What The Wealthy Teach Their Kids (Or Should)

 

 

A company is not managing their resources to the fullest potential if they are not exercising the use of at least some debt.  Why should it be any different for an individual?  I know that these are novel concepts so perhaps another story would help.

 

In 2000 I was in desperate need of a vehicle. I went to an auction and found a 1995 Dodge Intrepid that had been well taken care of.  The Kelly Blue Book on this vehicle was $9,700; I won it at the auction with a bid of $5,000.  I inquired about the rate I could finance a used car for.  With excellent credit at that time the rate was close to 16%!  I shudder to think what it would have been with marginal credit!  I chose not to venture into a bank loan at such a ridiculous rate.  I instead placed the full amount onto my credit card.  The reason I chose the card that I did is because it paid me 2% cash back, just for using the card.  I later transferred the balance to a zero percent card and carried it forward for years with a minimum monthly payment of $80.00.  The key to this whole transaction is in the amount of capital that I was able to save by minimizing my payments.  Had this been a typical bank loan I would have been required to pay $400 a month.  By my method I was able to maximize my present value cash flow by $320 a month!!

 

This means that I saved $320 off of what I would have had to pay on a monthly basis.  Instead I was able to place that money into security instruments that generated a positive cash flow, which in turn allowed for me to pay the car off with less money out of pocket! 

 

This is essentially what banks’ do they borrow money from individuals and pay them a very sad percentage.  Last time I checked a savings account was only paying .25%!  Banks then loan out your money to people and demand a return on their money of 8%!

 

          Hopefully the affluent educate their kids on all of the concepts mentioned here.  I know that you will share this knowledge with your offspring!

Robert Kiosoki is an author that the wealthy would share with their kids.  He wrote Rich Dad Poor Dad, Cashflow Quadrant and The Parable of the Pipeline which is discussed on later pages. He understands how to leverage your time and effort by the design of systems.