Wisdom of Rich Dad

$13 trillion. That’s roughly the current size of the U.S. national debt. And it continues to grow every second.

It seems like everyone, from blue-chip execs to members of congress, is throwing around words like million, billion and trillion without any comprehension of what they really represent. CNN even goes so far as to call trillion “the new billion.”

Why is it so hard to wrap your head around these big numbers? K.C. Cole, a commentator for American Public Media’s Marketplace says it’s just the way we’re wired. According to Cole, “We automatically ‘read’ a billion as about a third of a trillion. After all, it’s only three zeros off. But of course, a trillion is a thousand times a billion, and a thousand is a lot.”

What Cole is saying may surprise you. A thousand doesn’t seem like such a big number — most people have at least $1,000 in their bank account. But divide your $200,000 salary by a factor of a thousand, and you’ll find yourself scraping by on only $200 a year. Increase the size of a classroom by the same amount, and your 15 students are suddenly a mob of 15,000. The distinction is roughly the difference between a million and a billion.

So how do you visualize a trillion? Creative people are coming up with new and better ways all the time.

According to the MegaPenny Project, a trillion pennies stacked together would be somewhere between the Washington Monument and the Empire State Building.

Here are our five favorite ways to put this colossal number into context.

1) A Trillion Seconds Worth a Distance Run
Can you guess how many days it takes for a trillion seconds to pass? If you said, “Let me go get my calculator,” you’re on the right track. I’ll give you a hint: Each 24-hour day is worth 86,400 seconds. That’s a huge number! But it’s no where near a trillion.

• A million seconds is 13 days.
• A billion seconds is 31 years.
• A trillion seconds is 31,688 years.

If you can believe it, a trillion seconds ago, modern humans were yet to exist, and Neanderthals stalked the plains of Europe.

2) Astronomically Large
Outside on a clear night, you can see about two thousand stars with the naked eye, according to the astronomy site A Bright Spot Opposite the Sun. With $1 trillion, you could buy all of those stars if each cost $500 million.

3) Oh the Places They Will Go
A brand new Porsche 911 is a pretty luxurious purchase. Only the truly wealthy can afford to plunk down $88,800 on a car that fits two people and a weekend bag. But with a trillion dollars, in addition to a diploma you could give a set of keys to every graduating high school student in the country — for the next four years!

4) The 50 Richest People in the Room
Bill Gates, Warren Buffett, the entire Walton family — these are just a few of the names that top Forbes’ annual report on the richest people in the world. Yet none of them will ever be worth a trillion dollars. In fact, if you put the 50 richest billionaires in a room, their combined net worth would barely pass $1 trillion.

5) Not Even the Biggest Blue-Chips
Let’s go back to how much purchasing power $1 trillion will give you. For that amount of money, you could buy every share of ExxonMobil (NYSE: XOM) — and still have more than $700 billion to spend buying up every share of…

• Apple (Nasdaq: AAPL) — $233.10 billion
• Microsoft (Nasdaq: MSFT) — $204.29 billion
• Berkshire Hathaway (NYSE: BRK-A) — $197.89 billion
• Wal-Mart (NYSE: WMT) — $181.40 billion

Now multiply by 13. Can you wrap your brain around that?

When I started writing this blog I thought I was doing pretty well with my money. I was due to have my credit card debt paid off in a few months and I was ready to start investing.

Most of my businesses had break even or positive cash flow monthly. I paid to join the Kiyosaki Rich Dad education program so I could go to the next level with my money smart skills. This course put me back into credit card debt but I felt the Rich Dad education would be worth every penny.

Well, how quickly things can change. Within 2 weeks of starting the Kiyosaki Rich Dad education program my tax bill came in twice what I expected, the timing belt broke on my diesel Jetta, destroying a perfectly good engine.

Suddenly my positive cash flow monthly was significantly negative. I was reeling from these events, but the final straw came when my property manager called and told me my renters had skipped. My only rental property has already been a challenge because of the economy and losing the renters may cost me the house.

So, how did I handle these setbacks? I cried. Yep, it took me 24 hours to digest this last blow and then I had a major meltdown. Unfortunately, my good friend and business partner took the brunt of it through absolutely no fault of her own. She handled it well. Everyone should be blessed with such a good friend.

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The bankruptcy statistics in America are alarming. The past few decades have seen a dramatic rise in the number of people that are unable to pay off their debts, and Congress has recently addressed the issue with legislation that makes it harder to qualify for this status. Following is a list of the most common causes of bankruptcy in America today.

1. Medical Expenses

A study done at Harvard University indicates that this is the biggest cause of bankruptcy, representing 62% of all personal bankruptcies. One of the interesting caveats of this study shows that 78% of filers had some form of health insurance, thus bucking the myth that medical bills affect only the uninsured.

Rare or serious diseases or injuries can easily result in hundreds of thousands of dollars in medical bills – bills that can quickly wipe out savings and retirement accounts, college education funds and home equity. Once these have been exhausted, bankruptcy may be the only shelter left, regardless of whether the patient or his or her family was able to apply health coverage to a portion of the bill or not.

2. Job Loss

Whether due to layoff, termination or resignation, the loss of income from a job can be equally devastating. Some are lucky enough to receive severance packages, but many find pink slips on their desks or lockers with little or no prior notice. Not having an emergency fund to draw from only worsens this situation, and using credit cards to pay bills can be disastrous.

The loss of insurance coverage and the cost of COBRA insurance also drain the job seeker’s already limited resources. Those who are unable to find similar gainful employment for an extended period of time may not be able to recover from the lack of income in time to keep the creditors at bay.

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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.

Every day, tens of thousands of individuals up to their necks in debt emotionally make the wrong decision. In pure desperation, they feel as though they can’t take another month of the debt. Throwing away their biggest ally (brutal rationality), they decide to “just do something.”

“Just do something” is the worst financial advice you can take. Every step of your financial journey should be founded on cautious, rational analysis. The situation won’t change regardless of how we feel about it. Emotions don’t change reality.

Listed below are a collection of actions that many seemingly overwhelmed individuals take. Make sure to tread carefully — a slip up can literally set you back years.  Below are some of the top “debt reduction” mistakes often made:

1. Getting “Debt Consolidation” Loans.

Debt consolidation is extremely popular in a lot of circles for a reason: most people who encourage you to “consolidate” your debt will make money if you do. Basically, a debt consolidation is when someone agrees to “consolidate” all of your debt into a new debt with lower interest rates. The only catch is that they’ll force you to stay in debt longer, and you’ll pay more money in the long run. So much for helpful advice.

The only time a debt consolidation is a “good” choice is if you simply cannot pay current interest rates. This is rarely, rarely, rarely ever true. Chances are, there’s a better way to pay the payments than a consolidation.

Getting a debt consolidation is basically a level of surrender, meaning you’ll be paying more money over a longer period of time. Remember, debt consolidation is also a type of loan — in other words, you’re literally fighting fire with gasoline. Not a good idea.

2. Trying “Debt Elimination” Scams.

If someone offers to “eliminate” your debt without analyzing your situation, just run away. It’s a scam, and they are literally out to get you. There really isn’t anything more to say. The hard truth is that there’s no way to “eliminate” your debt without finding ways to make more or save more money.

3. Closing Credit Card Accounts.

One of the biggest mistakes sounds like it makes sense. Closing a credit account sounds like one is taking control, telling the debtors “no more debt” and is taking a step in the right direction. Unfortunately, it can hurt your credit rating.

By closing a credit account, creditors see that you’re moving away from debt and can’t handle the “temptation” — bad sign. If you feel the need to live without credit, just shred your cards — but keep the accounts open for the sake of your credit score.

4. Making Only Minimum Payments.

Minimum payments are your enemy. The entire reason companies are willing to loan you money is that they’ll be making more. They’re literally selling money for more than it’s worth. The way they make money is through you not paying off your debt as soon as you get it.

There’s also a reason the minimum-payment requirement is so low: the lower it is the longer you’ll be in debt. The longer you’ll be in debt, the more they can charge you. Don’t pay the minimum — make up your own minimum and pay that instead. Shoot for triple the minimum payment, at the very least. Otherwise, you’ll be in debt prison for years longer.

Conclusion

Financial planning is the crux of financial security and freedom. If you want to find a comfortable lifestyle, then it can’t be overstated how much you need to master the basics of financial planning. Without a clear, concise plan for how you are going to manage your money, your chances are slim of ever achieving your goals.