what happens when you have an economy that grows on inflation rather than production. Savers become losers and life becomes harder because life becomes more expensive. Inflation motivates many people to become consumers rather than investors. They eat, drink, and shop, because tomorrow prices may be higher. All that is why I tell you savers are losers—except in this one instance:
Pay Yourself First Start saving your money. Yes. Save your worthless, inflation-bitten money, but just some of it. Let me explain. When Kim and I were getting out of debt, we knew we wanted to get out of debt FAST! We knew how to save our way out of debt, but we wanted to invest our way out of debt too. This is where the magic is. When you get your paycheck, do not use all of your money to pay your bills. Save some of your money. As much as it hurts to say, save some of your money.
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Step 2: Advanced Guide to Getting out of Bad Debt
Kim and I saved thirty percent of our money for our future. This was not as easy as it sounds. We had to have the emotional maturity to stop buying things we did not need and eating out less. We also had to have the maturity to accept that by saving money for our future we did not have enough to pay our current bills. It was scary. Bill collectors called regularly. Bill collectors are not exactly friendly when you are not paying their bills. Kim and I purposely put ourselves under constant fire. That is motivation! What did this motivation do for us? It did two things. First, we became highly motivated to find extra income and work. Second, we became very aware of opportunities all around us. What makes the strategy in this book ‘advanced’ is the second part of the motivation—opportunity awareness.
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3. Look for Opportunities The sooner you realize that a paycheck is not going to save you from bad debt the easier your life will be. So what is going to help you? It’s really a quite simple answer, but something that isn’t necessarily easy to do. You have to train yourself to start seeing opportunities. What does that mean? Once you start using your brain instead of emotions, your mind will show you ways of making money far beyond what you could make as an employee. You will see things that other people never see. Most people never see these opportunities because they’re looking for money and security. The moment you train your brain to see one opportunity, you’ll see them for the rest of your life. The tricky part is that most opportunities look like risk to the untrained eye. The problem is that little voice in your head.
How to Find Opportunities Many people may not be satisfied being told to find opportunities. So for those who want a to-do list on how to get started, I will share with you some of the things I do in an abbreviated form: 1. Stop doing what you’re doing. In other words, take a break and assess what is working and what is not working. The definition of insanity
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Step 3: Advanced Guide to Getting out of Bad Debt
is doing the same thing over and over and expecting a different result. Stop doing what is not working and look for something new. 2. Look for new ideas. For new investing ideas, I go to bookstores and search for books on different and unique subjects. I call them formulas. I buy how-to books on formulas I know nothing about. 3. Find someone who has done what you want to do. Take them to lunch and ask them for tips and tricks of the trade. 4. Take classes, read, and attend seminars. I search newspapers and the Internet for new and interesting classes, many of which are free or inexpensive. I also attend and pay for seminars on what I want to learn. I am wealthy and free from needing a job simply because of the courses I took. I have friends who did not take those classes who told me I was wasting my money, and yet they’re still at the same job.
The Opportunity That Changed My Life The opportunity that changed my life was a seminar I attended. I had bill collectors screaming at me. I was finding odd jobs everywhere to find extra money to pay my bills and calm the screaming debtors. And I had the money I was saving. Saving for the opportunity. My opportunity came in the form of a course teaching real estate investing. This was my opportunity and it cost $385! (That’s $2,069 in 2015 dollars.) Notice my opportunity was not a friend telling me about a stock tip. It wasn’t me going out and finding the best real estate deal. No. Even the best stock tip or the best real estate deal would have failed because the deal can only be as good as the investor. I needed to train my mind. I needed education.
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Step 3: Advanced Guide to Getting out of Bad Debt
My rich dad was fanatical about exercising your mind, the most powerful computer in the world. He’d say: My brain gets stronger every day because I exercise it. The stronger it gets, the more money I can make. Keep using your brain and soon your mind will show you ways of making money far beyond what other people see. You will see things that other people never see. Most people never see these opportunities because they’re looking for money and security, so that’s all they get. The moment you see one opportunity, you’ll see them for the rest of your life. As I mentioned earlier, the opportunity I found was a real estate seminar. The seminar really showed me the way to analyze a deal and how to get a deal done with little to no money down. If you reread the ways to find opportunities, three of the four strategies are about getting educated. That is not a coincidence. Again, even the best stock tip or the best real estate deal will fail if I’m not financially educated. The deal can only be as good as the investor. So what happened after I took the course? First, before I answer, I need to highlight that I completed the course. I did all the work required. I did not just take the course. I fulfilled the course. I accepted the value of the course and I took this course with the mindset that this course could change my life. I spent $385 and that course bought me life. I got out of bad debt at a rapid pace and now I don’t have to work for the rest of my life, because of that one course. Now, I go to at least two such courses every year. That course was the opportunity I was looking for. The course taught me how to buy assets, even in the situation I was in. Future courses have taught me how to build assets.
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Step 3: Advanced Guide to Getting out of Bad Debt
Once you learn how to buy assets or build assets and you put what you’ve learned into action, you will be free of bad debt. Then you can follow the formula Kim and I used and shared in Freedom from Bad Debt with greater speed and efficiency. The other point that is important is that I spent the money. In order to get out of bad debt… I spent money. That is so counter intuitive. I did not save. I did not pay my bills. I paid myself first. Then I used the money I paid myself to pay for the opportunity that changed my life.
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4. Create or Buy Assets In Freedom from Bad Debt, I wrote about picking up extra work to increase your ability to pay off your bad debt. In this book, you’re learning the advanced way to pay off bad debt. With the advanced method, you’re building your asset column to increase your ability to pay off your bad debt. You get a two-for-one deal—more assets and less bad debt. In every book I write, I hammer my readers to stop buying doodads and liabilities and to start buying assets. I’m going to try this again here. What is an asset or a liability? To put it simply, assets put money in your pocket and liabilities take money out. Your home doesn’t put money in your pocket, so it’s a liability. What happens if you rent it out? If the rent is more than the expenses, then it is an asset. Your car is a liability, even if it’s paid off. If you start renting it out or use it for Uber® or some other taxi service, then it’s making you money and is an asset. The $385 real-estate seminar took money out of my pocket, but then when I put what it taught me into action, it put money into my pocket. Education is an asset, but only if you use the education to make money. When you use the money from your “Pay Yourself First” savings, you need to first buy the education that is going to teach you how to buy or create an asset. Check your local area or search online for courses on investments or businesses you’re interested in and passionate about. Once 12
Step 4: Advanced Guide to Getting out of Bad Debt
you get some courses and training done, continue to save until your “Pay Yourself First” savings can be used to put your education into action. When I bought my course on real estate, I immediately went out and found deals. They were not the deals I invest in today, they were very small and they were what I could handle at the time. My mindset was not large enough to believe I could invest in huge multi-unit apartments successfully. I had to start small and learn the lessons from experience, as well as grow my own confidence. To drive my point home, let me tell you about Ryan: Ryan is an employee of mine who decided that he wanted to get out of debt completely. He began to pay himself first and pretty quickly he built up a nest egg of over three thousand dollars. So what did Ryan do? Ryan found an entrepreneur class that taught him how to start his own online business. He spent his entire “Pay Yourself First” savings on the course. When I asked Ryan why he chose this particular course, he gave me three reasons: 1. The course was laid out well and, if Ryan did his part, he’d have an online business up and running at the end of it. 2. After doing some research, he was able to determine the company offering the course had a good reputation. 3. It was an area of interest for him and he was passionate about it. Plus, he already had knowledge all things web and marketing. Today, with a bit more money from Ryan’s “Pay Yourself First” savings, he has created his business. Ryan has made an asset from little more than a few thousand dollars, his mind, and determination. In less than ten months, Ryan has paid off all of his bad debt.
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Step 4: Advanced Guide to Getting out of Bad Debt
Remember when I blew your mind that credit cards can be the tool to getting out of bad debt? A credit card can be an efficient debt-destroying tool through the purchase of education—if you use that newfound knowledge to acquire assets. You can also use a credit card to purchase an asset. It sounds ludicrous and dangerous to most people, but you can. If you’re emotionally intelligent, educated on your investment, have a solid team, and have a plan in place, you can mitigate a lot of your risk exposure. Another prime example is another Rich Dad employee, Flo. She has been working with us for a number of years and has taken various courses. Well, she put that knowledge to use and purchased multiple assets with her credit card. In 2008, she bought her first duplex in Buffalo, New York, on a credit card. In 2012, she bought another duplex on another credit card. Both duplexes have positive cash flow. Is a credit card my preferred method of financing to acquire assets? No. There are many risks to consider. However, much like hard money, it is an option and can serve as a bridge-gap until you’re able to get more traditional financing in place. Is that what Flo did? No, she used her education and her ability to find opportunities to good use; she bought the duplexes at such great prices that she didn’t need to find traditional financing. When looking at investments or business, make sure it’s something you’re truly passionate about. Once you figure out what that is, get educated, put that knowledge to use, and start acquiring your assets.
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5. Pay Off Your Bad Debt Using Your Cash Flow At this point, you’ve put in some incredible work. It’s not called Advanced Guide to Getting Out of Bad Debt for nothing. Now, it’s time to start reaping the rewards of what you set out to do: Pay off your bad debt. In Freedom from Bad Debt, we recommended that you ignore interest rates and attack the smallest balance first. Do that again here. It allows for faster wins with each bad debt being erased quicker and a greater success rate. With the Advanced Guide to Getting Out of Bad Debt, you’re now attacking your bad debts with an asset boosting up your monthly payments. Plus, you now have an asset.
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6. Celebrate and Repeat If you’ve diligently gone through the steps, you will have deserved it. You’ll have accomplished what most of the world only dreams about. Celebrate! If you’ve gotten this far, I’d wager I don’t need to tell you to do it again. Success is addicting. Live your dreams. You’re capable. I do not take the saying, “Pay yourself first,” lightly. I wanted to add a “Thank You.” The statement, “Pay yourself first,” comes from George Classen’s book, The Richest Man in Babylon. Millions of copies have been sold. But while millions of people freely repeat that powerful statement, few follow the advice. Thank you for your wisdom, George.
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