Blog | Personal Finance

New Year, New Debt?

Your 2022 resolutions should include paying off bad debt and learning how to make good debt work for you (and your investments)

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Welcome to 2022!

While many of you are happy to begin a fresh, new year full of possibilities, others of you are losing sleep over your shocking credit card bills from holiday spending. In fact, according to LendingTree, more than a third of Americans just racked up more than $1,200 in holiday debt between credit card purchases, personal loans and succumbing to “buy now, pay later” financing options. The findings also state that 82% of those with holiday debt won’t pay it off within a month (hello interest!), and nearly 45% will try to consolidate their debt or open a balance transfer credit card.

If you are part of this group, it’s time to stop feeling sorry for yourself. Instead, do what it takes to pay off your bills and figure out a plan so that you stop acquiring bad debt the rest of the year.

What’s the difference between good and bad debt?
Yes, as some of you new to Rich Dad and Rich Woman may not know, there is such a thing as good debt (debt is not always a four-letter-word that can make your life miserable!). While the credit card debt you may have now from holiday spending is bad debt, good debt will most likely be part of your plan to reach financial freedom. And it’s easy to tell the difference depending on what the debt is for.

  • Bad debt is when you borrow money to purchase clothes, shoes, a car, and other things you consume.

    Once you purchase an item, that’s it. You may get instant gratification and enjoy your new purse, truck, big-screen television, etc., but your purchase does increase your cash flow. You must pay the debt yourself. This type of debt takes money out of your pocket (that’s why it’s known as a liability).

  • Good debt is when someone else pays it for you.

    This is when you use other people’s money (OPM) to purchase assets. For example, if you get a loan to start a business, you use the positive cash-flow from the business to pay off the loan. Or, when you purchase a rental property with a loan, your tenants’ rent covers your loan payments.

    Unlike liabilities, these purchases are assets because they put money in your pocket — when the loan payments are made and there is money left over from your investments, you create positive cash-flow.

Make a good debt resolution

If you are tired of struggling with bad debt, it’s a new year and the perfect time to make changes in your life. Remember, as I say in my book, “ It’s Rising Time!”, not all borrowed money is bad debt.

“It is what you do with the money that you borrow that makes all the difference.”

And if you have no idea how to obtain good debt, then it’s time to start your financial education. Acquiring good debt is just a matter of learning how to do it and taking action. Begin with the Triple A Triangle™ of Aspire, Acquire and Apply. Set goals for this year and the future, get the knowledge you need and take action on what you learn. Then, next year at this time, maybe you won’t be paying off liabilities but cashing checks related to your assets!

What one thing are you going to do today to increase your education about good debt today?

Do you need help turning your financial situation around and starting your journey to financial freedom? Please check out our free, financial education community here.

What about investing in 2022?

For anyone who came through the holiday season with a little extra money (that doesn’t need to go toward paying down debt), now is the time to put that money to good use: investments.

I get this question a lot: “I have $5,000 to invest. Where should I put it? Do you have a hot tip for me?”

The reality is that for most people, when it comes to investing, they simply want to be told what to do rather than figure out what to do for themselves. People love a quick fix.

Spoiler: There is no quick fix.

No time of year do you see this more prevalently than in the New Year. People want to lose weight, so they jump on the latest fad diet, only to abandon it a few weeks later. People want to stop smoking, so they throw away that half-smoked pack, only to buy a new one a couple days later.

Unfortunately, they don’t do the hard work it takes to build the necessary foundations to win in the long term.

Success is a process

New Year’s resolutions are a process. You can’t just change your life with the flip of a calendar. It takes hard work over a sustained period of time with a good plan to make a change. This is just as true when it comes to investing.

Financial independence doesn’t happen overnight. There is no quick fix. Investing is like learning a new language; you don’t become fluent in one day. You must practice, practice, practice.

In the process, you will make some mistakes. But as you keep up with it, just as with a language, you will become more and more fluent. Every mistake you make simply makes you smarter.

How to build a dome

This is true for even the greatest minds on the planet. A while back, I watched a video by R. Buckminster Fuller, the inventor of the geodesic dome and a revolutionary philosopher, futurist, and architect.

In the video, he and his students were building the dome they had tried to build many times, but it had never held. In this video, they thought they had the perfect specifications and that the dome would stand. Only, it didn’t. It collapsed one more time. The students were in disbelief, discouraged, and dejected. But not Fuller. He was ecstatic!

“This is wonderful!” said Fuller. “I can see what we did wrong! We are one step closer to building a successful dome.”

Every process includes mistakes

Fuller wasn’t upset that the dome didn’t stand. He knew he was in the middle of a process, and each step of the process took him closer to reaching his goal.

As an investor, the process never ends. Each day, you learn new things, and mistakes are part of that learning process. It may not feel great to make those mistakes, but they’re key to learning and eventually getting what you want.

As actress Elizabeth Taylor said, “It’s not the having, it’s the getting.”

This New Year’s Day, take some time to write down your goals and figure out what the process will be to get there. Also, reflect on the mistakes you made in the last year. How can you learn from them? What lessons do they hold for you? How can you apply those lessons in the coming year?

Do that, and you’ll be on the journey to success.

Original publish date: January 04, 2013

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