Do What the Rich Do: Step 3 - Take Control of Your Cash Flow

·         “Making more money will not solve your problem if cash flow management is your problem.”

·         Debt Quiz: How Deeply Dug In are You?

o   Do you pay your bills late?

o   Have you hidden a bill from your spouse?

o   Have you neglected repairing the car because of insufficient funds?

o   Is there family tension because of over spending?

o   Have you bought something recently that you didn’t need and couldn’t afford?

o   Do you regularly spend more than your paycheck?

o   Do you buy lottery tickets in the hopes of getting out from under?

o   Have you put off saving money for a rainy day?

o   Does your total debt (mortgage excluded) exceed your rainy-day reserve?

·         Score 0 – You’re in control of your cash flow.

·         Score 1 to 5 – You may need to reduce your debt.

·         Score 6 to 10 – Watch out - - you may be headed towards financial disaster.

·         A debt-reduction plan will compel you to live within your means you try to increase your means.

·         The initial step should be this: Pay yourself first.

·         Buy 3 piggy banks

o   One for saving

o   One for charity

o   One for investing

·         If you absolute can’t pay yourself first, then try one again to pay yourself first by

·         Control spending

·         Eliminate all unsecured debt

o   Secured debt – debt with collateral behind it (Such as your home mortgage)

o   Unsecured debt – debt with no collateral behind it (Such as Personal loan and medical bills)

·         Review your credit rating

·         Just follow the ones (or few) that do and soon enough you’ll find you can live within your means.

·         In this Rich Dad Program, there are also two types of debt, good debt and bad debt

·         Most unsecured debts are bad debt.

·         Good debt is debt that buys an asset, so it is usually secured debt.

·         “When you find yourself deep in a hole, you need to stop digging.”

·         For many people, travel and entertainment are a doodad black hole.

·         “There’s a good reason it’s called disposable income: most people throw their extra money away. That’s buying doodads! How will the assets ever grow?”

·         “Every time someone lends you money, you become his employee because your debt becomes an asset in his asset column and a liability in your liability column.”

·         Late fees, over-limit fees, annual fees – credit cards can eat a big hole in your pocket. Paying only the minimum required on your credit card will keep you in debt forever, making you an employee of the credit card company.

·         “Every liability you have is someone else’s asset.”

·         “Think of every dollar in your asset column as an employee who works hard for you so you don’t have to work so hard. Once you put a dollar in your asset column, never take it out.”

·         A secured debt, which is collateral-backed, can be bad debt if it’s incurred for a doodad that doesn’t generate income.

·         Reduce secured debt that is bad debt

·         Take Emergency Measures – for some people, cutting back on debt won’t be enough. The following options are not without risks, so be vigilant.

·         Call your creditors and negotiate reduced payments or balances.

·         You may need to seek counseling.

·         Radically downsize.

·         Make more money.

·         Borrow from your life insurance policy.

·         Take out a home equity loan or line of credit.

·         Borrow against assets.

·         “Take responsibility for your actions. Avoid bankruptcy by finding ways to increase your income, renegotiate your debts, and pay off your debt, even if it takes years.”

·         The Very Last Resort: File for Bankruptcy

·         “Know the difference between good debt and bad debt. Eliminate the bad, increase the good, and you’ll be well on your way to financial freedom.”