get out of debt

3 Steps to Debt Reduction Plan

Dear Reader,

To accomplish your goal of being financially independent and infinite wealth, your two favorite words when it comes to money should be: cash flow.

Investments, or assets, generating income for you each and every month, produce cash that flows in every month without you working for it. That cash flow is called passive income. When it comes to investing, the primary focus in building infinite wealth is on cash flow.

If you’re serious about building positive cash flow in your life, you have to start with the fundamentals of financial literacy.

If you really want to gain control of your cash flow, you’re going to need three key ingredients:

  1. A financial statement to know where you are financially.
  2. Personal discipline.
  3. A game plan that’s going to take you where you want to go.

Is it difficult to change your habits? You bet it is. It depends on you and how eager you are to take control of your financial life.

Remember, you don’t have to do any of these steps. However, if you don’t, you’ll just remain where you are, in the current Rat Race of spending your paycheck on bills that never stop coming.

Don’t count on winning the lottery. It’s always amazing to me to see how many people think that winning the lottery is a plan of getting ahead financially. Do people really have so little confidence in their own abilities that they hope for a lottery jackpot?

Let’s get real. While you don’t have to cut up your credit cards, you do have to exercise discipline and follow a debt-reduction plan. The first two steps in doing this are:

  1. Pay Yourself First

Whenever you get a paycheck, the first bill you pay is to yourself. It’s not the car payment, the mortgage, or your water bill. Pay yourself a decent bit of money and then immediately put that money into a separate investment savings account. Don’t touch it until you’re ready to invest it in some way.

  1. Overcoming Bad Habits

Our lives are a reflection of our habits more than our education. After seeing the movie Conan the Barbarian, starring Arnold Schwarzenegger, a friend said, “I’d love to have a body like Schwarzenegger.” Most of the guys nodded in agreement.

“I even heard he was really puny and skinny at one time,” another friend added.

“Yeah, I heard that too,” another one said. “I heard he has a habit of working out almost every day in the gym.”

“Yeah, I’ll bet he has to.”

“Nah,” said the group cynic. “I’ll bet he was born that way. Besides, let’s stop talking about Arnold and get some beers.”

This is an example of habits controlling behavior. I remember asking my rich dad about the habits of the rich. Instead of answering me outright, he wanted me to learn through example, as usual.

“When does your dad pay his bills?” rich dad asked.

“The first of the month,” I said.

“Does he have anything left over?” he asked.

“Very little,” I said.

“That’s the main reason he struggles,” said rich dad. “He has bad habits. Your dad pays everyone else first. He pays himself last, but only if he has anything left over.”

“Which he usually doesn’t,” I said. “But he has to pay his bills, doesn’t he? You’re saying he shouldn’t pay his bills?”

“Of course not,” said rich dad. “I firmly believe in paying my bills on time. I just pay myself first. Before I even pay the government.”

“But what happens if you don’t have enough money?” I asked. “What do you do then?” “The same,” said rich dad. “I still pay myself first. Even if I’m short of money. My asset column is far more important to me than the government.”

“But,” I said. “Don’t they come after you?”

“Yes, if you don’t pay,” said rich dad. “Look, I did not say not to pay. I just said I pay myself first, even if I’m short of money.”

“But,” I replied. “How do you do that?”

“It’s not how. The question is ‘Why?’” rich dad said.

“Okay, why?”

“Motivation,” said rich dad. “Who do you think will complain louder if I don’t pay them—me, or my creditors?”

“Your creditors will definitely scream louder than you,” I said, responding to the obvious. “You wouldn’t say anything if you didn’t pay yourself.”

“So you see, after paying myself, the pressure to pay my taxes and the other creditors is so great that it forces me to seek other forms of income. The pressure to pay becomes my motivation. I’ve worked extra jobs, started other companies, traded in the stock market, anything just to make sure those guys don’t start yelling at me. That pressure made me work harder, forced me to think, and all in all made me smarter and more active when it comes to money. If I had paid myself last, I would have felt no pressure, but I’d be broke.”

“So it is the fear of the government or other people you owe money to that motivates you?”

“That’s right,” said rich dad. “You see, government bill collectors are big bullies. So are bill collectors in general. Most people give in to these bullies. They pay them and never pay themselves. You know the story of the 98-pound weakling who gets sand kicked in his face?”

I nodded. “I see that ad for weightlifting and bodybuilding lessons in the comic books all the time.”

“Well, most people let the bullies kick sand in their faces. I decided to use the fear of the bully to make me stronger. Others get weaker. Forcing myself to think about how to make extra money is like going to the gym and working out with weights. The more I work my mental money muscles out, the stronger I get. Now I’m not afraid of those bullies.”

I liked what rich dad was saying. “So if I pay myself first, I get financially stronger, mentally and fiscally.”

Rich dad nodded.

“And if I pay myself last, or not at all, I get weaker. So people like bosses, managers, tax collectors, bill collectors, and landlords push me around all my life—just because I don’t have good money habits.”

Rich dad nodded. “Just like the 98-pound weakling.”

  1. Cut Back On What I Call Doodads

Doodads are those extra things in life that we all crave but really don’t need. It might be a fancy car or going out to dinner at expensive restaurants or really sharp clothes. Whatever your doodads are, stop that habit of purchasing them impulsively. Admittedly, this is where your self-discipline and willpower come into play. But if you really want to get out of debt you don’t want, you need to adopt the old-fashioned virtue of delayed gratification.

I am not changing rich dad’s advice. While he believed in expanding your means to be able to afford any lifestyle you want, there are times when you have to stop and take other measures to get started on the right track. Remember that old saying: “What do you do when you find yourself in a hole? Stop digging.”

There comes a point in your investing life where the cash flow from your investments supports not only your living expenses but also your next investment. Your cash flow breeds new assets that, in turn, breed more cash flow.

It’s a lovely cycle.


Robert Kiyosaki

Robert Kiyosaki
Editor, Rich Dad Poor Dad Daily

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Robert Kiyosaki

Robert Kiyosaki, author of bestseller Rich Dad Poor Dad as well as 25 others financial guide books, has spent his career working as a financial educator, entrepreneur, successful investor, real estate mogul, and motivational speaker, all while running the Rich Dad Company.

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