Handle all bad debts

You can think about financial freedom like video games. You must pass 7 levels to achieve financial freedom. In this article, I will outline more about the first level - solving all bad debt problems. First, let us distinguish what makes the debt good or bad.

Good debt is helping you, current or potential, to generate more debt. On the surface, student debt will help you generate more income in your career, so it is considered a good debt. Corporate lending that helps you develop your company is a good debt. Even a mortgage debt is considered a good debt because it can stabilize your second largest expense, a mortgage, and allows you to own real estate assets. Most of all good debts have an advantage in tax law [meaning that interest on good debt is usually tax deductible]. What is the bad debt?

Bad debt usually comes from consumption. This is a credit card debt. It's car loan debt. This debt does not help you create more; it is based on consumption. If you don't build more income or potential capital appreciation, then it is a bad debt. Moreover, usually bad debts do not have preferential tax treatment [it cannot be tax-free].

There are three main lessons in the first and most important aspects of the game that wins financial freedom. One is able to budget. You must be able to create a budget and stick to it. If you can't do this, it's hard to succeed in other parts of the game. The second is that you pay yourself first. Too many times, when some of the budget is over, others will get paid but you. The store gets paid, the rent is paid, and the credit card gets paid, but somehow you don't have the money to pay for it. Learn to pay yourself first before you pay for rent or any other expenses. This is an important life course at the first level. Third, the last lesson of learning is to be able to produce more than you consume. You can do this by limiting spending or increasing your income. With additional production capacity, you can repay all bad debts.

If you can get all the bad debts in the 1920s, I would say that you usually lead the game. This is hard, because your big production years will not come until your 40s and 50s. However, if you have studied the three important courses at the first level and you have not achieved the results, then this will help you when you enter the second level and beyond.

Next, the rise is to win the second-level start of the retirement account, an annual increase of 10%. More will be covered in the next article.

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