How To Get Out Of Bad Debt by Robert Kiyosaki

hello this is Robert Kiyosaki is my sweetheart Kim hello and we're going to be talking about how we got out of debt our story actually begins when went around in 1984 when we first got together as a couple and I was personally deeply in debt I had lost nearly a million dollars in one of my many businesses and I still old another four hundred thousand five hundred thousand was paid off so when I met Kim I was like this big albatross around her financial neck because I had no money on top of that I was in debt and on top of that though you did live in one of the nicest apartments in Waikiki you drove a nice little Mercedes so you were certainly looking good I had no idea you had no money yeah I did look good a rich man explained that real quickly that apartment on Waikiki Beach were on the shores of Diamond Head the same place where Tom Selleck used to live only cost me $300 a month and the Mercedes an old beat-up Mercedes but it looked good but I was still deeply in debt and madly in love with Kim and we decided to make our lives together so that was in 1984 we got together and it's how we paid off quite a bit of debt even that we had no jobs and no money but the good news is even though we went this process is ten step process Kim and I were financially free by 1994 so we were complete not only completely out of debt but we had invested enough that we never had to work again for the rest of our lives so this is a true story of how we got out of debt and after we met in 1984 we then decided we were going to go build a new business together and we left Hawaii with everything we had and headed to California and within about three months we were pretty much broke and now Kim saving us it alasa $900 come on but we went through that money pretty quickly and as I said we were broke we were actually homeless for a short period of time we slept in a car we knocked on friends doors if we could stay with them and I'll tell you when it comes to being financial when it comes to struggling financially we know what it's like the pressure the stress the arguments it was a really tough time so I would say 1984 through 1980 687 we're probably the toughest years in our lives because not only were we building this business we had to survive but also pay off a large amount of debt we had no money coming in with no steady job and fortunately a friend let us live in her apartment which is in her basement in her garage and somehow something always happened that way surviving we ran out of money several times along the way but somehow we survived and I still remember back then the credit cards that we had they didn't have the elect not all the merchants had the electronic machines a lot of them just had they made an imprint so we would find the places like the motels and all where they would just take an imprint so they couldn't check and see that our credit cards were maxed out so on top of the debt Robert had because we were then broke we did not have any income coming in at the time because we were building our business we were also accumulating more and more debt so the problem wasn't getting any better right the interest on the debt was just kept accruing and I still remember in 1984 driving around in a friend's borrowed car and Kim and I she said we're looking for any place to sleep that would take our credit card and we're up and down the just north of San Diego and going in and out as little motels and they would say Oh your credit card is no good and we have to go someplace else and it was horrible I mean talk about self-esteem self-confidence self-worth it was absolutely horrible so that's when the yo-yos tell me well money is not that important to me obviously they haven't been broke yet and it was horrible timing as Kim says we fought a lot during that period of time I don't know why she stuck it out with me but I also know that she didn't marry me for my money because he had no money but we were having a good adventure together and and it's true that the hit to your self-esteem and your self-worth your self-confidence you start to doubt everything and so it was important that we were going through this together because at least we could lean on each other when one of us got scared or frightened you know we had someone to talk to and really go through this together so I'd like to say four hundred thousand dollars today isn't a lot of money but back then that was almost 20-something years ago it was a considerable sum and on several occasions you know people advised me personally to just take bankruptcy and pay the $400,000 now the several reasons I didn't do that in bankruptcy or foreclosure ie losing your house are pretty serious and we never had to go through any of that simply because I'd already sold all my rental property of my investment property and I was still broke so that ethical through foreclosure but I still had this debt so at the end of this recording a great friend of Kim and my hours Scott McPherson who is a mortgage banker will be talking to those of you who may be facing foreclosure or bankruptcy or already have gone through foreclosure or bankruptcy and as a banker he will give you his points of view what we can what you can do but I'm kind of happy to say I did not have to take personal bankruptcy we decided instead to just pay off the debt which is are the ten steps were gonna come to and much of the debt was your personal family and friends as well yeah my investors in my business and I felt obligated to pay them back so I didn't want to you know stiffed them through through a bankruptcy so we we paid an office one more reason you know if I owed a million dollars and I was only making let's say seventy five thousand dollars a year and that was the most I could earn I'd probably declare bankruptcy but because Kim and I were entrepreneurs we had the ability through our businesses to generates pretty substantial amounts of cash to pay off the debt pretty quickly so that is a key reason I did not declare bankruptcy and otherwise bankruptcy is always an option and I'm not saying is good or bad but I strongly recommend if you're facing it right now please get good legal advisors credit counseling services and all that and face the problem now but we did not declare bankruptcy or foreclosure so the name of this program is how we got out of debt and as we've talked about often there's two kinds of debt there's good debt and bad debt so Robert II want to explain that a little bit we had tremendous amounts of bad debt and bad debt is debt that doesn't make you rich for example if I buy a house and I have to pay for to buy a car and I have to pay for it that's bad debt or women who want to buy all that nice jewelry that's bad that's bad and good debt is debt that somebody else pays for you but the reason getting rid of bad did was so important for us and are starting our lives together was that it's it's easier to get good debt ie loans and things like that on apartment houses and commercial buildings at rental property if you have no bad debt and so we had no blemishes by the time we came through this process we never stopped investing by the way but we did pay off the bad debt and get into good so good debt is very simply debt that makes your [ __ ] and somebody else pays off for you ie your tenants and bad debt is debt that makes you poorer every month and you have to pay for one more thing like that about financial intelligence as many people who just simply say get out of debt and that's a good idea if it's bad debt but if you're going to be a savvy investor or have a high financial IQ it is important to realize there is good debt and that's what I just explained another thing that's very important about good debt is one of the ways Kim and I were able to retire in less than 10 years was once we got out of the bad debt or as we got out of the bad did we were investing with good debt and when I say to most people who have mutual funds or stocks or bonds and savings I said trouble with that stuff as your banker doesn't lend you money ie savings of your dollars I'd rather invest with my debt bankers dollars so high financial intelligence is knowing how to use good debt to get richer quicker but then that brings up the next subject you got to know a good investment from a bad investment and the thing I always say to all you mutual fund lovers out there is ask your bank if your bank will lend you a million dollars to buy mutual funds the answer is no simply because mutual funds are too risky so that's part of the financial intelligence and the way we got out of debt and we got financially free so quickly was we knew the difference between good debt and bad debt so what this CD is about is getting out of bad debt so we'll start with the 10 steps from getting out of debt and for those of you who have the workbook please follow along with the workbook that comes with the CD series so step number one is you got to tell yourself the truth and I think that's one of the hardest things I had to do because you know Kim had never met adda financial disaster like me before she couldn't believe anybody could be driving a Mercedes and living in a nice hotel right on the shores of Diamond Head and be flat broke but also deeply in debt and I kept pretending I was rich and that was you know I was faking it till I make it and you know I was praying to God and Jesus and Buddha and hoping that money would come by and pretending I had I had no debt and I was looking good and live you know eating in the best restaurants and flaunting the cash and but I was flat broke you can fake your girlfriends but you can't fake your wife and so the first thing I had to do with Kim was sit down and eventually tell her the truth that I wasn't as rich as I looked well it's true you I mean you've got to tell yourself the truth because if you have a goal of where you want to go you're not gonna be able to get there if you don't know where you are so basically it's it's telling yourself that youth not lying to yourself not pretending anymore here's the hard facts here's where I am yeah but I still thought it was a good deal you know this condo right on Diamond Head Beach and the best you know as a colonist [ __ ] hotel and I live had room service and all this great stuff it's still only three dollars a month it was cheaper than any place else I could find it it was a good deal you are still broken in debt yeah I could negotiate very well and a member city is with a nice-looking 450s SL Mercedes but it was cold and burned some oil so once you have sat down and faced that you're going to tell yourself the truth the step number two is you've got to stop accumulating the bad debt yes and what that meant is sometimes you might have to make a little bit of sacrifice and when Kim and I moved from Hawaii to California and I went homeless right away and we were living in the garage basement apartment there was sometimes I had to run up we had no money so Kim had like two bucks to get through Friday Saturday and Sunday till I came home Sunday night hopefully got paid for what I was doing so I want you to tell him how you survived on to her well first of all you know gas costs so I didn't want to use up a lot of gas and drive to a lot of places and there was this little taco stand that I could walk to it was about three blocks from where we lived and so I'd walked down this little taco stand get my little cheese and chicken quesadilla and cost me $1 and then I'd walk back and I'd have my quesadilla and the next day I'd walk down and have a second quesadilla and that's $2 and that's basically how we would survive at times right and kima's because she was a great figure and all that but she does like to eat but she was able to make four meals out of two with for two bucks and she would survive and I'd come home you know Sunday night from a trip or either Monday morning and then we had some money again but then we went through the process of first getting out of bad debt rather than going out to a restaurant and sucking down some $100 bottle of wine and hitting some prime rib and stuff so we live pretty frugal eat during this period of time to a got our feet on the ground and built in your business so really what we did is we put a freeze on all of accumulating more debt on our credit card because for one reason we couldn't use our credit cards because they were so maxed out so again we did have to make some sacrifice but we started that alone started us started putting us into control of handling our money yeah I wor sure it's a little longer I didn't tell you know go out and buy a new shirt and you socks and you underwear I kind of used a little longer watched him a little better and kept going you know but we didn't just keep spending money which a lot of people do because a lot of times people eat or spend or they shop when they feel depressed and I think that's really an easy thing to get into work or drink a lot I mean I was tend to hit the bottle number times I felt so bad but that cost money so we just basically got back on our feet it took us about six months and then the money once the business was up and running Kaster to come in a little bit more regular basis but during that period of time we really made it a point not to just waste our money on things that got us deeper in debt which brings us to the next step step number three is make a list of all and the key word is all the debt that you owe and she's still giving me a dirty look when she says the word all because you know I had so much debt I didn't want to tell her and I kept sneaking off and paying bills here and sneaking around there and finally she says you know because I didn't want to tell her how bad the Titanic was that I ran aground called my last business and finally we had to sit down and write I had to write down all the investors I owed money to all the friends and family I would money to and everybody I felt bad about you know that I was still not paying and things like this so she had me sit down all right and even in the credit card company so they get really nasty when you don't pay him so she was she had to show her the envelopes I was receiving from the angry credit card companies and all this stuff and basically tell the truth and face to music I still remember every once in a while Robert would put his list together and then the next day he come back he goes well I didn't think this one was so important but there is this guy in Hawaii and I I really still do owe him 4000 I could probably not pay him and he'd be okay like let's put down the 4000 let's put it on the list let's keep going yeah that alone was a little painful process and his name was Richie and he was unfortunately as a friend of both of us so I had to tell him the truth so we paid Richie as $4,000 even though he was flying with you know not getting it back that he had invested on a company and the company did go down but I just felt personally obligated to him because I did borrow the ten thousand from him and I still love him for so I paid him they paid him back to four eventually so step number four is a very important step and all you guys out there who are deeply in debt and all this I'd like to say this is probably a very or the most important first real step you can go through or them a major commitment and that is hire a bookkeeper if you look in the workbook you know I talked about a bookkeeper as part of your team and there was times you know I was just trying to do my own books and you know when I'm stressed out and embarrassed and upset that I owe so much money I would not really confront the truth my plus I'm messy I'm not very detail-oriented so Kim and I finally went out and my Rich Dad talked to me you know and talk to him we're talking over with him he says you have a bookkeeper and I said no because it cost too much money and he says look rich people have bookkeepers poor people don't you have got to keep accurate records and you're not supposed to do that because your job is to make money not to keep track of the money necessarily you know her job is to give you accurate records that you can look at and a bookkeeper is a most important part of your team so I say this right now because when we're when I was facing so much debt it was really hard to go and spend the two to four hundred dollars a month on a bookkeeper but it was the one of the most important steps and like all those I read Rich Dad Poor Dad in there my Rich Dad always say never say I can't afford it because poor people say I can't afford it so a bookkeeper was somebody that was very important you know an important expense and key to us getting out of debt because every month old Betty would force especially me and Kim to sit down and look at our financial situations and we had to come up with a plan of how we're gonna get out of debt see spending the money was the hardest thing for you facing those bills twice a month and seeing very little money coming in and a lot of money going out at was that took oh that took everything to sit down there and not want to bolt out of there yeah Betty but it was this little sweet little lady it was vicious if you didn't talk about holding you accountable talk about making sure all your debts are there making sure you're telling yourself the truth that was Betty Betty reminded my first-grade teacher and I was having you know just nervous reactionary Timo's around her but she really held our feet to the fire my feet the fire especially wait to face all the bills and who was being paid what and to this day now we have multiple bookkeepers because the cash is pouring in but I'll say it to all of those you may be in financial trouble hire a bookkeeper simply because rich people have bookkeepers you don't have to pay them that much to start but as your wealth grows you'll really appreciate if you have good records not only that your banker will be more willing to give you good debt if you have accurate records and neat and tidy and timely and prepared every month now one other story about Betty is that Robert and I also knew that we had to pay off our bad debt but we also had to start accumulating money for our future and so we had this philosophy it was called pay yourself first I'm sure it's familiar to many of you and the plan our plan was we had three piggy banks and for those of you who have read Rich Dad Poor Dad you know about the three piggy banks but let me say something about Betty first she wanted to pay bills first and she was a good bookkeeper but she wasn't a rich bookkeeper now if you want to be a rich you got to pay yourself first so I would go in there and I say okay Betty we're going to pay ourselves first and then she turned into this old schoolteacher and start scolding me so we argued back and forth that's why it's just a good member of the team but we always paid ourselves first if you read the book is pay yourself ten percent 10 percent ten percent or thirty percent one for savings one for investing and one for tithing so that means if you make a thousand dollars you're paying 300 dollars right off the top and most people scream and quit and cry and give up at that point so reason what Kim is mentioning the piggy banks is at the start maybe too painful to pay 30 percent of what your grosses so start with a piggy bank I don't care if it's ten cents a day or one penny a day but get the habit of you know putting money aside for savings investing and tithing if you do it every day it becomes a habit and for those who read Rich Dad Poor Dad when I say that it's not money that makes your bits it's your habits that make you rich so even when you're broke even when we were broke we still paid our for a self first and the reason Betty is probably still broke cause she never paid herself for she paid her bills first so so our rule was with every dollar bill that came into our household we took 30 percent off the top and as Robert said doesn't have to be thirty percent but that was our discipline but here's what Betty would say when we proposed this to Betty she goes because we had all these bills that were doing all these creditors that were screaming at us to pay she said oh no no no here's what we're gonna do is we're gonna do we're gonna pay all the bills first and then what's left over we'll put into your piggy banks and that's why she's still poor because I was never ever going to be anything left over because we owed so much money please hear this I mean this is probably the next most important thing after hiring a person like Betty is you've really got to pay yourself first please hear me poor and middle-class people pay themselves last so the hard part was we would take off I said don't isn't have to be 30 percent let's say if it's ten dollars ten dollars ten dollars per month at least get in the habit of doing that and then you pay your bills and you'd be surprised how smart you become if you have to pay those bills because look your piggy banks don't scream at you but the people who want their money do so if once you pay yourselves first the people that scream at you kind of give you the motivation to go out and find some more money and I always amazed it how fast that money would accumulate because you put it aside you're not allowed to touch it it's for investing for charity and for savings and so we did not touch it but boy did it accumulate quickly and that's actually part of the how we got financed on our very first property right and if you look you listen to most people who are really rich you know like some of the really rich guys they say save 50% for ethical john templeton say if he says he put 50% aside no 30% was hard enough but he says if you keep increasing it pretty soon that 50% grows to 60% to 70% so today even though Kim and I make millions and millions and millions of dollars were now reinvesting over 80% so the 30% kept growing simply because we establish good habits during this process of getting out of debt of bad debt and getting into good debt so one of the reasons we're getting richer faster today is we're now investing millions of millions of dollars but while still living on not frugal by any means we have nice house nice cars and all this stuff but we got into the habit of paying ourselves first so 30% can grow today for us 80% and I think that is one of the biggest secrets about paying yourself first as I said Betty bless her soul paid her bills first and I used my bill collectors and people who hated me as motivation to go make more money but I still paid myself first and by the end of this program and if you read the workbook you're going to find out the formula for how to pay off all your debt plus the other the other objection we get is I don't have any money to invest so you're going to learn number one how to pay off all your debt and number two you're going to have money to invest if you follow this formula so that's the setup and just notice it mostly discipline and determination and please here was so that was 1984 to 1994 and Kim and I were financially free in ten years we never had to work again for the rest of the life and still got out of all this debt so that's why this formula works so let's go through five - steps five through ten and we'll now go into the step by step and this is where Kim is very good at this process because she she primarily set the whole thing up to do it and again go to your workbook so you'll see these diagrams and it's hard to follow if you don't have a diagram so please take it over Kim okay well this is step number five and now that you've got a list of every debt that you owe you're going to make a visual picture of that debt and very simply what you're going to do is you're going to draw a quadrant for each debt and in the upper left hand column of the quadrant you're going to put the creditor so for example it might be visa in the upper right hand column goes the total amount owed total balance owed bottom left-hand corner goes the minimum monthly amount that you have to pay every month and in the bottom right-hand corner you're going to divide your total amount due into the monthly payments so in an example in the workbook it's visa minimum a hundred dollars a month two thousand dollars total payments and that means the number twenty means it'll take you twenty months to wipe out this debt now you basically take the total amount due which is two thousand divided by one hundred and that equals twenty months so for every single debt that you have you're going to draw this visual and again refer to the workbook because it's in there it'll make it very very clear but for every single debt you're going to set up this quadrant and you're going to have this circled number that says how many months it will take to pay these off so if you go to the diagram you know with me I was uh I had several visa cards several master cards one at American Express you know they American Express gets nasty which was good but they really came after me hard and then there was other things like school loans car loans car loans are number two personal loans so all of these debts we had to line up plus I had creditors I owed money to so as Robert said it's it's every single debt and a lot of times you know as I said with Robert he wanted to tell me about this one guy in Hawaii that maybe he has to pay so the people that you owe money to even if you don't have a monthly plan set up with a make one up but put them on your list in this list also includes your personal residence if you own a house that you're living in put that figure in there too okay so let's go to step number six because one of the reasons Kim and I got so rich so much richer faster with we paid off our house everything because that's bad debt you know a lot of people call your house an asset but it's really a liability is it a good investment yes but I don't want to make monthly payments to live there for the rest of my life cuz that's bad debt to me so with this process you can get completely out of debt including your house and cars if you follow it step-by-step so step number six is to determine the order for paying off each debt and this is where that little circled number is going to come into play you're going to start with the smallest circled number you have and if you look in the workbook that's not the visa payment that we just talked about visa payment came in at number six but the smallest circled number was number eight which was a department store credit card loan it was eight hundred dollars owed and you had to pay $100 a month so the circle number was eight that's the smallest number in the example that we use so that's number one that means you're going to pay that debt off first and people often say I want to make one comment this is not taken to account the interest rate on the debt and should and I pay off my my biggest interest rate first don't we want to get the one with the highest interest rate off the books first not necessarily in this formula in this formula you want to start you want to see a result quickly you want to know that this formula works so we're going to take the shortest debt that you have the one that you can pay off the quickest and when you see that result when you see that paid off you can see the formula working you have a win it'll encourage you to move forward so that's why we start with the smallest number so in this example in the workbook is the department store credit card total debt o is 800 minimum payment $100 a month so it would take 8 months so it's nothing as Kim says is not about the interest payment is the fastest one you can wipe out immediately right we want to keep it simple so go through every diagram you have of every debt and look at that circle number and put them in order from smallest to largest and that's the order you're going to be paying off these debts so if you look at the workbook you know number one was a department store number two was a jewelry installment loan number three was a home store credit card etc etc etc once you have all the numbers lined up then step number seven is this is the key and this is really the one you only think you really have to put some effort into and all you have to do is come up with an extra one hundred or two hundred dollars per month and what do you do with a hundred or twenty dollars a month well first of all people gonna say oh how do you come up with an extra hundred dollars I'm strapped I'm up to here I can't make any more money what do i do what do I do and so Rob and I were talking about well what did we do we went and start little seminars we had little summoners ten people yes a once a month you know we put on a little seminar and people would pay like $300 and all that and all after all our costs actually we started making quite a bit more money doing a little kept growing like I said when you have those creditors screaming at you that's better motivation than those piggy banks who want you to invest in them so when they were screaming at us every month we would do as little seminars do little advertising and people would show up and after we paid all our cause we had a few extra dollars we paid our taxes and then that was the extra money with which we went after the all the debt that's it and that's all really you have to come up with I mean Roberts nephew he goes on eBay and he starts selling things you can go you could sell things on eBay make $100 a month you could open up a lemonade stand on the weekends and make $100 a month I mean it's not rocket science and you're going to be amazed at how easy it is or get a job at a taco factory and you know part-time at night or weekends but just make that extra hundred dollars and whatever you make is then focused on to that debt pile which goes up to step number eight and this is where we're going to start paying off that first debt which is the $800 credit card from the department store now let me start here what you're going to do except for a debt number one you are only going to pay the minimum amount do no more on all the other debts on everything else and you're just putting this laser hawk-like focus on debt number one which is the $800 yep and let me let me guess that some of you as I was told no no no you have to pay off a little bit more in every credit card and that's how you're going to get out of debt and I did that and Robert and I did that and we just never got ahead it didn't seem to make a dent in what we were doing so I knew that formula wasn't going to work so again minimum monthly amount due on every other debt except debt number one and then because we stepped it up to let's say two hundred dollars instead of taking eight months it took four months to put wipe it out entirely right because debt number one your minimum amount is $100 you're now going to take that hundred dollars extra hundred dollars that you've made and you're going to apply it to debt number one so instead of a hundred dollars you're going to pay two hundred dollars so instead of paying it off in eight months it's going to take you four months boom and it's gone and all the sudden I go holy moly now celebrate it's alright but now you have an extra two hundred dollars because you got the hundred dollars that you were paying off on that credit card debt or that department store debt and you have the extra hundred dollars you make in a month so you have two hundred dollars and now you can go attack the next one and this is again why we start with the shortest time period possible because Wow look it works alright I got rid of a debt and so that's one of the most important things is to keep your confidence up as you go through the process yeah buy yourself a diet coke and celebrate got something but do celebrate okay so also when you pay off that first debt now that you have this visual diagram in front of you take a big red marker and put an X through it and that one is off your charts it's done celebrate step number nine time to move on to debt number two now here's what you do debt number one you've been paying $200 a month so you go to debt number two if you look in the workbook debt number two is a jewelry installment plan you owe $400 your minimum payment is $45 so instead of paying just $45 every month you're going to pay 45 plus the $200 you were paying on debt number one so you're going to pay two hundred and forty-five dollars a month on debt number two and guess how long that's going to take you to pay that off less than two months poof done gone gone celebrate so you cross that one off now you take move on to debt number three look in the workbook and that is a home store credit card and debt number three is a hundred and twenty dollars minimum payment add the two hundred forty-five dollars you are paying on debt number two you're now paying three hundred and sixty-five dollars and their total debt is twelve hundred dollars so it's going to take you instead of as it looks ten months it's going to take you much shorter than that to pay that off and you'd keep going through this process adding every time to your new debt the amount you were paying from the last debt obviously this is not going to work if you pay off one debt and go back into debt or that you pay off one or two and then you go back to making the minimum payments what you're doing is you're leis are focusing on wiping out each one of these debts or loans that you own until it all wiped out and if you follow this process it should take you seven to eight years to completely wipe out even your home mortgage yeah most people tell me it's five to eight years to get completely out of debt and if you look at the example in the workbook this person was over $200,000 in debt including their home their home was a hundred and fifty thousand dollars so they had $50,000 in debt on top of that in going through this formula in just over three and a half years they had the $50,000 entirely paid off and it took them less than four and a half years to pay off their house completely so in about eight years they were completely debt free of $200,000 so again in about eight years they were entirely debt-free the house payment alone was going to take him over 20 years so here they are eight years debt-free and all they had to do was come up with an extra hundred dollars a month to do that that's it and a lot of discipline to keep rolling and a lot of discipline this is what Betty the bookkeeper fought us on but it worked anything and in the next step ten is how we became financially free instead of going back into debt or just spending a cash on doodads and things like this well those of her a Rich Dad Poor Dad or played the cashflow game you know what we do is we invest that money even faster so in this case you know all that money instead of spending it we just kept buying more properties stocks bonds never buy mutual funds but we had money to invest even greater rate of space and that's how our investment rate went from 30 percent up to 80 percent today and is now in the millions of dollars we're continuing to reinvest and we live off of our cash flow from our properties so it's really interesting how this process starts to snowball you know it's a compounding effect of getting richer and richer faster so this process of getting out of debt was how we started in 1984 and I was really in bad shape and Kim applied some discipline and some truth-telling to the process and well holding my feet to the fire and we had Betty to keep my conscience in and remind and in 10 years we not only were out of debt we were financially free we're making about $10,000 a month but under $20,000 a year and our expenses were about $36,000 a year so we every month we made about 10,000 for my rental properties and about 3,000 and expenses and we just still to this day ten years later 20 years later we just keep doing the same thing and now it's in the millions of dollars same habit same process staying on a debt getting richer and richer where we have a lot of good debt lots and lots of apartment houses and commercial buildings but that's good debt and that's how we get richer and richer and reinvesting so as I said earlier that this formula was going to show you how to get out of bad debt and how to accumulate money to start investing so very quickly just going back to the example paying their very final debt they were paying monthly over $2,800 a month to pay off their house that house gets paid off they still have that $2,800 a month as Robert said instead of going out and blowing it and buying doodads and all sorts of things you power about you have $2,800 a month to invest and that's where that money comes from and again it goes back to $100 a month is all you have to do and now you've got $2,800 a month to invest without really doing anything different so again this is the formula we've used this is how we've gotten out of bad debt this is what's what really got us moving forward to start investing to accumulate the money to do that and to get us financially free and we don't believe in living below our means I mean today you know I said well when do we start enjoying our money today Kim and I own about seven cars lots of houses we travel by private jet and all that but we have the cash flow from our investments doing that and not our credit cards paying for that stuff and it's not debt it's income coming in to us constantly so our assets from our investments buy our liabilities today and the reason so many people get in trouble in the first place is they buy a liabilities first and then they try and buy assets second and never happens they just keep buying more liabilities like cars boats and things like this by getting on a debt bad debt and then buying assets now our assets buyer liabilities so we still have a great lifestyle I mean incredible lifestyle the best thing is we don't have to worry about money we don't have to put worry about you know anything because we always have more and more money coming in because the process keeps going so that is the 10 step process for getting out of debt and we in closing we just want to add a few more tips that really have helped us stay on track keep focused financially and keep increasing our wealth which happens day and day and day in and out so go again to the workbook and ofili's few bonus tips number one is it takes discipline and dedication and remember it is a process it is a process you know from going from where you are to where you want to be and if you don't have dedication and discipline the process falls apart not because it's a bad process but because you lack discipline and dedication the second point people ask me often is do you have to be debt free before you invest our answer is no that's a choice you can make but for me and Robert we were investing even though we had quite a bit of bad debt what we did is we stuck to this formula but we kept finding the money to invest so no you do not have to be debt free to begin investing for example while we were going through this process by this time we had moved from California to Portland Oregon and we found the smoking 18 unit apartment house and back then I mean I can't believe how cheap it was but back then it was only 3 or $85,000 and we didn't have any money we were still paying off our debt so the cash by understanding and assessing the evaluate evaluating the property we realized we could get 100% financing and still make money from the deal so that's when you know I went knocking on bank's doors with Kim and we finally found one bankers name is David riffle and the greatest guys we ever met from u.s. bank and he gave us a hundred percent financing to buy this apartment house 18 units for $305,000 and it put like $1,000 a month extra in our pocket so the answer is we never stopped investing because that was part of the game anyway so we still we got richer and richer still paid off our debt and we still are to piggy banks filling up with the money we're putting in with the 10% 10% 10% so that's what we never stopped it we didn't limit ourselves we'd have think thoughts like all I can't afford it or this is too hard it takes money to make money when I have money I'll invest all of that right so sit number three is that if you're married or a long-term relationship you know go through this process together with your spouse or significant other because it was this process that makes us a happy couple today you know you know people look at Kim and say is she a trophy wife as heaven knows and I'm definite wealthy husband anyway yes you are I know she did marry me for money and we actually grew together we got smarter together we understand each other better and the process of going from deeply in debt to you know excessively rich it's been a great process and it makes us love each other more I really don't everybody makes their own choices but I know a lot of guys here on the second and third and fourth wives and they always marry another one with no brains but looks good you know if that's what you want to do that's fine but that's not what I wanted to do well it's off also a lot of women out there who just want to turn over all the financial responsibilities to their husband or the partner and I don't recommend that either because as Robert said the most important thing in this whole process is we learned together we learned a lot together and when we had to come up with extra money how we going to get it it was really a growing process and I see so many couples grow apart here's an opportunity where you guys as a couple can grow together by solving a very big problem called getting out of debt and getting a real and getting rich that's the most fun so number four and number five are steps four and five are the tips are pretty similar keep it up keep your spirits up I mean the hardest thing after I had to face all the debt was I wanted to go eat and drink and spend more money they want to face it I didn't want to face it and Betty the bookkeeper was really good about this cuz she really did she looked at my first grade teacher and she really scolded me several times so she was really good and she kept us going which is tip number five you know even though it looks bleak keep going because somehow he always got through it I mean there were times we didn't have money for three or four days but something always happened and we just continued on so many people say like I gotta cling to this job or I can't do this well something always happens like a lot of people believe in God but going to trust in God and we kept doing if we were going for the right purposes and doing being ethical and moral and legal they kept working for us and so remember that two minds are better than one in our case it was kill myself and Betty the bookkeeper boy she was really great for us she kept us going yes and then we had a Dave riffle our banker and all this and along the way we found great people and you know most Bobby who kept who a lot of sleep in her basement and things like this we love Bobby forever because of that because she took care of us when we were really down but in the process it really made us stronger and built better relationships for us I would say so I would say it's it was probably one of the toughest times actually that toughest time I've ever been through and I would say but Roberts ever been through and looking back in retrospect it was probably the best thing that could happen to us because it did make a stronger made us face our problems made us get through our problems handled the pressure knew we could make it and we came through the other side as number six is you know play the cash flow one-on-one game whenever we have financial problems a lot of times a brain gets stuck and like there's no oil in the brain or something and it goes into a jammed so get out the cash flow game play the game and then what the game does is it kind of loosens up your brains and gets the juices going gives you new ideas and you can talk to the friends playing the game if you don't have a game you know go to rich dad calm and we have cash flow clubs all over the world and you can join them and talk to them and a lot of them are like support groups to help you get through your financial challenges you know Donald Trump and I wrote a book together was why we want you to be rich but if you know Donald Trump was a billion dollars in debt and I was only a million and it actually made us better people you know facing the problem and getting out so all of us have money problems it's just how you handle it so find the cash flow game gets together with some friends play the game and you know I think your brain will come up with solutions that are unique for yourself so as I said at the start of this CD that some of you today are facing a foreclosure which is the bank taking your home or a personal bankruptcy or you've already gone through a foreclosure in a bankruptcy and those are kind of extreme situations and thank God I didn't have to go through it because I paid off my debts so here is Scott McPherson and I doing a short interview and this he is an investment banker as well as a mortgage banker and he can give you a banker's point of view on the subjects of foreclosure and bankrupt so welcome Scott good morning Robert but what do you have to say - what would you say to somebody who right now they've missed number of payments on their house or their they lost their job let's say oh they'll hospital bills they cannot pay off what as a banker before they go into a foreclosure or into bankruptcy what would you recommend well there's a variety of different things there's the pre and post reaction to a foreclosure or bankruptcy that we're going to discuss a little bit from the on the if it's imminent and you think you're going to lose your property and you're going to file bankruptcy or you're going to go into foreclosure are in foreclosure currently what I would recommend is to maybe do a little bit of the obvious do and do the right thing try to go get yourself help with credit counselors and so forth and do things that you can try to help yourself prepare for yeah inevitable maybe of losing your house number two I think you try the best you can as to market your property do what you can do to try to sell it if you can but if you sometimes you just can't do that in a falling market and number three I would say have open communication with your existing lender and try to work something out with them because there's a variety of different things especially in the marketplace that we're in today that lenders want to try to do this they don't want a foreclosure either but I would strongly suggest you have open communication and be honest with them of your situation the final thing I would say Robert is that you also need to describe to them there are certain conditions that occur in and in post bankruptcy or post foreclosure they're very important of Extraordinary kind of circumstances like for example a medical problem that has forced you into this condition or losing a job something like that and again down the road that's going to really help you if you've documented that you've gone in and tried to solve the problem so what you're saying these are challenges outside your normal control or something completely and post bankruptcy or foreclosure when you're back trying to qualify for loans those types of things that you've already done will help you dramatically in your credit score and dramatically in the interest rate you get after your bankruptcy or foreclosure so howwwas yoor well i think what you would do is is you would have correspondence with your existing lender and explain what the situation is to the very openly and explain and show that you tried to work with them and to try to solve the issue whether it's a two-way street or not it doesn't really matter but you've tried it's been an open door also I think by going to credit counselors and so forth I think that is you keep those records and their recommendations and act on them try to do what you can do even though it's limited basis if you're going through a very tough financial time so what you do as you're showing good intent and openness completely now what happens as a banker let's say I came to you like I said you stated again I don't have a bankruptcy or foreclosure against me although nearly a million dollars down what do you as a banker do or what's your response when you look on to somebody's credit application or financial statement that they have a bankruptcy or foreclosure what is your first response well let me let me answer that in two ways single-family home versus a commercial real estate transaction first of all disclose best thing you can do is come in and tell me about it because I'm going to find it so you might as well be open with me so once we've done that it is not impossible by any means to get a new loan on a single-family home if you've filed a bankruptcy or had a foreclosure effectively it precludes you from certain type of loans you will not be a prime credit kind of borrower now you'll be like what's in the papers now subprime paper alt a borrower which means simply you're a perceived higher risk which means simply you're going to be charged a higher interest rate so it's not impossible so the world is not coming to an end but it's going to be more difficult to do so with a foreclosure or bankruptcy I could buy a new house or it could invest in commercial real estate you could now the one thing we talked about briefly before was if this if the foreclosure or the bankruptcy was caused by an external situation occurring loss of job medical emergency loss of a spouse if you've documented and all that and you have a good record in bookkeeping of that and you bring it in that is going to help you on your credit score and your ultimate interest rate again you've showed the intent of trying to solve the issue not run from the issue and that's really what people are looking for on the commercial side Robert it's a little different we're not so zeroed in on FICO scores and so forth but what we really are zeroed in for on a commercial side is one disclosure again we want to know about it upfront we also want to know the circumstances and I would strongly suggest if you're in the commercial real estate business and you're borrowing on commercial loans and have a foreclosure or a bankruptcy or passed or are going to have one prepare a letter be prepared because every time you go and borrow money again you're going to have to explain that and explain it through it will not stop you from getting a loan but you're going to have to explain and the critical things there are intent and what you how you acted during these issues events ie in a bankruptcy if you were a bad guy and took the money and we're fraudulent you're going to have a very difficult time getting a loan if you were just in a product of owning ten rental homes in downtown Detroit right now for example and the market went away from you completely you lost your tenants blah blah blah you did everything you could that's a different situation and that's what people are looking for is the type of person we're dealing with not necessarily the FICO score like you would on residential okay that's just good information anything else you would like to add or any words of encouragement to the listening audience especially if they're facing foreclosure or bankruptcy well the only encouragement one is life will go on and it's probably best to get this behind you and there are many many people in today's world across the United States they're going through exactly probably what you're going through so you're not alone it may seem like it but you're not get it behind you move on with life you'll still be able to borrow money also the other thing I would strongly suggest if you're going to go through a foreclosure or bankruptcy is go meet with a mortgage banker right now talk to them what it's going to take to rebuild your credit score because there are certain things that need to be done immediately and you need to start on that the day after you file the foreclosure of the bankruptcy so again it's relationships as teams it's having good advice and not going into a shell and hiding and taking a bad advice that's exactly right so I say thank you to Scott and thank you to Kim thank you Robert thank you and thank you for listening and trust us has been very very helpful and that we wish you a world of no bad debt and tons and tons of good bit and remember by facing this challenge you get smarter and that's the most important thing the Rich Dad company is about giving it a financial education so you can handle bigger problems and challenges thank you thank you you

Channel: Randy Canete

Views: 495,905

Rating: 4.7686443 out of 5

Keywords: Robert Kiyosaki (Author), Marketing (Interest), Bad Debt, trulyrichabundance, truly, rich, truly rich, club, abundance, randy canete, Debt (Quotation Subject), Business

Id: C5nzQgKRaJ0

Length: 49min 42sec (2982 seconds)

Published: Mon Aug 31 2015