Finance & Money

In order to get rich you need to understand the different types of debt, and you then need to use the good kind to make yourself rich. The two types are:

1. Bad Debt – This is the one that you have to pay for, that takes money out of your pocket each month in repayments. Usually credit cards, personal loans, car loans or home loans.

2. Good Debt – This is the one that puts money into your pocket, that earns you money that you wouldn’t have been able to earn otherwise. Eg. Debt from purchasing a positive cashflow property where rental income is great than all expenses.

The thing that determines the good from the bad is the effect it has on your cashflow. The good adds to your cashflow each month, the bad takes away from your cashflow each month. Good debt makes you richer and richer, bad debt makes you poorer and poorer.

In order to look at debt in a fresh way you need to look at your debt in terms of cashflow, not in terms of the overall figure or net worth. So instead of saying “I have $20,000 of debt” say “My debt costs me $100/week”.

By looking at debt in this fresh way (looking at cashflow instead of the figure) you can begin to see whether your debt is good debt or bad debt.

For example if you think all debt is bad then when someone says pay off all debt you will agree with them. But if you look at your debt and you see that your $20,000 of debt is making you $1,000/month, then the advise to “pay off all debt” is stupid advice.

By looking at debt in terms of cashflow you can become financially free quicker and you can easily reduce the stress of your debt.

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