How to Combine Ramsey with Kiyosaki for the Ultimate Financial Freedom Strategy
Ever heard the term financial freedom and wonder exactly what it means?
I define it like this:
Passive Income = Expenses
Passive income is income that comes in that you do not work for. If that income is more than your expenses, you are technically financially free.
There’s another mental aspect of “freedom” that comes with simply having less shit to worry about, financially. Dave Ramsey teaches you to pay off all debt first, save up 6 months of emergency funds, and then start investing.
Robert Kiyosaki teaches you to invest for cashflow to cover your expenses, which involves getting INTO debt. He shows you the difference between good and bad debt. Bad debt costs you money every month. Money goes out. Good debt makes you money every month. Money comes in.
I’m sort of a Ramsey and Kiyosaki guy put together. More Kiyosaki, but I get Ramsey’s argument.
(BTW, go read Rich Dad, Poor Dad now if you haven’t!)
My strategy in a nutshell is:
*Save up 6 months emergency funds
*Pay off all BAD debt
*Learn to invest for cashflow
*Get into GOOD debt to accelerate your progress
*Set up specific savings accounts and automatic transfers to accomplish all of the above
But, there’s an important tweak to how I accomplish this. You must:
Save up the emergency fund, pay off debt, and invest SIMULTANEOUSLY.
Saving up the emergency fund and paying off debt takes some people years, even decades. The problem with this is that it delays what is by far the most powerful strategy for becoming financially free, investing. Investing is where you should delegate the majority of your funds.
A caveat to this is that you MUST know what you are doing. You can’t just buy stocks that you think are cool or even hand your money off to a money manager. You need to understand that asset class inside and out, get great training, and have a good mentor before you begin to invest in anything.
I invest in real estate because I feel that I have more control, and because I get great returns in the form of monthly cashflow.
Anyways, how do you do all 3 of these simultaneously? Save for emergencies, pay off debt, and invest?
The easiest way that I’ve found is to create 3 new savings accounts. Choose a bank that allows you to nickname the accounts online. Name them Investing, Savings, and Debt Paydown. Set up automatic DAILY TRANSFERS from your checking account to each savings account (your bank must also allow this). You can start with $1 per day, per account. If that doesn’t feel like much, make it $3, then $5, then $10.
You should at least mildly feel the “stress” that these daily transfers make on your checking account. This will teach you to be more frugal with the decisions you make about your spending. Always be challenging yourself to increase the amount of your daily transfer. This way, no matter what, money is being saved automatically every day you wake up.
Additionally, as you receive paychecks, commissions, gifts, whatever, you must allocate any excess cash to these accounts. So you need to decide on a maximum amount that you will have in your checking account to cover normal expenses. Let’s say that’s $1,500. From now on, anytime your checking account exceeds $1,500, transfer the extra money to your 3 savings accounts.
Let’s say you have $2,000 in your checking, so you’ve got an extra $500 you need to hide from yourself and put into your savings accounts. You need to decide ahead of time on a percentage breakdown that you will use for that extra money. I like to put 60% of any extra income into my investing account, 20% into savings, and 20% into debt paydown. I believe investing for cashflow is the best use of my money so I heavily allocate in that department. But I also understand the value of having an emergency nest egg, and being out of debt, so I make sure to work towards those goals as well. I just don’t make them AS important as the investing goal.
As money piles up in your debt pay down account, transfer it into your checking account so that you can pay off some debt. Choose debts with the highest interest rates first. If interest rates are similar, choose debts with the lowest balance first.
Eventually, you will have your 6 months of emergency funds saved up.
You will have paid off all BAD debt.
And you will be receiving CASHFLOW monthly from your investments.
Just imagine how that will feel.
It is worth the effort.
How do you define financial freedom?
Thanks for reading!
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