If you’ve not seen it yet you must check out the Dave Ramsey Townhall For Hope which is now on Hulu.com . I had missed the Townhall for hope when it first aired and did not want to pay to see it since I had already donated as a business sponsoring the event. I was pleased to have this opportunity to watch the Dave Ramsey special on Hulu. I’ve pasted the embedded version of the Town Hall for hope below. Look for the May 2 2009 episode to see the Town Hall For Hope.
If you cannot find the Townhall For Hope using the widget above the link to Town Hall For Hope is here.
Many folks with lots of credit card debt are waiting to see if President Barack Obama will do some sort of credit card bailout. Some folks feel that since the banks and auto makers got a bailout the consumer loaded with credit card debt should be next. Depending on the form of the credit card bailout it might benefit consumers and credit card companies but certainly not the tax payer. Those with credit card debt should stick with their total money makeover and get out of debt asap vs waiting for the government to solve their problems. So far the only movement i’ve seen towards this was more regulation on the notice required to raise interest rates and lower credit limits. This is also likley to help the consumer as it is extremely hard to pay off debt when the interest rate keeps rising. Still though consumers with credit card debt need to focus now more than ever on getting out of debt so they can survive and prosper despite the governments best efforts to impede wealth building through increased taxation.
One thing you’ll never hear Dave Ramsey recommend is using debt, he’s a fairly absolutist person in this area. Sure he’ll provide guidance on obtaining a mortgage but he won’t recommend it. When callers call in asking for advice for funding a small business he’ll always steer them away from using debt of any kind to fund the business. In the context of Dave’s program and the nature of the callers this is usually the right advice to give.
Robert Kiyosaki on the other hand categorized debt into good and bad debt. Unfortunately most of Dave’s callers are over their head in bad debt so that may explain why good debt is never an advice option on his show. Bad debt according to Robert is any debt you pay for yourself. A car note, home mortgage, credit card and even debt for business if the business is not paying 100% of the note + profit for you. Good debt is any debt that is obtained by you but paid for 100% by others. The best example of this is a mortgage on a cash flowing rental property. Sure you went into debt but if your numbers were correct you should have tenants paying 100% of the debt and you should have some sort of cash flow on top for this to qualify as good debt.
This brings me to my point on leverage. Another topic you’ll never hear from Dave is using debt as leverage to outsize returns at the expense of some risk. In the case of the rental property, your are using leverage of you your down payment to obtain a future outsized return on your money when the property is paid off or appreciates and is sold.
I recently used leverage and good debt to increase provides from my web publishing business by 40%. I started with a series of assets, many many websites on the unemployment application process in various states like unemployment California, Nevada Unemployment and Texas Unemployment. These websites were created to provide information for those seeking unemployment benefits. Of course I have my Google Adsense ads there to generate revenue for the business. With my network of sites I was earning a steady $50 per day in profit. Using debt and leverage I started promoting my network of sites with Google Adwords, I watched carefully which sites made a profit on a daily basis and which sites lost money. Those losing money were quickly removed. Within days my business went from $50-60 per day to $80-90 and now to $100-130 per day. The Google Adwords charges are put on a credit card which is paid off monthly and the difference is my now outsized profit. Within a month or so I should be able to proactively send the advertising funds to the credit card or switch to a debit card so the business runs on cash and not debt. However in the mean time, i’ll take using good debt and leverage and manage the risk.
If you read Richard Kyosaki’s books, you’ll notice a trend. Unlike Dave Ramsey who in the baby steps advocates living below your means to get ahead, Richad Kyosaki promotes expanding your means to afford expenses or liabilities. So in this example i’ll tell you how i’m paying for my trip to the Sturgis Rally 2009. Unlike what you might hear with the Dave Ramsey baby steps, i’m not cutting my existing expenses to pay for the cost of my trip to Sturgis 2009. Instead I created a website about Sturgis 2009 and covered some of the most sought after topics, camping, concerts, dates, bands etc. I used pictures from my past trips to Sturgis and then placed some advertising on the website. Now the website earns revenue each day as others who plan to vacation in Strugis seek out information. By the time Sturgis arrives in five months from now I should have made about $500 from this website. More than enough to cover the cost of camping, gas and food.
In following the teaching of Robert Kiyosaki I needed to create some assets to help me speed up my debt snowball so I can become debt free except for my mortgage. I just have to take care of the rest of my truck loan and i’m close so I was getting antsy. I decided to sell a website that I created in December and I was pleasantly surprised to get $1000 for the website. I priced it at 9 months of revenue so while in the long run I should have kept the site, $1000 takes another 10% off my truck loan. However I decided that since I was playing with the house’s money i’d channel some of that $1000 back into more assets. I took about $400 and will put it into several new projects related to Minnesota Unemployment and unemployment in other states. My estimates show that each site should generate $60-$90 per month. My cost per site is about $60 so if I build 7 sites with my $400 I should have the money back and be generating cash flow within 2-3 months. I can still take $600 and pay down my debt. then I can use the cashflow from these new sites to keep buying and building these assets much like real estate investors do with rental properties.
One thing I’ve learned by reading Richard Kiyosaki is that you must use assets to increase your means. Simply working harder at your job may not work as well as simply creating more assets that generate their own income day or night. For many reasons, I decided for form another LLC called Auto Web Publishing LLC which will allow me to segment off my auto related websites like Michigan Ford Dealer and Arizona Ford Dealer and channel the revenue from the automotive web sites to a separate corporation created just for those websites. This will let me run that business on its own, get 200 more Adsense channels and lay a critical eye on each Ford dealer web site to see how I could cause each to generate more revenue. Separating these websites will also help me dedicate a portion of the revenue each generates to expansion and will fund the payoff of my last bit of consumer debt, my Chevrolet pickup truck. Additionally for me this will keep revenue flowing into separate accounts that are more out of sight so i’m more likley to save or invest the money vs spending which i’m trying to avoid when possible.
One of the biggest differences between the philosophy of Dave Ramsey vs some others like Richard Kiyosaki of the Rich Dad Poor Dad series is the view on Debt. When it comes to Debt Dave Ramsey is an absolutist in that he simply doesn’t and won’t use debt. His teachings follow a similar manner. When someone calls the radio show with a scheme to use debt to further some effort about the only debt that Dave Ramsey finds acceptable is a 15 year fixed mortgage to fund the purchase of a primary residence. When it comes to most everything else it’s pay cash or wait and pay cash. Richard Kiyosaki would have another opinion. He divides debt into two camps good debt and bad debt. Most of Dave Ramsey’s callers have bad debt which is simply debt you are paying for someone else. When you buy a car, charge on a credit card or get a TV on zero percent interest you’ve signed up for bad debt because you must now take your earned income and apply it to your debt. Good debt however is debt that someone else is paying for you. The best example of this would be to take out a mortgage to buy a rental property. Your tenant is paying the debt for you and you gain the benefit of a paid off piece of property in 15-30 years. I think one of the reasons you don’t hear Dave Ramsey discuss good debt and bad debt is that Dave Ramsey focusses on the reduction of risk so he would possibly consider debt taken on but paid for by another still bad debt because you’ve assumed the risk that comes with that debt. Richard Kiyosaki would view the eventual payoff of the property as your payment for assuming the risk that came with your good debt.
One of the basis of the teaching that Dave Ramsey does in the book The Total Money Makeover is called the Baby Steps. The Dave Ramsey Baby Steps are 7 steps to the completetion of your own Total Money Makeover. The phrase Dave uses is that you live like no one else now so that later you can live like no one else. His 7 Baby Steps involve using discipline and budgeting now to get debt free so you can invest and later be so financially well off that you can be wealthy later in life and do as you wish. The 7 Dave Ramsey Baby Steps while not exactly worded go like this.
Save $1000 Quick (Covers emergencies to keep you from charging.)
Work your Debt Snowball to pay off all debt except your mortgage.
Fully fund your emergency savings of 3 – 6 month of expenses.
Invest 15% of your income in retirement savings, 401K, Roth IRA (Preferred) or IRA
Save college funding for your children.
Pay off your mortgage
Continue investing in growth stock mutual funds or real estate and give wealth away.
I am most of the way through one of the Rich Dad audio books called Rich Dad’s Guide to Becoming Rich…Without Cutting Up Your Credit Cards and this is where I got the idea for creating this blog. The title of the book by Richard Kiyosaki and Sharon L Lechter seems to poke fun of Dave Ramsey in that he goes with a no debt approach advising his students to cut up all their credit cards and never go into debt except maybe for a mortgage. Richard Kiyosaki in his Rich Dad Poor Dad series and especially this book would take another approach. Debt is divided into good and bad debt. Good debt being debt you take on that is paid for by others. The best example of this is buying a rental property that cash flows so your renter pays the debt and you get some profit as cash flow. Bad debt would be where you pay the debt from your earned income when you get your paycheck, thus it’s not an asset you’ve taken on debt to pay for a liability like maybe a car.
A twist on this line of thought however and this certainly deviates from anything you’d hear Dave Ramsey teach is taking on debt for liabilities but creating an asset that will pay for the debt on the liability. The thought is that for every liability you take on and owe debt on you should not be using your existing income but should create a new asset that pays the debt and when the debt is paid eventually adds to your assets. This blog is a good example of that. I pay alot of money to buy books like Rich Dad’s Guide to Becoming Rich…Without Cutting Up Your Credit Cards or Dave Ramsey’s books and other authors. So by creating a blog I can put advertising on it like Amazon.Com and Google Adsense and hopefully if I do my job well writing i’ll get visitors who help generate revenue to fund my hobby of buying books on money management and investing.
