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This article is an excerpt from the Shortform book guide to "Rich Dad's Cashflow Quadrant" by Robert T. Kiyosaki. Shortform has the world's best summaries and analyses of books you should be reading.
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Do you want to start investing and building your wealth? Can you invest while still in debt?
According to Robert Kiyosaki, debt is the biggest obstacle to wealth. Very simply, you need money to be able to invest, and if you are in debt, all the money goes to its repayment.
Keep reading to learn about Kiyosaki’s strategy for getting out of debt.
How to Get Out of Debt
If you’re in significant debt, especially with high interest, it makes sense to reduce or pay off all your debt before you start investing. According to Robert Kiyosaki, debt management is an integral financial skill and is an important part of cashflow management.
Kiyosaki recommends this strategy for getting out of debt:
1. If you have credit card debt, use only one or two cards and pay off all new charges each month.
2. Earn an extra $150-$250 per month and use it to pay off one card. (Kiyosaki says if you can’t earn an extra $150 per month, the B and I categories are probably not for you.) Pay the minimum balance on all your other cards.
(Shortform note: Sethi notes that because your monthly minimum payment is a proportion of the balance, as you pay more and the balance decreases, so does your payment. If you keep making the same flat payment for the duration of your debt, you’ll pay it off faster and save money on interest.)
3. Once you pay off one card in full, move on to the others. Continue until all cards are paid.
4. Once all your credit cards are paid off, or if you don’t have credit card debt, use the same strategy with other debt, like your mortgage, car payments, or student loans.
5. Once you’re sufficiently out of debt, use the money you were putting towards your debt toward your investments.
If you don’t have debt, just put that extra $150-$250 per month toward your investments.
Another Strategy for Paying Off Credit Card Debt
Sethi offers an alternative (and more comprehensive) strategy for getting out of debt:
- Add up your total debt. Make sure you have a big-picture view of everything you owe.
- Note the APR and the minimum payment for each debt.Decide whether to pay the card with the highest APR, which will save you the most money because you’ll save on interest, or the card with the lowest balance, to bolster your confidence by paying off a card quickest.
- Negotiate a better APR. Your credit card company wants to keep your business.Increase your monthly payments by diverting money from another spending category.
Robert Kiyosaki’s Strategy for Getting Out of Debt
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Like what you just read? Read the rest of the world's best book summary and analysis of Robert T. Kiyosaki's "Rich Dad's Cashflow Quadrant" at Shortform .
Here's what you'll find in our full Rich Dad's Cashflow Quadrant summary :
- Why the traditional path of college to career doesn't work
- Which types of income will lead you to financial freedom
- An in-depth look at Robert Kiyosaki's four cashflow quadrants
I've spent years delving into financial literacy and investment strategies, including those outlined by Robert T. Kiyosaki in "Rich Dad's Cashflow Quadrant." Kiyosaki's approach to debt management and wealth-building is a cornerstone of financial education. His emphasis on understanding debt as a hurdle to wealth accumulation aligns with prevalent financial principles.
Kiyosaki advocates a strategic approach to tackling debt:
- Credit Card Debt Management: Focus on minimizing credit card usage and pay off all new charges monthly. Channel an additional $150-$250 monthly towards paying off one card while maintaining minimum balances on others.
- Progressive Debt Repayment: Once one card is fully paid, move onto others systematically until all credit cards are debt-free. Extend this strategy to other forms of debt like mortgages, car payments, or student loans.
- Transition to Investments: After achieving a more manageable debt status, direct the money previously allocated for debt repayment towards investments.
An alternative approach, suggested by others, involves assessing total debt, noting APRs and minimum payments, and choosing between paying off the highest APR for cost savings or the lowest balance for psychological reinforcement. Negotiating for a better APR and reallocating funds from other spending categories can expedite debt repayment.
Kiyosaki's methodology underscores the importance of prudent financial management, debt reduction, and the subsequent transition towards wealth-building through investment.
Kiyosaki's book, "Rich Dad's Cashflow Quadrant," covers various themes:
- Income Streams: Kiyosaki's Cashflow Quadrant outlines four distinct types of income streams: Employee (E), Self-Employed (S), Business Owner (B), and Investor (I). Understanding these quadrants aids in comprehending financial independence and wealth creation.
- Wealth Accumulation: Kiyosaki emphasizes the significance of creating assets that generate passive income to achieve financial freedom rather than relying solely on earned income.
- Mindset Shift: The book advocates for a mindset shift from an employee or self-employed perspective to that of a business owner or investor to foster long-term financial stability.
- Financial Literacy: Kiyosaki's work stresses the importance of financial education, highlighting how lack of knowledge in this area can hinder wealth creation.
Kiyosaki's principles resonate deeply within the realm of personal finance, promoting a holistic understanding of debt, income generation, and wealth-building strategies that extend far beyond mere investment advice.
