Step 1. Tell Yourself the Truth.
The first, and probably the toughest, step of all was to commit to tell ourselves the truth—to face the grim reality of how much we owed and to whom we owed it. We knew we could easily lie to ourselves and pretend we were okay financially, which is what many people do. So, face the hard facts and hold yourselves accountable.
BLESSING KANHIWA
Therapist | Business Coach | Author | Entrepreneur
CEO Sparkulous Pvt Ltd.
About me Read more
Step 2. Stop Accumulating Bad Debt.
There’s a saying that goes, “When you find you’ve dug yourself into a hole… stop digging.”
We basically put a freeze on all debt. Anything we purchased was paid off that month. We stopped adding to our existing credit card balances and took on no new loans.
That step alone forced us to be much more cognizant of what monies were flowing out.
Step 3. Make a List of All the Debt You Owe.
Write down every single debt you owe. This may include credit cards, school loans, car loans, boat loans, IOU’s to individuals such as friends and family members, store credit accounts, vacation home, and your personal residence.
Do not include debt for investments, such as rental properties and business investments. And just a reminder, your home is not considered an investment.
We are dealing only with bad debt, and bad debt is debt that you pay for. Good debt is debt that someone
else, such as your tenants, pay for.
Step 4. Hire a bookkeeper.
We hired a bookkeeper. She became a valuable member of our team. People often ask,
“Why hire a bookkeeper when you have little-to-no money?” The answer is simple: Because our bookkeeper forces us to face the truth of where we are financially every single month.
So we sat down with our bookkeeper, Betty, for our first meeting and made a list of every debt we had outstanding. We wanted to pull some of the debts off the list and tell ourselves that those debts
weren’t important.
We didn’t have to pay those back. But again, that would be lying to ourselves, so we included every debt. That was a very long and painful meeting.
When all was said and done, the number staring us in the face had grown to about $500,000 ($400,000 from Robert’s earlier business plus we accrued an additional $100,000 over the years).
Paying off a half million dollars, when we had almost no income coming in, seemed an impossible task.
We actually had people advise us that we should file for bankruptcy, but we refused to do that.
So now the question was, “How do we pay off this debt?”
There are three reasons why bookkeepers are important: First, they keep accurate, neat, and orderly records. This is vitally important if you want to build wealth. Today, as our wealth grows, our bookkeeper’s role steadily becomes more important.
The second reason is that having a bookkeeper was a tremendous emotional support when facing the harsh realities of our financial situation. Reason number three is simply that rich people have bookkeepers on their team.
So if you plan on climbing out of debt, staying out of debt, and becoming rich, a bookkeeper can be one of the most important people on your team.
Saying it another way, poor and middle-class people do not have bookkeepers. Rich people do. So find a way to afford a bookkeeper.
Note: This is a step many people in financial trouble want to avoid. They often think they will save money by not hiring a professional bookkeeper.
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I know I thought that way. After my rich dad reminded me that I was thinking like a poor person, thinking I could not afford something vital to my success, Kim and I bit the bullet and hired a bookkeeper.
Pay Yourself First
We realized it was important to clean up our past and, at the same time, we needed to create our financial future. So we added one more piece to the equation.
Robert and I decided that with every dollar bill that came into our household, we would take a set percentage off the top, before paying any bills. It was vital to us that the money come to us first, instead
of paying everyone first and hoping there would be something left over.
If you have read Rich Dad Poor Dad, then you will be familiar with our three-piggy-bank approach.
We set up three piggy banks: one for savings, one for tithing or charity and one for investing. (We used actual piggy banks.)
We then set the percentage for each piggy bank at 10% each, for a total of 30% of
all income we received. If we received $100, then $10 went into the savings bank, $10 into the charity bank, and $10 into the investing bank.
We did this with every dollar we received. Here is a key point.
It’s not the percentage or the dollar amount you commit to that’s most important. You may choose to
start with only 2%. What’s important is creating the habit of putting this money aside every month.
Robert and I had formed some bad financial habits which had gotten us into so much debt.
In order to pay off our debts and build our financial future, we needed to create new habits that supported us in doing so.
Today, instead of 30% going into our piggy banks, we now put about 80% of our income into our piggy banks.
The Steps are Simple:
• Set up three piggy banks: savings, charity, investing.
• Decide what percentage of your income will go into each bank each month.
• Hold yourself accountable to “pay yourself first” with every dollar that comes into your home.
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The Formula
Once the first four steps are in place, you are ready to move on to The Formula for the elimination of bad debt.
If you follow these guidelines closely, you will be amazed at how quickly you will erase each debt, one at a time, from the list you put together.
Robert and I paid off the debt we had amassed within five to seven years. You can too.
Step 5. Make A Visual Picture of Each Debt.
From the list you’ve made in Step #3, create a visual drawing of each debt. From there, you can then determine which order each debt will be paid off. The following is how you do that.
Step 6. Determine the Order for Paying Off each Debt.
Step 7. Find an extra $100-$200 per month.
This may sound a little daunting at first but brainstorm some ideas on how you could do this:
• Use your expertise and consult for local businesses.
• Find items at garage sales or secondhand stores and resell them on eBay, other online
auction sites, or online classified sites like Craigslist. After all, one man’s junk is another
man’s treasure.
• Mow lawns, etc.
Face it, if you cannot come up with an additional $100 each month, then what do you think your chances are of becoming financially set in life? Probably pretty slim.
If $100 per month is stopping you, then financial freedom will be nearly impossible to achieve.
You can find ways to earn the extra money. You just have to get out of your comfort zone and get creative.
Step 8. Except for Your #1 Debt, Pay Only the Minimum Monthly Payment for Each of Your Other Debts.
Step 9. Move On To Debt #2.
You made it through the first milestone. Congratulations! Now, turn to Debt #2. Except for
Debt #2, pay only the minimum monthly payment required for all other debts. For
Debt #2, pay the minimum monthly payment required PLUS the full amount you were paying on Debt
#1. For example, on Debt #2 you will pay the following each month:
• The minimum monthly payment required on Debt #2,
• The minimum monthly payment you were previously paying on Debt #1, and
• The additional $100 to $200.
Step 10. The Monthly Amount You Paid on Your Final Debt—Invest It!
This process does not stop once you’ve paid off all your debts. This is the point where you go from being debt-free to becoming rich!
Take the total amount of money you were paying each month on that last debt you paid off and invest it.
Do this every month. It’s very likely that the monthly amount has grown quite a bit since you started this process.
Imagine having that much money every month to invest and, more importantly, to contribute towards you becoming financially free—never having to worry about money again and living the life you choose!
BLESSING KANHIWA
Therapist | Business Coach | Author | Entrepreneur
CEO Sparkulous Pvt Ltd.
About me Read more
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