Cash Richdad

I want to continue over debt because this is where we all go wrong, and RICH DAD helps us to know some basic facts .When we were young, people lived from paycheck to paycheck. Today, it seems like they live from credit card payment to credit card payment.

Most of us know that millions of people are deeply mired in credit card debt. Many financial experts have said repeatedly, “Get out your scissors and cut up your credit cards. But Kiyosaki says this is not a solution to avoid debt. We have to solve this problem by financial education. Financial education is a subject that is not actively taught in our education system though all of us use money. All the debt is not bad .I wrote about good and bad debt in my last post.

Kiyosaki talks about layaway and ‘buy now pay later’ plans which were offered by retailers some time back. In layaways, product deliveries were made after all the installments were paid. Personal loans and EMI’s are still popular. But now credit card is the most common way of making payments.

Kiyosaki gives a few reasons on why credit cards are getting more popular. Of course they are convenient to use but there is much more to their popularity.

1. Your debt is turned into asset by the companies - Today, your friendly banker issues you a credit card. He then sells your debt to a big firm, which collects your monthly payments at high interest rates — which is why it’s an asset to them.

2. The purchasing power of money has dropped - . Many people aren’t earning more even though prices are rising, so they make up the difference by using their credit cards for everyday purchases.

3. When wages go up, so do taxes. - Because the purchasing power of money has dropped, many people work harder, ask for raises, or take on extra work (or a second job) to earn more money. And when they earn more money, they move into higher tax brackets. Many working people are now making more money but taking home less because they pay a higher percentage of taxes.

4. The cost of retirement has gone up - Today, millions of workers need to be able to afford their day-to-day living as well as put enough money aside for when they can no longer work.

Today use of credit cards is convenient as well as necessary, as they a widely accepted around the world. Online shopping requires credit cards. And they give us a kind of a financial freedom, what we need to know is how to use them wisely and to our benefit.

Kiyosaki suggests a different kind of a way out of this debt, by going deeper into debt — good debt, not bad debt. According to him, , he uses debt — which is essentially tax-free money — to invest in real estate, which in turn increases his cash flow. He doesn’t have to pay taxes on debt, but also pay no taxes (or very little in taxes) on the income from the debt. Hence earning more but paying less in taxes.

Obviously, in order to do this you need to know how to use debt wisely and responsibly, and must be able to find great investments that increase cash flow.

But generally most people take bad debt and turn it into horrible debt. But their problem isn’t credit cards — it’s a lack of financial know-how. And at the root of that lack of knowledge is our school system and its archaic curriculum, which is out of touch with the way people really live.

This again points out the need of financial education which makes us use the available resources in the best possible way.

“We go to school to learn to work hard for money. I write books and create products that teach people how to have money work hard for them.” ROBERT KIYOSAKI
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I wonder how simple basic concepts have the power to change the financial situation of a person. RICH DAD gives the same concepts in a way everyone can understand. So you don’t have to be a financial analyst to know them.

I wanted to continue on debt because there was more to where I left in my last post.

There are a lot of banks and other financial institutions giving easy loans or credit cards with higher borrowing limits .There is no harm in borrowing money.

If you ask some of the wealthiest people if they borrow money, they will tell you “Yes, of course!”

If you ask people struggling to make their income last until the end of the month, they will tell you “Yes, of course!”

RICH DAD says, we can not say all debt is bad, because there are situations where borrowing money is crucial for growth, investment and expansion. Without borrowing money or taking a loan we might loose a good opportunity. So it’s not always bad to have some debt, the idea is to know for what purpose you want to use that money for.

Robert Kiyosaki identifies the first as good debt and the second as bad debt.

Good debt is debt that generates income. Bad debt is debt that goes to buy stuff.

Now if someone asks, “most of my debt is my mortgage and my car loan! Isn’t that good debt? It increases my assets and improves my net worth!”

Probably not. Borrowing to buy your house, your car and your boat is just an expense. These are non-productive assets that do not generate income for you. If you use these item as security to borrow money to generate income, then that would be good debt. Good debt is debt that someone else pays for you.

When you have bad debt it is like working for the lender. Every month your hard work goes to paying that person.

To be like a RICH DAD, get yourself out of the bad debt cycle. No more unsecured personal loans to buy home entertainment systems! No more trips to the Internet Casino, gambling on striking it rich on your credit card!

With this knowledge you can start to plan your financial future with a goal of replacing your bad debt with good debt. Find productive assets and leverage your cash with good debt! It is this knowledge which seems quite basic but is quite effective in achieving financial freedom, if we apply it in our financial planning. 

Using money wisely means analyzing all the options you have in hand, suppose you are going for a boat loan, you can even get it if you have a poor credit report. Even Bad credit boat loans can make be a good option. You just have to know your finances.

“If you want to go somewhere, it is best to find someone who has already been there.” ROBERT KIYOSAKI