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A Secret About Personal Debt
"People who cannot control their cash flow work for those that can." -- Robert Kiyosaki
"I have a great paying job! I earn $60,000 a year, spend $66,000..." Does that sound familiar? Are you searching the Internet to get a quick loan online? Are you looking for a paycheck cash advance? On the hunt for that personal loan online? One thing is for sure, there are no shortages when it comes to companies willing to "help you out" in your quest for more credit. 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!" So what is the difference? In his book Cashflow Quadrant, 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. "But most of my debt is my home 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 another expense. These are non-productive "assets" that do not generate income for you. If you could use these items as security to borrow money and generate income, then that would be good debt. Good debt is debt that someone else pays for you. For example, I can buy a house and assume a mortgage that costs me $1,000 a month in interest. If I can rent that property to a tenant for $1,200 a month, then the person renting my property is paying the mortgage for me. I have a small positive cash flow and, over time, I can also expect the property to be worth more. That's good debt. When you have bad debt it is like working for the lender. Every month your hard work goes to paying that person. 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! Stop buying those lottery tickets! 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! |
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