Is all debt bad? Bad debt vs Good debt

A lot of people think that debt is something that’s bad but after reading Rich Dad Poor Dad by Robert Kiyosaki, I learn about the difference of good and bad debt.

This is a key topic to understand in personal finance.

Bad debt is when you make a purchase that you have to get a loan for, but that purchase doesn’t make you money; it actually is a liability. Good debt is when you take a little bit of risk getting a loan but other people are paying for it.

Good Debt Example

A perfect example is a rental property. You can put 20% down and buy a rental property. Your tenants are paying you rent payments that will hopefully covered your mortgage and then some because you always invest for positive cash flow. This way, you have your principal and your interest payments covered by other people.

Bad Debt Example

A car for example, is bad debt because it doesn’t make you money. Some may say there is a grey area between good and bad but let me explain. Buying a NEW car is one of the things that I do not recommend because as soon as you drive of the lot it depreciates about 30%. Now, it’s important to understand a NEED vs WANT, in society a lot of people need cars to get from point A to point B, and many take out a loan for it. That is fine if you need a car, but don’t go getting a brand new Cadillac or BMW and have a car payment of $600. As one of my mentors, Adam Carroll, once said, “The new car smells goes away, the car payments don’t.” One of my first cars was a 2009 Honda Civic, I bought it in 2013 and still continue to drive it around 4 years later. My car payments were around $220 and I payed it off on October 2016. Now I don’t have a car payment 🙂

Another example of bad debt is credit card debt. Sometimes credit card interest rates are between 15%-25% APR. That is ridiculous! If you are a millennial attending college, please don’t fall for the “Sign up for a credit card, and get a free T-Shirt or Pizza.” Having a credit card without the right knowledge on how it works can actually build bad habits and you can spend more than you can afford. Pay off that credit card every single month!

Something that I have learned about studying successful people and studying about financial freedom, is that the rich buy assets that give them cash flow. The rich buy good debt, the middle-class buy things with bad debt.

One of the best ways to find out if something is good debt or bad debt… “ask yourself, will getting this loan put money IN my pocket or take money out of pocket every single month?”

I hope this gives you a better perspective on the 2 different types of debts.

What are other examples of good debt or bad debt? Let me know in the comments below!

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Why You Need to Become a 100%er

I belong to a mastermind group called Gobundance. We are healthy, wealthy, generous men who choose to lead epic lives.

gobundance-transparentGobundance has been a crucial part of my growth these past few years. I would not be where I am without the tribe. They hold me to higher standard and keep me accountable to my goals. The brothers of Gobundance are my mentors and I get the privilege to leverage their experiences, their past failures / learning lessons so that I can don’t have to do those mistakes.

One of the Pillar that Gobundance focuses on is Financial Freedom and they introduced me to a term called a “100%er.” So today I want to explain to you why I have “Becoming a 100%er” as one of my goals and why you should too.

So what is a 100%er and why you need to become a 100%er?

In a nutshell, being a 100%er means your passive income pays for your monthly expenses.

In a previous blog post I went over the difference between active income and passive income.

With that in mind, let’s figure our your %er number!

I want you to now write down 2 numbers:

1) The amount of Passive Income you have per month: PI

2) The amount of your Monthly Expenses: ME

Now, divide the passive income by the monthly expenses.

The total of that equation will give you a decimal. Times that decimal by 100 and add a % sign at the end.

For example. Let’s say that your passive income is $300 a month and your monthly expenses are $3,000… you will do:
300/3000 = .10
.10 * 100 = 10, now add the ‘%er’ at the end

You are a 10%er.

pi-expYour goal should be to be get your passive income to $3000 so that your passive income covers your expenses. That is when you will become a 100%er (100 percent-er) and achieve financial freedom.

Seeing it from the perspective of the “%er,” becoming financially free is not as hard because you can focus on increasing every year 1%, 5% or 10%. By thinking that you have to get to $3000 in passive income, you may get overwhelmed and think that to get to $3000 a month is impossible. By breaking it down it becomes more attainable, and I have the confidence that if you focus on just increasing that “%er” every year you will reap the rewards in an immense way in a few years.

Most people over estimate what they can do in 1 year and underestimate what they can do in 10 years so don’t worry if you are a 0%er. We will work together to increase that. At least now you are aware and can do something about it. Before, you had no idea what that was.

I once heard one of my mentors, David Osborn, share the story of a Gobundance brother who makes $1 Million a year on his active income and $30K in passive income a year. David told him that even though that $1 million is great, the $30K is more powerful because he didn’t have to work for it. Interesting, huh?

As you know, my goal is to become a 100%er before the age of 27 and I want you to join me on that journey as well! Make it a goal to become 100%er. If you are already a 100%er or more…congratulations! Super excited for your freedom.

So what %er are you? And how did you get to that? Post your thoughts on the comments below.


What do you mean by Free By 26?

Hey! Welcome to the first blog post of many. I am excited you are here because it means you are hungry… I am not referring to the “I want a pizza” hungry, but the hunger to learn a bit more about personal finance and how you can achieve financial freedom.

So you are wondering why ‘Free by 26.’ Where did that number come from? Well, I am 26 years old and I am on the path to achieve financial freedom before I turn 27. Personal finance is not something we are taught in school, but you must master your finances in order to be financially free.

To me financial freedom occurs when my passive income streams pay for my monthly expenses.

Does this mean I won’t work? NO. What this means is that I have the freedom to choose what I want to work on and with whom. I am in control of my life, of my time. That is my goal and I have been on this journey since I graduated college in December 2012.

I started with 0 in the bank, and actually had to borrow money from my dad so that I could pay the first month of rent when I move to Austin. Through my journey so far, I have learned a lot about controlling my expenses, increasing my income, connecting with mentors and having goals that will get me to the next level of my life. Now I want to share that with you. I don’t care how old you are. You can be in high school, you can be in your 20s, 30s or 40s. I believe it’s never too late to change your mindset and start investing in your future.

This path is not easy, and you will need patience because this is not a ‘get rich quick scheme.’ This is a path of  ‘work your butt off, and reap the rewards later.’

I am sad when I talk to some of my friends who are around 25 years old and they have over $30,000 in student loan debt. It is now normal to graduate college and have thousands of dollars in student debt. That has to change!

Then, here comes the kicker. Those friends get a new job and then they decide to buy a brand new car. Adding an extra $25,000 to their debt. They think they deserve it because of all the hard work that they did, but don’t think that decision will mean having a payment of around $500 for the next 5 years! And hey as soon as you drive that brand new car off the lot, the value of the car goes down 30%.

Why do I say this? It’s because I think that millennials have become part of the consumer society and value their lifestyle rather than valuing their freedom. It takes a mindset shift in order to begin valuing your freedom, rather than getting the new 70 inch TV just because your neighbor got one.

In this blog I will be sharing tips I have learned along the journey in the hopes that it makes you more aware about what you are doing with your life, your money, and your time. It will make you think about what you truly want deep in your heart, because trust me, there is more to life than going to work just so that you can pay for your credit cards at the end of the month.

So I hope that you stick around because this is just the beginning and hope you join me on this journey.

Grab life big!


P.S.: If this resonates with you, please let me know your thoughts and post on the comments below.

Also, What would you like me to write about? Any topic in particular?