FIT TRAINING by CPG Invest
​FIT = Financial Independence via Trading ​

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Rich Dad from Robert KIYOSAKI

Module 2 - Taking Control of Your Cash Flow

TO BE CONTINUICG20Nov20 :
https://experts.richdadworld.com/dashboard/programs/real-estate-cashflow-blueprint/module-2-taking-control-of-your-cashflow/take-control-of-your-cash-flow

Page 1: Module 2 - Taking Control of Your Cash Flow
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Take Control of Your Cash Flow
To get rich you must take control of your finances, and that requires discipline—discipline to change your habits, discipline to take a realistic look at your financial health, and the discipline to learn when to ask for help to realize your financial goals. If you don’t have the control over your personal financials, then how can you expect to have control over your investments?
 
The primary reason most people have money problems is that in school they were never taught cash flow management. If you’re not controlling your cash flow, you’re not making your money work for you. It’s that simple. If you’re not making money work for you, you will have to work for money—and that means working as an employee in the “E” quadrant. If you want to move to the right side of the quadrant, you’ll have to manage your cash flow the way the rich do.
 
Once you declare yourself the CEO of the business of your life, your spending changes. As CEO, you will pay yourself first, establish a budget, organize your financial information, and eliminate credit card debt.
 
Debt
One of the reasons the rich get richer, the poor get poorer, and the middle class struggles in debt is because the subject of money is taught at home, not in school. The middle class and poor acquire Doodads (those material possessions we spent our money on that are liabilities) and bad debt, while the rich take home cash flow from their debts every month.
 
How many credit card companies have you on their employee roster? Remember, your liabilities are someone else’s assets. Every person you pay is your employer. Every person who pays you is your employee. The idea is to acquire assets, not become an asset on someone else’s financial statement. Getting out of debt and staying out of debt is simple. All it takes is spending less than you earn. This is true cash flow management. It sounds like good common sense, but putting it into practice is hard for many people. The lure of credit card debt is strong. Succumbing to it can throw off your best plans.
 
Remember, there are two types of debt:
 
Good debt (or secured debt) is used to acquire income-producing assets—including education—that generally increase in value and produce income. Good debt puts money in your pocket; good debt makes you rich.
Bad debt (or unsecured debt) is used to buy things that decrease in value and produce no income—Doodads. Bad debt takes money out of your pocket. It’s what keeps the poor and middle class from being rich.
Consumer credit is generally bad debt—so avoid it. Virtually everyone spends borrowed money less carefully than earned money. Interest invisibly inflates the cost of any purchase. The rich use cash generated from their assets to buy whatever doodads they desire. Instead of using credit to finance your dreams, buy income-producing properties (assets) that will enable you to pay cash for your dreams.
 
Control
Don't allow yourself to be lulled into a false sense of security that you have your debt under control just because you're not late on any payments and you can manage the monthly minimums. Just because you can pay your minimum payments each month doesn't mean you don't have a debt problem. Low minimum payments benefit credit card companies, not you. This is how credit cards recruit consumers as “employees.” These companies know that high balances and low minimum payments take decades to pay off. They know that their average consumers will be paying long after the Doodads they purchased have worn out or been discarded. They realize that the purchase gives the buyer instant gratification for an “invisible” price—years of interest charges that grossly inflate the cost of a Doodad.
 
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Debt Analysis
If you answer “no” to all of the questions below, you probably don’t have a debt problem and can work systematically to eliminate the debt you do have. If you answer “yes” to one or more of questions 1 through 6 and “no” to the rest, you have a debt problem that is manageable, but you must change your spending habits. If you answer “yes” to one or more of statements 7 through 15, your problem is serious and may require drastic steps.

1. You have no savings.
2. You make minimum payments or less on your credit cards.
3. You use credit cards for things you used to buy with cash, such as groceries.
4. You use increasing amounts of your total income to pay off debts.
5. You have more than two or three major credit cards.
6. After you pay off your credit card bill, you increase your balance by the same amount (or more) the following month.
7. You're at or near your credit limit on your credit cards.
8. You count on “the float” in order to pay your bills, writing a check hoping that you'll be able to cover it by the time it clears your bank.
9. You're unsure of the total amount you owe on all your debts.
10. You take out cash advances on your credit card to pay other bills.
11. You've tried to make a purchase with your credit card and been declined.
12. You've been denied credit.
13. You bounce checks.
14. You get calls from collectors.
15. You lie to your spouse or other family member about your spending or hide credit card statements from family members.

Now that you’ve generally identified your current status, it’s time to begin considering the actions you can take.
Pay Off Your Debt/Invest?Whether it's a mortgage, car loan, student loan, credit card, or medical bills, you probably have some amount of debt in your life. If you want to increase your cash flow, nothing boosts it more than paying off your debt as soon as possible. On the other hand, you are likely anxious to start investing and acquiring assets.
When there is a limited amount of cash available, you have to make a decision between paying down debt or investing. What should you do? The answer depends on two variables:

1. The rate of after-tax interest you are paying on your debt.
2. The after-tax rate of return you expect to earn on your investments.

Understand that there are two different classes of interest. On one end of the spectrum is the high interest charged on consumer debt originating from credit cards and department store charge accounts, etc. This type is the deadliest and generally should be avoided unless absolutely necessary. The second type is the lower interest variety including your mortgage, student loans, etc. Often, the interest on this type is partially or wholly tax-deductible, making it less costly.
With that in mind, the answer to the debt reduction vs. investing problem can be solved with this one statement:
If you can earn a after-tax return on your investments higher than the after-tax interest rate expense on your debt, you should invest. Otherwise, you should pay off your balance.
Example:
Scenario 1Assume you have a thirty-year, $150,000 mortgage at 6%. Also assume you are in the 25% tax bracket. Due to the itemized deduction of mortgage interest, your after-tax annual percentage rate is really 4.02% (not the 6.00% you are paying). Hence, if you expect to earn an after-tax return higher than 4.02% on your investment, then you should invest.
Scenario 2You have a $10,000 balance on a credit card with a 22% annual percentage rate. Credit card interest expense is not tax deductible. You should only invest if you think you can earn a 22% after-tax return on your investments. Since that type of return is not always realized, paying off the debt may be the better option.
Although you may be eager to invest, you need to do what is best for your bottom line. It’s all about cash flow—with the ultimate goal to have no unsecured debt and an abundance of assets. If you increase your financial literacy, exercise patience, and focus your efforts, you can achieve this comfortable lifestyle.

Page 3 - Module 2 Take Control of Your Cash Flow

SummaryIf you have a lot of consumer debt, take the following steps:

• Take control of your spending. Pay cash or don’t buy it! Analyze your spending, create a budget and stick to it. Budgeting is covered in the next section.
• Shop around for cards with low interest rates. Until you can pay off your credit card debt entirely, move balances on cards with high interest rates to cards with lower interest rates if your credit permits. Once you transfer to the lower interest rate card, cut up the high rate card. The Internet makes choosing a credit card easy, but be sure to read all the fine print.
• Use your savings to pay down debt or purchase an asset that will pay your debt. It makes no sense to earn 1% to 3% interest on your savings account while paying 12% to 18% interest on credit cards. If you can invest at a higher rate of return than your credit card interest, then invest and pay your debt with the proceeds.
• Come up with a written plan for reducing your debt systematically. Eliminate the debt with the highest interest rate first. Begin by listing each debt, including the balance and the interest rate. Each month, pay the minimum balance on all credit cards except the one with the highest interest rate. Pay as much as you possibly can on this card each month until it is paid off. Then start paying as much as you possibly can on the card with the next highest rate, while continuing to pay the minimum balance on the others. Keep doing this until they're all paid off.
• Following this plan is the only time you should ever pay the minimum payment on any card. Other than that, you should be absolutely unwilling to pay only the minimum required payment on your credit cards each month. If you can't afford to pay more than the minimum payment, you can't afford whatever it was you charged to the card in the first place.
• Don't get any deeper into debt and when you get out, stay out. After paying off your cards, keep the two credit cards with the most favorable terms and get rid of the rest. Use one card for business expenses, the other for personal expenses. Pay the balances each month and use the statements to track your tax-deductible expenses.
•  
  Page 4 – Module 2: Take Control of Your Cash FlowPay Yourself FirstYour assets have the same potential to work as you do. Each dollar you save or invest is like an employee. Over the course of time, the goal is to make your employees (dollars) work hard, and eventually, they will make enough money to hire more workers (additional assets).
  FEAR:I can't pay myself first - that would ruin my credit.FACT:If you're disciplined, you can pay yourself first without ruining your credit. The trick is to keep your personal expenses low. If you're under pressure from creditors, the pressure will actually inspire you to come up with new ways of making money.FREEDOM:Start paying yourself first today, and you'll get into a lifelong habit of building assets.
  When you have become truly successful, you can live off of the labor of your assets. The best way to start building assets is to pay yourself first. Paying yourself first provides you with the necessary capital to invest.
  When you pay your bills, the first check you write should be to yourself. Determine an amount you can commit to for at least six months, then pay that "bill" by depositing the money into your investment account or savings account to be invested. A good plan is to put one third of this amount in a savings account, one third in an investment account, and one third in a charitable contributions account.
  Pay yourself first even if you believe you can’t afford it. The truth is, you can’t afford not to. Then, pay your other bills as usual. If you find that you do not have enough money to cover all your expenses, write down the amount you are short and determine how you can afford it. In short, find a way to raise the money. Hopefully you can purchase an asset that will make paying yourself and your bills possible. But even if this means you have to recycle cans, eliminate the frequent cappuccinos, work a few extra hours, or cancel a club membership, do it. By cutting back on Doodads, you’ll increase the percentage of income you keep.
  Budgeting
  If you really want to reduce your debt and grow your assets, setting a budget and sticking to it is vital. With each dollar you save, you buy more freedom. As a result, wasting $20 or $30 here and there can make a huge difference in the long run. Since money has the ability to work in your place, the more of it you employ, the faster and larger it will grow.
  Along with more money comes more freedom—the freedom to stay home with your kids, the freedom to retire and travel the world, or the freedom to quit your job. If you have any source of income, it is possible for you to start building wealth today. It may only be a few dollars at a time, but each of those investments is a stone in the foundation of your financial freedom.
  Most people think they have to start with an entire army of investment dollars. They believe that if they aren't making investments of $1,000 or $5,000 at a time, they will never become rich. Entire armies are built one soldier at a time. The same is true for your investment portfolio. Remember the secret to success is not so much the amount of money you are investing, but the return on your investment.
  FEAR:I'm putting my money in a savings account. Investing is for high rollers.FACT:Investing isn't a gamble, it's a plan. Once you become financially literate, your ideas about what is risky—and about how to invest your money - will have changed.FREEDOM:Act on a sound plan, and you can turn risk into riches.
   
  

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Why Budget?The basic idea behind budgeting is to save money up front for both known and unknown expenses. A budget is the most fundamental and most effective financial management tool available. It is extremely important to know how much money you have to spend, and where you are spending it. A budget is the first and most important step towards maximizing the power of your money.
Though usually overlooked, setting up a good personal budget is the first step to any money management activity. A budget is a guide that tells you whether you're headed in the right financial direction. Without it, you cannot control your finances and will always fall short of your goals. Budgeting is about planning. And planning is crucial to goal achievement.
Here are some of the most common benefits of budgeting:
Knowledge. Personal budgeting allows you to know exactly how much money you have. A budget will tell you if you're living within your means. It is a self-education tool that shows you how your funds are allocated, how they are working for you, what your plans for them are, and how far along you are toward reaching your goals. Knowing about your money is the first step toward controlling it.
Control. A budget is the key to enabling you to take charge of your finances. With a budget, you have the tools to decide exactly what is going to happen to your hard-earned money—and when. You can be in control of your money, instead of letting it control you! Rich Dad said, “People who cannot control their cash flow, work for those who can.”
Organization. Even in its simplest form, a budget divides funds into categories of expenditures and savings. Beyond that, however, budgets can provide further organization by automatically providing records of all your monetary transactions. They can also provide the foundation for a simple filing system to organize bills, receipts, and financial statements.
Communication. If you are married, have a family, or share money with anyone, having a budget that you create together is a key to resolving personal differences about money. The budget is a communication tool. It speaks for itself. It sets spending priorities.
Opportunity. Knowing the exact state of your cash flow, and being in control of it, allows you to take advantage of opportunities that you might otherwise miss.
Time. You have all financial transactions organized for tax time, for creditor questions, or any query that may come up regarding how and when you spend money.
Extra Money. A budget will actually free up more cash flow for you to spend on building your asset base. You are able to eliminate hidden fees and excessive interest that only fattens the pockets of your creditors. You can throw out unnecessary expenditures. Even small savings can grow and be made to work for you.
Rainy Day Fund. A budget helps you prepare for emergencies, or large or unanticipated expenses that could threaten your financial plan and well-being. Better planning can protect you from risk.
Debt. A budget can get you out of debt or help keep you out of debt.
Peace of Mind. A budget helps you sleep better at night because you don't lie awake worrying about how you're going pay your bills.
Don’t worry about what you could have done in the past. Don’t beat yourself up over your previous financial decisions. Learn and move on; you can’t change the past. It really doesn't matter so much where you were, or where you are now; it matters where you are going. If you make the choice to budget and pay yourself first, you will grow closer and closer to your ultimate goal—controlling your cash flow and getting out of the Rat Race.
Applying What You've Learned

• Complete the Financial Statement with Budget.
• Complete the Financial Assessment Worksheet

TO BE CONTINUED from Page 6 - Module 2

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AVERTISSEMENT : Introduction à la formation  

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