Here at last — the epic showdown between Dave Ramsey and Robert Kiyosaki!

Here at last — the epic showdown between Dave Ramsey and Robert Kiyosaki!
 
Okay, maybe that title is a little dramatic. But you’re reading now, so it must have worked.
People often ask me which book will best teach them how to eradicate debt and become financially independent. Usually my answer is Rich Dad Poor Dad by Robert Kiyosaki. But I have also read Dave Ramsey’s The Total Money Make Over, and I believe its approach is likewise beneficial. So the question is, which one is best?
 
 Well, both — but for different people.
 
My personal favorite is Rich Dad — and actually, anything by Kiyosaki — because I think he is the true embodiment of a self-made entrepreneur. Also, he works in my business of choice: real estate. But most of all, I enjoy his philosophy on how to use debt to make money.
Yes, you read that right. The Debt Free Guru said he likes debt.
 
If used properly, debt can be a very powerful tool. Just think of it as a super hero’s power: If used correctly, it can save mankind; if used for evil, it will destroy us all.
 
Kiyosaki preaches that you can use the leverage of debt to take small (or no) money and purchase large assets, which in his definition is anything that produces passive income. This includes real estate rentals, businesses, and dividend stocks. By using other people’s money, you are then able to grow your assets larger than would be possible if you were only using your own.
Example: I have $100k, which I use to purchase a single investment property. This property brings in cash monthly and appreciates at an average of 3% per year. At the end of the year, my $100k will become $103k, and I will make $10k in rental income.
But if I use that original $100k to leverage it against a larger multi-unit property — let’s say one million dollars in value, for easy math — and if I so much as break even on the rents and mortgage (assuming I didn’t invest too well), that same 3% appreciation will increase my $100k out-of-pocket investment to $130k, since 3% on a million is $30k.
 
This is how we use leverage.
 
By contrast, Ramsey’s philosophy is that all debt is bad. And aside from what I mentioned above, I agree. His book is designed for people who struggle with debt and continually make bad purchasing decisions. It is a great place to start if you are confused about how to get out of a habitual cycle, because this must be taken care of before advancing to the tactics Kiyosaki covers.
Ramsey, for example, stresses the importance of creating an emergency fund for life’s little pitfalls. (Again, I agree — check out my article, “Planning for the Worst”.) Ramsey also advises selling any unnecessary liabilities, such as unaffordable houses or cars or clothes, until you are in a strong financial position.
 
Also, never finance depreciation assets. Use cash instead.
 
But by Kiyosaki’s definition, anything that costs money — including your own house — is a liability. After all, your house still costs you money in the form of taxes, insurance, and maintenance even after it is paid off. You have to live somewhere, but you need to be wise about how much debt you amass to do so.
 
Consider each purchase like this: If you lost your job or became disabled, would you still be able to cover the cost of that purchase?
I have always lived in multifamily properties where the tenant paid the bulk of the mortgage. When I needed a new car, I purchased a rental property to cover my car’s expenses with the positive cash flow.

While I highly recommend both Kiyosaki and Ramsey, their books are meant for dramatically different people. Do not force either approach to work in your situation. Instead, take ideas from each that most directly apply to you.
And while you’re at it, share your opinion in the comments below — along with any other books you recommend.

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