Wisdom of Rich Dad

From time to time a person can come up a little short on cash before their next paycheck is due to come in. One solution to this is a payday loan.

There are several different places that offer payday loans. It works somewhat like a cash advance only it comes through a different business rather than through your employer. These are specialized businesses set up to give you loans based on the fact that you are going to receive another pay check.

Some are based on the Internet, others are businesses that you walk in to and do business with face to face. The money that they offer can be used anywhere from one to four weeks.

These companies may seem like an easy way to get rid of a bounced check, avoid a late payment, or even help yourself out of a bad credit situation. Many of them will even give you a loan if you have bad credit, no credit at all, or even if you have claimed bankruptcy. As long as you have an income and can prove it they will likely give you a short-term loan.

The biggest problem with these loans is that they have a very high interest rate. Their excuse is that it is because you are borrowing the money for a very short time. The average rate of these loans is usually 300% APR. Because of this you will actually end up owing more in interest than what you borrowed in the first place. Many people will end up having to extend the loan, which will cause them to go more in to debt than they were when they went to the loan company.

When you go to the loan company to get the loan you show them proof of employment and then write them a postdated check for the amount that you are borrowing plus a fee. This fee is a lender fee but it does not include the interest rate. The fee really isn’t that high but the interest rate will be. If you don’t pay the interest rate the loan company will begin calling you or your place of employment to collect on the outstanding money owed.

If you need money and need it fast there are much better ways to go about it. This way may very well get you in a bind later on. The first way is to get a credit union loan. Many credit unions offer small loans much the same way as the payday loan companies do. There is one big difference though, the credit union loans will only charge about 15% APR as compared to 300% of the short-term payday loan companies.

This, of course, makes them at least possible to pay off, unlike the short-term payday loan. If you all ready have an account with the credit union you have the option to borrow from your own account. If you do this you have an even lower APR rate. You even earn dividends back on your savings when you pay back the loan if you do it this way.

Another way to avoid going to a payday loan company is by using a credit card advance. This means taking money out of your credit card and paying it back later. The APR is a little higher than with the credit union solution but still much less than with the payday loan company. The interest rate here would be about 20-25%.

This option is something that you probably only want to do if you have a good credit score so that you don’t make your credit score look bad. Especially if you think that you might not be able to pay it all back by your next payday.

You can also avoid going to payday loan companies by using resources that are all ready available to you. Many banks have overdraft protection available to their patrons. This means that if you write a check without funds in the checking account the bank will give you an automatic loan for the amount of the check to cover it. Then you pay back this loan over time.

It may also be just as effective to talk to the people where you owe the money. They may be very willing to cut you some slack and take partial payments on what you owe or give you a grace period. Many places can be very flexible.

While payday lenders can be a very convenient way to get money the huge interest rate and the automatic permission that you give them to contact you and your employer when you sign the papers for the loan. This is an instance where the end may not justify the means.

In today’s economic conditions, more and more people are swimming in debt.  At last check the average American household is carrying over $8,000 in credit card debt. 

You may be one of those people carrying the debt however you are still entitled to some dignity in how you repay your debts.  In other words you have rights and you cannot and should not be pressured into the manner in which you repay your debts.  The Fair Debt Collection Practices Act(FDCPA) is what gives you these rights.  If you are in debt and are being called by creditors then keep reading to make sure your rights are not being violated.

Did you know?

The FDCPA was created to counteract the abusive practices of collection agencies.

The FDCPA applies to all types of debt incurred by a household including mortgages, auto loans, credit cards and even retail store cards.

The FDCPA applies only to 3^rd party collection agencies.  For example if you have a huge medical expense and someone from the hospital calls you regarding repayment, that is not covered under this act.  If they send this to a collection agency or law firm for collection then this act goes into effect.  By the way it is very rare you would get abusive treatment directly from a store or credit card company because they want to keep you as a customer.

What can’t they do?

They cannot contact any 3^rd party about your debt.  They can’t call your cousin, mother, father, neighbor or anyone else.

They can’t make idle threats to intimidate you.  For example they can’t say we are going to repossess the items you purchased unless they actually intend to do it.

They can only call you during reasonable contact hours.  Those hours are between 8:00 AM and 9:00 PM.  They also cannot continuously call your phone number over and over.

They can’t call you at work unless you give them permission.

They can’t insult you or use any type of profanity, or racial or ethnic slurs.  So calling you cheap, lazy or a bum is out of the question.

They can’t ask for a post dated check and threaten you if it bounces.  Well my question is why would you want a post-dated check anyway?  If I’m in debt I don’t like the odds that the post dated check will clear.

They can’t charge you any excessive collection fees.  This has always puzzled me about debt repayments.  If I can’t pay the original bill how is adding fees and penalties going to allow me to pay it off any faster

They can’t lie to you by pretending to be something they are not, even though we will often lie to them by saying I’m not home right now when I am the one they are talking to.  They can’t pretend to be a lawyer or a court official or any type of misrepresentation.  They can’t use any type of documents that look like they are official court documents.  They also can’t pretend to be taking a survey to get information about you.

Finally they can’t threaten to have you arrested if you don’t pay the debt.  By the way I don’t know how you can repay if you are in jail.

So those are your rights, know and use them if you must.  By the way companies face serious penalties and legal action if they violate these rules.   So if you are in debt and are working to repay them don’t be afraid to enforce your rights if they are being violated.

Rich Dad, Poor Dad” author Robert Kiyosaki shares with SkyQuestCom how being fully educated about money matters can lead to financial freedom.

Here are excerpts from the interview.

SQC: SkyQuestCom RK: Robert Kiyosaki

SQC: It is my honour and privilege today to introduce our guest, Mr. Robert Kiyosaki, who is a millionaire, investor, entrepreneur and author. He is the bestselling author of the book Rich Dad, Poor Dad, which struck a chord with readers, selling millions of copies and topping the New York Times Bestseller’s list.

Robert retired as a multi-millionaire at a very early age and travels the world as a motivational speaker teaching people to become millionaires. According to Robert, the main reason people suffer financially is because people work hard for money instead of making money work for them. So let’s get some insights from the man himself on how to improve financial literacy. Thank you Mr. Kiyosaki for joining us today.

RK: (Robert smiles) Thank you!

SQC: First of all, could you tell us what your definition of wealth is and is it possible for anybody in the world to attain financial mastery?

RK: Well, that’s a very, very big question. Wealth is many, many things to many people but I think wealth is primarily what you know. The definition of wealth I subscribe to, financially, is that, wealth is the number of days you can survive without working while also maintaining your lifestyle.

For example, let’s say, it costs you 3000 dollars a month to live as your lifestyle and you have $12000 in the bank. That means your wealth is measured in days or in this case, 4 months. You know, (Robert pauses) 3 into 12000 means you can survive 3 months. (Robert pauses) 3 into 12 is 4 months, you can survive 4 months.

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Have you heard of the theory of pay yourself first? Many of you may been thinking that almost everyone is paying for our own bills or buying something for ourselves is considered as paying yourself first but this is not actually the case. The first time I had heard of this method was actually through a book called Rich Dad Poor Dad by Robert Kiyosaki. Initially, I do not really grab the idea of what does it actually means to pay yourself first when you are earning the money through working for others but I slowly get to know it clearing through reading books, attending seminar and listening to audio books.

You will get a better idea if you really keep on learning through the journey of success in life and I should say that I am slowly starting to understand the true meaning of paying yourself first. From the Rich Dad Poor Dad book, it mentioned that people normally pay their bills, fees, mortgages and other payment first whenever they received their salary from their job. What they will do next is buy what they want with whatever left over and save the leftover money after spending. This usually become a cycle as they do it every month and almost every year without much money left to try and make a difference in their life through becoming their own boss or even making any significant difference in their financial status.

The next great mentor that I learned about the pay yourself first method from is T.Harv Eker. I have read his book “Secrets of The Millionaire Mind” and attended his Millionaire Mind Intensive (MMI) Seminar where he taught how to set up different set of money jars where you can manage your money better. Personally, I have implemented his money jars method and trying to fine tune my finance as I have quite a few debts that I need to settle but I can say it is very useful to me as it motivate me to check on my own finance along my journey to success.
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Dan Mangru’s interview with Rich Dad, Poor Dad Author Robert Kiyosaki!

Something struck me while reading Robert Kiyosaki’s latest book, “The Conspiracy of the Rich“. As usual, his new books always have resemblance in terms of content to his previous books. But I did not remember coming across this concept while reading “Rich Dad Poor Dad” or “Cash Flow Quadrant”. Maybe this is what people mean by learning new things from revisiting books that you have read. The concept that I am talking about is ”investing for cash flow” rather than the commonly accepted “investing for capital gains”.

Investing for cash flow means that you are investing in assets that will generate a regular and sizeable income stream to your wealth. While for capital gains, you buy an asset that will go up in price in the future. Robert is saying that most people invest for capital gains which is more risky due to the uncertainty of the future. This is especially so in the stock market where the probability of losing the value of the assets during a market crash is too high. Rich Dad’s analogy will be the game of Monopoly where every player aims to increase cash flow by owning more properties, houses and hotels and collecting rent from them. There is no aim of capital gain involved.

As he gave a few examples vaguely, I am not clear what are good cash flow generating assets to invest in. Robert’s cash flow assets are:

1) Business
2) Real Estate – rental collected every month
3) Oil – Partner of oil drilling. A discovery will entitle a part of the oil and gas sold monthly
4) Royalties – from his books, games and financial education products

Out of the 4 cash flow generating assets, it seems like real estate is more likely the choice for ordinary investors, at least for me. Firstly, it enables you to get the biggest loan from the bank which translates to biggest leverage that you can ever get from controlling an asset. Secondly, the interest for the debt is the lowest. Thirdly, there is potential capital gains alongside with regular cash flow.

Other than the four examples, I cannot really think of what other good cash flow generating assets available for investment.

Dividends from stocks? You probably have to own alot of stocks to generate a decent cash flow.

Coupon payments from bonds?

Lend money and collect interest via Prosper?

Are there other good cash flow assets you can think of?