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Rich Dad Poor Dad

"Having money to burn, the child goes to places where other young people just like them hang out, and they meet people, they date, and sometimes they get married. Life is wonderful now, because today, both men and women work. Two incomes are bliss. They feel successful, their future is bright, and they decide to buy a house, a car, a television, take vacations and have children. The happy bundle arrives. The demand for cash is enormous. The happy couple decides that their careers are vitally important and begin to work harder, seeking promotions and raises. The raises come, and so does another child and the need for a bigger house. They work harder, become better employees, even more dedicated. They go back to school to get more specialized skills so they can earn more money. Maybe they take a second job. Their incomes go up, but so does the tax bracket they're in and the real estate taxes on their new large home, and their Social Security taxes, and all the other taxes. They get their large paycheck and wonder where all the money went. They buy some mutual funds and buy groceries with their credit card. The children reach 5 or 6 years of age, and the need to save for college increases as well as the need to save for their retirement. "That happy couple, born 35 years ago, is now trapped in the Rat Race for the rest of their working days. They work for the owners of their company, for the government paying taxes, and for the bank paying off a mortgage and credit cards. His educated dad advised him to work for a corporation. His rich dad advised him to own the corporation. Both life paths required education, but the subjects of study were completely different. His educated dad encouraged Robert to be a smart person. His rich dad encouraged Robert to know how to hire smart people.
     "That's how they teach you in school," he said smiling. "But that is not how life teaches you, and I would say that life is the best teacher of all. Most of the time, life does not talk to you. It just sort of pushes you around. Each push is life saying, 'Wake up. There's something I want you to learn.' " Rich dad stood and shut the creaky old wooden window that nee repair. "If you learn this lesson, you will grow into a wise, wealthy and happy young man. If you don't, you will spend your life blaming a job, low pay or your boss for your problems. You'll live life hoping for that big break that will solve all your money problems." If you think I'm the problem, then you have to change me. If you realize that you're the problem, then you can change yourself, learn something and grow wiser. Most people want everyone else in the world to change but themselves. Let me tell you, it's easier to change yourself than everyone else."
"The poor and the middle class work for money." "The rich have money work for them."
"Heavens no!" said rich dad. "The government always takes its share first."
"How do they do that?" I asked. "Taxes," said rich dad. " You're taxed when you earn. You're taxed when you spend. You're taxed when you save. You're taxed when you die." "As I said, there is a lot to learn. Learning how to have money work for you is a lifetime study. Most people go to college for four years, and their education ends. I already know that my study of money will continue over my lifetime, simply because the more I find out, the more I Find out I need to know. Most people never study the subject. They go to work, get their paycheck, balance their checkbooks, and that's it. On top of that, they wonder why they have money problems. Then, they think that more money will solve the problem. Few realize that it's their lack of financial education that is the problem." "The pattern of get up, go to work, pay bills, get up, go to work, pay bills... Their lives are then run forever by two emotions, fear and greed. Offer them more money, and they continue the cycle by also increasing their spending. This is what I call the Rat Race."
Fear has them in this trap of working, earning money, working, earning money, hoping the fear will go away. But every day they get up, and that old fear wakes up with them. For millions of people, that old fear keeps them awake all night, causing a night of turmoil and worry. So they get up and go to work, hoping that a paycheck will kill that fear gnawing at their soul. Money is running their lives, and they refuse to tell the truth about that. Money is in control of their emotions and hence their souls."
It is perfectly normal to desire something better, prettier, more fun or exciting. So people also work for money because of desire. They desire money for the joy they think it can buy. But the joy that money brings is often short lived, and they soon need more money for more joy, more pleasure, more comfort, more security. So they keep working, thinking money will soothe their souls that is troubled by fear and desire. But money cannot do that." In fact, the reason many rich people are rich is not because of desire but because of fear. They actually think that money can eliminate that fear of not having money, of being poor, so they amass tons of it only to find out the fear gets worse. They now fear losing it. I have friends who keep working even though they have plenty. I know people who have millions who are more afraid now than when they were poor. They're terrified of losing all their money. The fears that drove them to get rich got worse. That weak and needy part of their soul is actually screaming louder. They don't want to lose the big houses, the cars, the high life that money has bought them. They worry about what their friends would say if they lost all their money. Many are emotionally desperate and neurotic, although they look rich and have more money."
"The avoidance of money is just as psychotic as being attached to money. "The word 'emotion' stands for energy in motion. "Don't worry about what I just said. It will make more sense in years to come. Just be an observer, not a reactor, to your emotions. Most people do not know that it's their emotions that are doing the thinking. Your emotions are your emotions, but you have got to learn to do your own thinking."
Will a job be the best solution to this fear over the long run?' In my opinion, the answer is 'no,' Especially when you look over a person's lifetime. A job is really a short-term solution to a long-term problem."
"I want to teach you to master the power of money. Not be afraid of it. And they don't teach that in school. If you don't learn it, you become a slave to money." "The main cause of poverty or financial struggle is fear and ignorance, not the economy or the government or the rich. It's self-inflicted fear and ignorance that keeps people trapped. "By not giving in to your emotions, you were able to delay your reactions and think. That is most important. We will always have emotions of fear and greed. From here on in, it is most important for you to use those emotions to your advantage and for the long term, and not simply let your emotions run you by controlling your thinking. Most people use fear and greed against themselves. That's the start of ignorance. Most people live their lives chasing paychecks, pay raises and job security because of the emotions of desire and fear, not really questioning where those emotion-driven thoughts are leading them. It's just like the picture of a donkey, dragging a cart, with its owner dangling a carrot just in front of the donkey's nose. The donkey's owner may be going where he wants to go, but the donkey is chasing an illusion. Tomorrow there will only be another carrot for the donkey." Rich dad went on to explain that a human's life is a struggle between ignorance and illumination. He explained that once a person stops searching for information and knowledge of one's self, ignorance sets in. That struggle is a moment-to-moment decision-to learn to open or close one's mind. To work hard for money, thinking that money will buy you things that will ,make you happy is also cruel. To wake up in the middle of the night terrified about paying bills is a horrible wav to live. To live a life dictated by the size of a paycheck is not really a life.
"Remember what I said before: A job is only a short-term solution to a long-term problem. Most people have only one problem in mind, and it's short term. It's the bills at the end of the month, the Tar Baby. Money now runs their lives. Or should I say the fear and ignorance about money. So they do as their parents did, get up every day and go work for money. Not having the time to say, is there another way?'
Their emotions now control their thinking, not their heads." Keep using your brain, work for free, and soon your mind will show you ways of making money far beyond what I could ever pay you. You will see things that other people never see. Opportunities right in front of their noses. Most people never see these opportunities because they're looking for money and security, so that's all they get. The moment you see one opportunity, I you will see them for the rest of your life. The moment you do that, I'll teach you something else. Learn this, and you'll avoid one of life's biggest traps. You'll never, ever, touch that Tar Baby." The assets are large enough to grow by themselves. It's like planting a tree. You water it for years and them one day it doesn't need you anymore. It's roots have gone down deep enough. Then, the tree provides shade for your enjoyment. Most people fail to realize that in life, it's not how much money you make, it's how much money you keep. It's not how much you make, it's how much you keep, and how many generations you keep it. If you want to be rich, you need to be financially literate. If you are going to build the Empire State Building, the first thing you need to do is dig a deep hole and pour a strong foundation.
Rule One: You must know the difference between an asset and a liability, and buy assets. If you want to be rich, this is all you need to know. It is rule No. 1. It is the only rule. This may sound absurdly simple, but most people have no idea how profound this rule is. Most people struggle financially because they do not know the difference between an asset and a liability. What defines an asset is not words but number. And if you cannot read the numbers, you cannot tell an asset from a hole in the ground. In accounting, "rich dad would say, it's not the numbers, but what the numbers are telling you. It's just like words. It's not the words. It's not the words, but the story the words are telling you.
An asset is something that puts money in my pocket.
A liability is something that takes money out of my pocket.

The story of where the cash is flowing. In 80 percent of most families, the financial story is a story of working hard in an effort to get ahead. Not because they don't make money. But because they spend their lives buying liabilities instead of assets. It's called financial aptitude-what you do with the money once you make it, how to keep people from taking it from you, how long you keep it, and how hard that money works for you. Most people cannot tell why they struggle financially because they don't understand cash flow. A person can be highly educated, professionally successful and financially illiterate. These people often work hard, but not how to have their money work for them.
Remember the golden rule. He who has the gold makes the rules.
The asset column generates more than enough income to cover expenses, with the balance reinvested into the asset column. The asset column continues to grow and, therefore, the income it produces grows with it.
The real tragedy is that the lack of early financial educations what creates the risk faced by average middle class people. The reason they have to play it safe is because their financial positions are tenuous at best. Their balance sheets are not balanced. They are loaded with liabilities, with no real assets that generate income. Typically, their only source of income is their paycheck. Their livelihood becomes entirely dependent on their employer. So when genuine "deals of a lifetime" come along, those same people cannot take advantage of the opportunity. They must play it safe, simply because they are working so hard, are taxed to the max, and are loaded with debt.
Once you understand the difference, concentrate your efforts on only buying income-generating assets. That's the best way to get started on a path to becoming rich. Keep doing that, and your asset column will grow. Focus on keeping liabilities and expenses down. This will make more money available to continue pouring into the asset column. Soon, the asset base will be so deep that you can afford to look at more speculative investments. Investments that may have returns of 100 percent to infinity. Investments that for $5,000 are soon turned into $1 million or more. Investments that the middle class calls "too risky." The investment is not risky. It's the lack of simple financial intelligence, beginning with financial literacy, that causes the individual to be "too risky."
As an employee who is also a homeowner, your working efforts are generally as follows:
1. You work for someone else. Most people, working for a paycheck, are making the owner, or the shareholders richer. Your efforts and success will help provide for the owner's success and retirement.
2. You work for the government. The government takes its share from your paycheck before you even see it. By working harder, you simply increase the amount of taxes taken by the government - most people work from January to May just for the government.
3. You work for the bank. After taxes, your next largest expense is usually your mortgage and credit card debt. The problem with simply working harder is that each of these three levels takes a greater share of your increased efforts. You need to learn how to have your increased efforts benefit you and your family directly.
As well as having my own definitions for assets and liabilities, I also have my own definition for wealth.
Wealth is a person's ability to survive so many number of days forward… or if I stopped working today, how long could I survive. Wealth is the measure of the cash flow from the asset column compared with the expense column. My next goal would be to have the excess cash flow from my assets reinvested into the asset column. The more money that goes into my asset column, the more my asset column grows. The more my assets grow, the more my cash flow grows. And as long as I keep my expenses less than the cash flow from these assets, I will grow richer, with more and more income from sources other than my physical labor.
The rich buy assets.
The poor only have expenses.
The middle class buys liabilities they think are assets.

Ray chuckled. "That is what I thought you would say." He paused and then quickly said, "Ladies and gentlemen, I'm not in the hamburger business. My business is real estate." He knew that the real estate and its location was the most significant factor in the success of each franchise. Basically, the person that bought the franchise was also paying for, buying, the land under the franchise for Ray Kroc's organization.
McDonald's today is the largest single owner of real estate in the world, owning even more than the Catholic Church. Today, McDonald's owns some of the most valuable intersections and street corners in America, as well as in other parts of the world.
The secret is: "Mind your own business." Financial struggle is often directly the result of people working all their life for someone else. Many people will have nothing at the end of their working days. The primary reason the majority of the poor and middle class are fiscally conservative-which means, "I can't afford to take risks"-is that they have no financial foundation. They have to cling to their jobs. They have to play it safe. So many people have put themselves in deep financial trouble when they run short of income. To raise cash, they sell their assets. First, their personal assets can generally be sold for only a fraction of the value that is listed in their personal balance sheet. Or if there is a gain on the sale of the assets, they are taxed on the gain. So again, the government takes its share of the gain, thus reducing the amount available to help them out of debt. That is why I say someone's net worth is often "worth less" than they think. Start minding your own business. Keep your daytime job, but start buying real assets, not liabilities or personal effects that have no real value once you get them home. A new car loses nearly 25 percent of the price you pay for it the moment you drive it off the lot. 'For adults, keep your expenses low, reduce your liabilities and diligently build a base of solid assets. For young people who have not yet left home, it is important for parents to teach them the difference between an asset and a liability. Get them to start building a solid asset column before they leave home, get married, buy a house, have kids and get stuck in a risky financial position, clinging to a job and buying everything on credit/I see so many young couples who get married and trap themselves into a lifestyle that will not let them get out of debt for most of their working years.
1. Businesses that do not require my presence. I own them, but they are managed or run by other people. If I have to work there, it's not a business. It becomes my job.
2. Stocks.
3. Bonds.
4. Mutual funds.
5. Income-generating real estate.
6. Notes (IOUs).
7. Royalties from intellectual property such as music, scripts, patents.
8. And anything else that has value, produces income or appreciatesand has a ready market.

For years, even while I was with the Marine Corps and Xerox, I did what my rich dad recommended. I kept my daytime job, but I still minded my own business. I was active in my asset column. I traded real estate and small stocks. Rich dad always stressed the importance of financial literacy. The better I was at understanding the accounting and cash management, the better I would be at analyzing investments and eventually starting and building my own company. When I say mind your own business, I mean to build and keep your asset column strong. Once a dollar goes into it, never let it come out. Think of it this way, once a dollar goes into your asset column, it becomes your employee. The best thing about money is that it works 24 hours a day and can work for generations. As your cash flow grows, you can buy some luxuries. An important distinction is that rich people buy luxuries last, while the poor and middle class tend to buy luxuries first. The poor and the middle class often buy luxury items such as big houses, diamonds, furs, jewelry or boats because they want to look rich. They look rich, but in reality they just get deeper in debt on credit. The old-money people, the long-term rich, built their asset column first. Then, the income generated from the asset column bought their luxuries. The poor and middle class buy luxuries with their own sweat, blood and children's inheritance.
A true luxury is a reward for investing in and developing a real asset. Rich dad explained to Mike and me that in England and America originally, there were no taxes. Occasionally there were temporary taxes levied in order to pay for wars. The king or the president would put the word out and ask everyone to "chip in." Taxes were levied in Britain for the fight against Napoleon from 1799 to 1816, and in America taxes were levied to pay for the Civil War from 1861 to 1865. In 1874, England made income tax a permanent levy on its citizens. In 1913, an income tax became permanent in the United States with the adoption of the l6th Amendment to the Constitution. At one time, Americans were anti-tax. It had been the excessive tax on tea that led to the famous Tea Party in Boston Harbor, an incident that helped ignite the Revolutionary War. It took approximately 50 years in both England and the United States to sell the idea of a regular income tax. What these historical dates fail to reveal is that both of these taxes were initially levied against only the rich. It was this point that rich dad wanted Mike and me to understand. He explained that the idea of taxes was made popular, and accepted by the majority, by telling the poor and the middle class that taxes were created only to punish the rich. This is how the masses voted for the law, and it became constitutionally legal. Although it was intended to punish the rich, in reality it wound up punishing the very people who voted for it, the poor and middle class. "Once government got a taste of money, the appetite grew," said rich dad. "Your dad and I are exactly opposite. He's a government bureaucrat, and I am a capitalist. We get paid, and our success is measured on opposite behaviors. He gets paid to spend money and hire people. The more he spends and the more people he hires, the larger his organization becomes. In the government, the larger his organization, the more he is respected. On the other hand, within my organization, the fewer people I hire and the less money I spend, the more I am respected by my investors. That's why I don't like government people. They have different objectives from most business people. As the government grows, more and more tax dollars will be needed to support it." The rich, on the other hand, saw an opportunity. They do not play by the same set of rules. As I've stated, the rich already knew about corporations, which became popular in the days of sailing ships. The rich created the corporation as a vehicle to limit their risk to the assets of each voyage. The rich put their money into a corporation to finance the voyage. The corporation would then hire a crew to sail to the New World to look for treasures. If the ship was lost, the crew lost their lives, but the loss to the rich would be limited only to the money they invested for that particular voyage. No matter what the "Take from the rich" crowd came up with, the rich always found a way to outsmart them. That is how taxes were eventually levied on the middle class. The rich outsmarted the intellectuals, solely because they understood the power of money, a subject not taught in schools. How did the rich outsmart the intellectuals? Once the "Take from the rich" tax was passed, cash started flowing into government coffers. Initially, people were happy. Money was handed out to government workers and the rich. It went to government workers in the form of jobs and pensions. It went to the rich via their factories receiving government contracts. The government became a large pool of money, but the problem was the fiscal management of that money. There really is no recirculation. In other words, the government policy, if you were a government bureaucrat, was to avoid having excess money. If you failed to spend your allotted funding, you risked losing it in the next budget.
True capitalists used their financial knowledge to simply find a way to escape. They headed back to the protection of a corporation. A corporation protects the rich. But what many people who have never formed a corporation do not know is that a corporation is not really a thing. A corporation is merely a file folder with some legal documents in it, sitting in some attorney's office registered with a state government agency. It's not a big building with the name of the corporation on it. It's not a factory or a group of people. A corporation is merely a legal document that creates a legal body without a soul. The wealth of the rich was once again protected. Once again, the use of corporations became popular-once the permanent income laws were passed-because the income-tax rate of the corporation was less than the individual income-tax rates. In addition, as described earlier, certain expenses could be paid with pre-tax dollars within the corporation.
Average Americans today work five to six months for the government before they make enough to cover their taxes. In my opinion, that is a long time. The harder you work, the more you pay the government. That is why I believe that the idea of "Take from the rich" backfired on the very people who voted it in.
They have the money, power and intent to change things. They do not just sit there and voluntarily pay more taxes. They search for ways to minimize their tax burden. They hire smart attorneys and accountants, and persuade politicians to change laws or create legal loopholes. They have the resources to effect change.
For example, "1031" is jargon for Section 1031 of the Internal Revenue Code, which allows a seller to delay paying taxes on a piece of real estate that is sold for a capital gain through an exchange for a more expensive piece of real estate. Real estate is one investment vehicle that allows such a great tax advantage. As long as you keep trading up in value, you will not be taxed on the gains, until you liquidate. People who do not take advantage of these tax savings offered legally are missing a great opportunity to build their asset columns. The first lesson of having money work for me, as opposed to working for money, is really all about power. If you work for money, you give the power up to your employer. If your money works for you, you keep and control the power.
No. 1 is Accounting. What I call financial literacy. A vital skill if you want to build an empire. The more money you are responsible for, the more accuracy is required, or the house comes tumbling down. This is the left brain side, or the details. Financial literacy is the ability to read and understand financial statements. This ability allows you to identify the strengths and weaknesses of any business.
No. 2 is Investing. What I call the science of money making money. This involves strategies and formulas. This is the right brain side; or the creative side.
No. 3 is Understanding Markets. The science of supply and demand. There is a need to know the "technical" aspects of the market, which is emotion driven; the Tickle Me Eimo doll during Christmas 1996 is a case of a technical or emotion-driven market. The other market factor is the "fundamental" or the economic sense of an investment. Does an investment make sense or does it not make sense based on the current market conditions. excellent example of supply and demand economics. The same thing goes on in the stock, bond, real estate and baseball-card markets.
No. 4 is the Law. For instance, utilizing a corporation wrapped around the technical skills of accounting, investing and markets can aid explosive growth. An individual with the knowledge of the tax advantages and protection provided by a corporation can get rich so, much faster than someone who is an employee or a small-business sole proprietor. It's like the difference between someone walking and someone flying. The difference is profound when it comes to long-term wealth.


1. Tax Advantages:
A corporation can do so many things that an individual cannot. Like pay for expenses before it pays taxes. That is a whole area of expertise that is so exciting, but not necessary to get into unless you have sizable assets or a business. Employees earn and get taxed and they try to live on what is left. A corporation earns, spends everything it can, and is taxed on anything that is left. It's one of the biggest legal tax loopholes that the rich use. They're easy to set up and are not expensive if you own investments that are producing good cash flow. For example; by owning your own corporation - vacations are board meetings in Hawaii. Car payments, insurance, repairs are company expenses. Health club membership is a company expense. Most restaurant meals are partial expenses. And on and on - but do it legally with pre-tax dollars.
2. Protection from Lawsuits: We live in a litigious society. Everybody wants a piece of your action. The rich hide much of their wealth using vehicles such as corporations and trusts to protect their assets from creditors. When someone sues a wealthy individual they are often met with layers of legal protection, and often find that the wealthy person actually owns nothing. They control everything, but own nothing. The poor and middle class try to own everything and lose it to the government or to fellow citizens who like to sue the rich. They learned it from the Robin Hood story. Take from the rich, give to the poor. Land was wealth 300 years ago. So the person who owned the land owned the wealth. Then, it was factories and production, and America rose to dominance. The industrialist owned the wealth. Today, it is information. And the person who has the most timely information owns the wealth. The problem is, information flies all around the world at the speed of light. The new wealth cannot be contained by boundaries and borders as land and factories were. The changes will be faster and more dramatic. There will be a dramatic increase in the number of new multimillionaires. There also will be those who are left behind. Financial intelligence is simply having more options. It the opportunities aren't coming your way, what else can you do to improve your financial position? If an opportunity lands in your lap, and you have no money, and the bank won't talk to you, what else can you do to get the opportunity to work in your favor? If your hunch is wrong, and what you've been counting on doesn't happen, how can you turn a lemon into millions. That is financial intelligence. It is not so much what happens, but how many different financial solutions you can think of to turn a lemon into millions. It is how creative you are in solving financial problems. The point I would like to make is that investments come and go, the market goes up and goes down, economies improve and crash. The world is always handing you opportunities of a lifetime, every day of your life, but all too often we fail to see them. But they are there. And the more the world changes and the more technology changes, the more opportunities there will be to allow you and your family to be financially secure for generations to come. The more so-called "sophisticated" I get, the more opportunities come my way. Another case for developing your financial intelligence, over a lifetime, is simply that more opportunities are presented to you. And the greater your financial intelligence, the easier it is to tell whether a deal is good. It's your intelligence that can spot a bad deal, or make a bad deal good. The more I learn-and there is a lot to learn-the more money I make simply because I gain experience and wisdom as the years go on. I have friends who are playing it safe, working hard at their profession, and failing to gain financial wisdom, which does take time to develop. My overall philosophy is to plant seeds inside my asset column. That is my formula. I start small and plant seeds. Some grow; some don't. Inside our real estate corporation, we have several million dollars' worth of property. It is our own Reit, or real estate investment trust. My personal basis is real estate. I love real estate because it's stable and slow moving. I keep the base solid. The cash flow is fairly steady and, if properly managed, has a good chance of increasing in value. The beauty of a solid base of real estate is that it allows me to be somewhat riskier with the more speculative stocks I buy. If I make great profits in the stock market, I pay my capital-gains tax on the gain and then reinvest what's left in real estate, again further securing my asset foundation.

There are Two Kinds of Investors.
1. The first and most common type are people who buy a packaged investment. They call a retail outlet, such as a real estate company, or a stockbroker or a financial planner, and they buy something. It could be a mutual fund, a Reit, a stock or a bond. It is a good clean and simple way of investing. An example would be a shopper who goes to a computer store and buys a computer right off the shelf.
2. The second type are investors who create investments. This investor usually assembles a deal, much like there are people who buy components of computers and put it together. It's like customizing. I do not know the first thing about putting components of a computer together. But I do know how to put pieces of opportunities together, or know people who do.
1. How to find an opportunity that everyone else has missed. You see with your mind what others miss with their eyes. For example, a friend bought this rundown old house. It was spooky to look at. Everyone wondered why he bought it. What he saw that we did not was that the house came with four extra empty lots. He realized that by going to the title company. After buying the house, he tore it down and sold the five lots to a builder for three times what he paid for the entire package. He made $75,000 for two months' work. It's not a lot of money, but it sure beats minimum wage, and it's not technically difficult.
2. How to raise money. The average person only goes to the bank. This second type of investor needs to know how to raise capital, and there are many ways that don't require a bank. To get started, I learned how to buy houses without a bank. It was not so much the houses, but the learned skill of raising money that is priceless. All too often I hear people say, "The bank won't lend me money." Or "I don't have the money to buy it." If you want to be a Type 2 investor, you need to leam how to do that which stops most people. In other words, a majority of people let their lack of money stop them from making a deal. If you can avoid that obstacle, you will be millions ahead of those who don't leam those skills. There have been many times I have bought a house, a stock or an apartment building without a penny in the bank. I once bought an apartment house for $1.2 million. I did what is called "Tying it up," with a written contract between seller and buyer. I then raised the $100,000 deposit, which bought me 90 days to raise the rest of the money. Why did I do it? Simply because I knew it was worth $2 million. I never raised the money. Instead, the person who put up the $100,000 gave me $50,000 for finding the deal, he took over my position, and I walked away. Total working time: three days. It's what you know more than what you buy. Investing is not buying. It's a case of knowing.
3. How to organize smart people. Intelligent people are those who work with or hire a person who is more intelligent than they are. When you need advice, make sure you choose your advisor wisely.
Rich dad encouraged me to do exactly the opposite. "You want to know a little about a lot" was his suggestion. That is why for years I worked in different areas of his companies. For awhile, I worked in his accounting department. Although I would probably never have been an accountant, he wanted me to learn via "osmosis." Rich dad knew I would pick up "jargon" and a sense of what is important and what is not. I also worked as a bus boy and construction worker, as well as in sales, reservations and marketing. He was "grooming" Mike and me. That is why he insisted we sit in on the meetings with his bankers, lawyers, accountants and brokers. He wanted us to know a little about every aspect of his empire.
In 1977, I formed my first company. Rich dad had groomed Mike and me to take over companies. So I now had to learn to form them and put them together. My first product, the nylon and velcro wallet, was manufactured in the Far East and shipped to a warehouse in New York, near where I had gone to school. My formal education was complete, and it was time to test my wings. If I failed, I went broke. Rich dad thought it best to go broke before 30. "You still have time to recover" was his advice. On the eve of my 30th birthday, my first shipment left Korea for New York. Today, I still do business internationally. And as my rich dad encouraged me to do, I keep seeking the emerging nations. Today my investment company invests in South America, Asia, Norway and Russia. Workers work hard enough to not be fired, and owners pay just enough so that workers won't quit. "/And if you look at the pay scales of most companies, again I would say there is a degree of truth in that statement. Instead I recommend to young people to seek work for what they will learn, more than what they will earn. Look down the road at what skills they want to acquire before choosing a specific profession and before getting trapped in the "Rat Race."
Once people are trapped in the lifelong process of bill paying, they become like those little hamsters running around in those little metal wheels. Their little furry legs are spinning furiously, the wheel is turning furiously, but come tomorrow morning, they'll still be in the same cage: great job.
When medical fees and long-term nursing home care are added to the picture, the picture is frightening. In his 1995 book, he indicates that nursing-home fees run from $30,000 to $125,000 per year. He went to a clean no-frills nursing home in his area and found the price to be $88,000 a year in 1995. Already, many hospitals in countries with socialized medicine need to make tough decisions such as "Who will live and who will die?" They make those decisions purely on how much money they have and how old the patients are. If the patient is old, they often will give the medical care to someone younger. The older poor patient gets put to the back of the line. So just as the rich can afford better education, the rich will be able to keep themselves alive, while those who have little wealth will die. When I ask the classes I teach, "How many of you can cook a better hamburger than McDonald's?" almost all the students raise their hands. I then ask, "So if most of you can cook a better hamburger, how come McDonald's makes more money than you?" The answer is obvious: McDonald's is excellent at business systems. The reason so many talented people are poor is because they focus on building a better hamburger and know little to nothing about business systems. Educated dad then took up the cause of the teachers union, campaigning for further protection and benefits for these highly skilled and educated professionals. We argued often, but I know he never agreed that overspecialization is what caused the need for union protection. He never understood that the more specialized you become, the more you are trapped and dependent on that specialty. Rich dad advised that Mike and I "groom" ourselves. Many corporations do the same thing. They find a young bright student out of business school and begin "grooming" that person to someday take over the company. So these bright young employees do not specialize in one department; they are moved from department to department to learn all the aspects of business systems. The rich often "groom" their children or the children of others. By doing so, their children gain an overall knowledge of the operations of the business and how the various departments interrelate.
For the World War II generation, it was considered "bad" to skip from company to company. Today, it is considered smart. Since people will skip from company to company, rather than seek greater specialization, why not seek to "learn" more than "earn."
1. The management of cash flow.
2. The management of systems (including yourself and time with family).
3. The management of people.

The most important specialized skills are sales and understanding marketing. It is the ability to sell-therefore, to communicate to another human being, be it a customer, employee, boss, spouse or child-that is the base skill of personal success. It is communication skills such as writing, speaking and negotiating that are crucial to a life of success. It is a skill that I work on constantly, attending courses or buying educational tapes to expand my knowledge. As I have mentioned, my educated dad worked harder and harder the more competent he became. He also became more trapped the more specialized he got. Although his salary went up, his choices diminished, Soon after he was locked out of government work, he found out how vulnerable he really was professionally. It is like professional athletes who suddenly are injured or are too old to play. Their once high-paying position is gone, and they have limited skills to fall back on. I think that is why my educated dad sided so much with unions after that. He realized how much a union would have benefited him.
Rich dad encouraged Mike and me to know a little about a lot. He encouraged us to work with people smarter than we were and to bring smart people together to work as a team. Today it would be called a synergy of professional specialties. Giving money is the secret to most great wealthy families. That is why there are organizations like the Rockefeller Foundation and the Ford Foundation. These are organizations designed to take their wealth and increase it, as well as give it away in perpetuity. So he worked harder to draw more money in rather than focus on the most important yaw of money: "Give and you shall receive." Instead, he believed in Receive and then you give." My rich dad understood phobias about money. "Some people are terrified of snakes. Some people are terrified about losing money. Both are phobias," he would say. So his solution to the phobia of losing money was this little rhyme: It is said that one of the wonders of the world is the power of compound interest. The purchase of Manhattan Island is said to be one of the greatest bargains of all time. New York was purchased for $24 in trinkets and beads. Yet, if that $24 had been invested, at 8 percent annually, that $24 would have been worth more than $28 trillion by 1995. Manhattan could be repurchased with money left over to buy much of LA., especially at 1995's real estate prices.
My neighbor works for a major computer company. He has been there 25 years. In five more years he will leave the company with $4 million in his 401k retirement plan. It is invested mostly in high-growth mutual funds, which he will convert to bonds and government securities. He'll only be 55 when he gets out, and he will have a passive cash flow of over $300,000 a year, more than he makes from his salary. So it can be done, even if you hate losing or hate risk. But you must start early and definitely set up a retirement plan, and you should hire a financial planner you trust to guide you before investing in anything. So for most people, the reason they don't win financially is because the pain of losing money is far greater than the joy of being rich. Another saying in Texas is, "Everyone wants to go to Heaven, but no one wants to die." Most people dream of being rich, but are terrified of losing money. So they never get to Heaven. But probably his words that mean the most to me today are these: "Texans don't bury their failures. They get inspired by them. They take their failures and turn them into rallying cries. Failure inspires Texans to become winners. But that formula is not just the formula for Texans. It is the formula for all winners."
Failure inspires winners. And failure defeats losers. It is the biggest secret of winners. It's the secret that losers do not know. The greatest secret of winners is that failure inspires winning; thus, they're not afraid of losing. Repeating Fran Tarkenton's quote, "Winning means being. The main reason that over 90 percent of the American public struggles financially is because they play not to lose. They don't play to win.They go to their financial planners or accountants or stockbrokers and buy a balanced portfolio. Most have lots of cash in CDs, low-yield bonds, mutual funds that can be traded within a mutual-fund family, and a few individual stocks. It is a safe and sensible portfolio. But it is not a winning portfolio. It is a portfolio of someone playing not to lose. Thomas Edison was not balanced. He was focused. Bill Gates was not balanced. He was focused. Donald Trump is focused. George Soros is focused. George Patton did not take his tanks wide. He focused them and blew through the weak spots in the German line. The French went wide with the Maginot Line, and you know what happened to them. If you have any desire of being rich, you must focus. Put a lot of your eggs in a few baskets. Do not do what poor and middle class people do: put their few eggs in many baskets. If you hate losing, play it safe. If losing makes you weak, play it safe. Go with balanced investments. If you're over 25 years old and are terrified of taking risks, don't change. Play it safe, but start early. Start accumulating your nest egg early because it will take time. Most people are poor because when it comes to investing, the world is filled with Chicken Littles running around yelling, "The sky is falling. The sky is falling," And Chicken Littles are effective because everyone of us is a little chicken. It often takes great courage to not let rumors and talk of doom and gloom affect your doubts and fears. So I look at them as 2 to 7-year CDs. Almost every time I tell someone, especially if they have money in CDs, that I hold my money this way, they will tell me it's risky. They tell me why I should not do it. When I ask them where they get their information, they say from a friend or an investment magazine. They've never done it, and they're telling someone who's doing it why they shouldn't. The lowest yield I look for is l6 percent, but people who are filled with doubt are willing to accept 5 percent. Doubt is expensive. My point is that it's those doubts and cynicism that keep most people poor and playing it safe. The real world is simply waiting for you to get rich. Only a person's doubts keep them poor. As I said, getting out of the rat race is technically easy. It doesn't take much education, but those doubts are cripplers for most people. "Cynics never win," said rich dad. "Unchecked doubt and fear creates a cynic. Cynics criticize, and winners analyze" was another of his favorite sayings. Rich dad explained that criticism blinded while analysis opened eyes. Analysis allowed winners to see that critics were blind, and to see opportunities that everyone else missed. And finding what people miss is key to any success. And by finding a great property manager who runs houses or apartments, well, my cash flow goes up. But more importantly a great property manager allows me to buy a lot more real estate since I don't have to fix toilets. A great property manager is key to success in real estate. Finding a good manager is more important to me than the real estate. A great property manager often hears of great deals before real estate agents do, which makes them even more valuable. Instead of analyzing, their little chicken closes their mind. If most people understood how a "stop" worked in stock-market investing, there would be more people investing to win instead of investing not to lose. A "stop" is simply a computer command that sells your stock automatically if the price begins to drop, helping to minimize your losses and maximize some gains. It's a great tool for those who are terrified of losing. Today, I often meet people who are too busy to take care of their wealth. And there are people too busy to take care of their health. The cause is the same. They're busy, and they stay busy as a way of avoiding something they do not want to face. Nobody has to tell them. Deep down they know. In fact, if you remind them, they often respond with anger or irritation.
Rich dad forbade the words "I can't afford it." In my real home, that's all I heard. Instead, rich dad required his children to say, "How can I afford it5" His reasoning, the words "I can't afford it" shut down your brain. It didn't have to think anymore. "How can I afford it?" opened up the brain. Forced it to think and search for answers.
"I can't afford it" also brings up sadness. A helplessness that leads to despondency and often depression. "Apathy" is another word. "How can I afford it?" opens up possibilities, excitement and dreams. So rich dad was not so concerned about what you wanted to buy, but that "How can I afford it?" created a stronger mind and a dynamic spirit. When I decided to exit the rat race, it was simply a question. "How can I afford to never work again?" And my mind began to kick out answers and solutions. The hardest part was fighting my real parents' dogma of "We can't afford that." Or "Stop thinking only about yourself." Or "Why don't you think about others?" and other such words designed to instill guilt to suppress my greed.
"Guilt is worse than greed. For guilt robs the body of its soul."
"Of course not," said rich dad. "I firmly believe in paying my bills on time. I just pay myself first. Before I pay even the government." "But what happens if you don't have enough money?" I asked. "What do you do then?" "The same," said rich dad. "I still pay myself first. Even if I'm short of money. My asset column is far more important to me than the government." "Motivation," said rich dad "Who do you think will complain louder if I don't pay them-me or my creditors?" "Your creditors will definitely scream louder than you," I said, responding to the obvious. "You wouldn't say anything if you didn't pay yourself."
"So you see, after paying myself, the pressure to pay my taxes and the other creditors is so great that it forces me to seek other forms of income. The pressure to pay becomes my motivation. I've worked extra jobs, started other companies, traded in the stock market, anything just to make sure those guys don't start yelling at me. That pressure made me work harder, forced me to think, and all in all made me smarter and more active when it comes to money. If I had paid myself last, I would have felt no pressure, but I'd be broke."
I liked what rich dad was saying. "So if I pay myself first, I get financially stronger, mentally and fiscally."
Rich dad nodded. "And if I pay myself last, or not at all, I get weaker. So people like bosses, managers, tax collectors, bill collectors and landlords push me around all my life. Just because I don't have good money habits." Rich dad nodded. "Just like the 96-pound weakling."
Reason No. 5. Arrogance. Arrogance is ego plus ignorance. "What I know makes me money. What I don't know lose me money. Every time I have been arrogant, I have lost money. Because when I'm arrogant, I truly believe that what I don't know is not important," rich dad would often tell me. I have found that many people use arrogance to try to hide their own ignorance. It often happens when I am discussing financial statements with accountants or even other investors. They try to bluster their way through the discussion. It is clear to me that they don't know what they're talking about. They're not lying, but they are not telling the truth. There are many people in the world of money, finances and investments who have absolutely no idea what they're talking about. Most people in the money industry are just spouting off sales pitches like used-car salesmen. When you know you are ignorant in a subject, start educating yourself by finding an expert in the field or find a book on the subject.
1. Need A Reason Greater Than Reality: The power of spirit. If you ask most people if they would like to be rich or financially free, they would say "yes." But then reality sets in. The road seems too long with too many hills to climb. It's easier to just work for money and hand the excess over to your broker. I will list a few. First the "don't wants," for they create the "wants." I don't want to work all my life. I don't want what my parents aspired for, which was job security and a house in the suburbs. I don't like being an employee. I hated that my dad always missed my football games because he was so busy working on his career. I hated it when my dad worked hard all his life and the government took most of what he worked for at his death. He could not even pass on what he worked so hard for when he died. The rich don't do that. They work hard and pass it on to their children.
2. Choose Daily: The power of choice. That is the main reason people want to live in a free country. We want the power to choose. Most people choose not to be rich. For 90 percent of the population, being rich is "too much of a hassle." So they invent sayings that go, "I'm not interested in money." Or "I'll never be rich." Or "I don't have to worry, I'm still young." Or "When I make some money, think about my future." Or "My husband/wife handles the finance."
Invest First In Education: In reality, the only real asset you have is your mind, the most powerful tool we have dominion over. Just as I said about the power of choice, each of us has the choice of what we put in our brain once we're old enough. You can watch MTV all day, or read golf magazines, or go to ceramics class or a class on financial planning. You choose. Most people simply buy investments rather than first invest in learning about investing. A truly intelligent person welcomes new ideas, for new ideas can add to the synergy of other accumulated ideas. Listening is more important than talking. If that was not true, God would not have given us two ears and only one mouth. Too many people think with their mouth instead of listening to absorb new ideas and possibilities. They argue instead of asking questions.
3. Choose Friends Carefully: The power of association. First of all, I do not choose my friends by their financial statements. I have friends who have actually taken the vow of poverty as well as friends who earn millions every year. The point is I learn from all of them, and I consciously make the effort to learn from them.
A Warning: Don't listen to poor or frightened people. I have such friends, and I love them dearly, but they are the "Chicken Littles" of life. When it comes to money, especially investments, "The sky is always falling." They can always tell you why something won't work. The problem is, people listen to them, but people who blindly accept doom-and-gloom information are also "Chicken Littles." As that old saying goes, "Chickens of a feather agree together."
4. Master A Formula And Then Learn A New One: The power of learning quickly. In order to make bread, every baker follows a recipe, even if it's only held in their head. The same is true for making money. That's why money is often called "dough." Most of us have heard the saying "You are what you eat." I have a different slant on the same saying. I say, "You become what you study." In other words, be careful what you study and learn, because your mind is so powerful that you become what you put in your head. For
5. Pay Yourself First: The power of self-discipline. If you cannot get control of yourself, do not try to get rich. You might first want to join the Marine Corps or some religious order so you can get control of yourself. It makes no sense to invest, make money and blow it. It is the lack of self-discipline that causes most lottery winners to go broke soon after winning millions. It is the lack of self-discipline that causes people who get a raise to immediately go out and buy a new car or take a cruise.
In the entrepreneur classes I teach, I constantly remind people to not focus on their product, service or widget, but to focus on developing management skills. The three most important management skills necessary to start your own business are:
1. Management of cash flow. ;
2. Management of people.
3. Management of personal time.

Although I pay my bills last, I am financially astute enough to not get into a tough financial situation. I don't like consumer debt. I actually have liabilities that are higher than 99 percent of the population, but I don't pay for them; other people pay for my liabilities. They're called tenants. So rule No. 1 in paying yourself first is don't get into debt in the first place. Although I pay my bills last, I set it up to have only small unimportant bills, that I will have to pay. Secondly, when I occasionally come up short, I still pay myself first. I let the creditors and even the government scream. I like it when they get tough. Why? Because those guys do me a favor. They inspire me to go out and create more money. So I pay myself first, invest the money, and let the creditors yell. I generally pay them right away anyway. My wife and I have excellent credit. We just don't cave into the pressure and spend our savings or liquidate stocks to pay for consumer debt. That is not too financially intelligent.

So the answer is:
     1. Don't get into large debt positions that you have to pay for. Keep your expenses low. Build up assets first. Then, buy the big house or nice car. Being stuck in the rat race is not intelligent.
     2. When you come up short, let the pressure build and don't dip into your savings or investments. Use the pressure to inspire your financial genius to come up with new ways of making more money and then pay your bills. You will have increased your ability to make more money as well as your financial intelligence.
So many times have gotten into financial hot water, and used my brain to create more income, while staunchly defending the assets in my asset column. My bookkeeper has screamed and dived for cover, but I was like a good trooper defending the fort, Fort Assets. If you do not like financial pressure, then find a formula that works for you. A good one is to cut expenses, put your money in the bank, pay more than your fair share of income tax, buy safe mutual funds and take the vow of the average. But this violates the "pay yourself first" rule.

6. Pay Your Brokers Well: The power of good advice. I often see people posting a sign in front of their house that says, "For Sale by Owner." Or I see on TV today many people claiming to be "Discount Brokers."
My rich dad taught me to take the opposite tack. He believed in paying professionals well, and I have adopted that policy also. Today, I have expensive attorneys, accountants, real estate brokers and stockbrokers. Why? Because if, and I do mean if, the people are professionals, their services should make you money. And the more money they make, the more money I make. What I pay a broker is tiny in comparison with what kind of money I can make because of the information they provide. I love it when my real estate broker or stockbroker makes a lot of money. Because it usually means I made a lot of money. Also, people who sell their house on their own must not value their time much. Why would I want to save a few bucks when I could use that time to make more money or spend it with those I love? What I find funny is that so many poor and middle class people insist on tipping restaurant help 15 to 20 percent even for bad service and complain about paying a broker 3 to 7 percent. They enjoy tipping people in the expense column and stiffing people in the asset column. That is not financially intelligent. When I interview any paid professional, I first find out how much property or stocks they personally own and what percentage they pay in taxes. And that applies to my tax attorney as well as my accountant. I have an accountant who minds her own business. Her profession is accounting, but her business is real estate. I used to have an accountant that was a small business accountant, but he had no real estate. I switched because we did not love the same business. Find a broker who has your best interests at heart. Many brokers will spend the time educating you, and they could be the best asset you find. Just be fair, and most of them will be fair to you. If all you can think about is cutting their commissions, then why should they want to be around you? It's just simple logic.
7. Be An "Indian Giver": This is the power of getting something for nothing. When the first white settlers came to America, they were taken aback by a cultural practice some American Indians had. For example, if a settler was cold, the Indian would give the person a blanket. Mistaking it for a gift, the settler was often offended when the Indian asked for it back. In the world of the "asset column," being an Indian giver is vital to wealth. The sophisticated investor's first question is, "How fast do I get my money back?" They also want to know what they get for free, also called a piece of the action. That is why the ROI, or return of and on investment, is so important. For example, I found a small condominium, a few blocks from where I live, that was in foreclosure. The bank wanted $60,000, and I submitted a bid for $50,000, which they took, simply because, along with my bid, was a cashier's check for $50,000. They realized I was serious. Most investors would say, aren't you tying up a lot of cash? Would it not be better to get a loan on it? The answer is, not in this case. My investment company uses this as a vacation rental in the winter months, when the
"snowbirds" come to Arizona, and rent it for $2,500 a month for four months out of the year. For rental during the off-season, it rents for only $1,000 a month. I had my money back in about three years. Now I own this asset, which pumps money out for me, month in and month out.
The same is done with stocks. Frequently, my broker will call me and recommend I move a sizable amount of money into the stock of a company that he feels is just about to make a move that will add value to the stock, like announcing a new product. I will move my money in for a week to a month while the stock moves up. Then, I pull my initial dollar amount out, and stop worrying about the fluctuations of the market, because my initial money is back and ready to work on another asset. So my money goes in, and then it comes out, and I own an asset that was technically free. True, I have lost money on many occasions. But I only play with money I can afford to lose. I would say, on an average ten investments, I hit home runs on two or three, while five or six do nothing, and I lose on two or three. But I limit my losses to only the money I have in at that time.
On every one of my investments, there must be an upside, something for free. A condominium, a mini-storage, a piece of free land, a house, stock shares, office building. And there must be limited risk, or a low-risk idea. There are books devoted entirely to this subject that I will not get into here. Ray Kroc, of McDonald's fame, sold hamburger franchises, not because he loved hamburgers, but because he wanted the real estate under the franchise for free. The earlier you can train your self and those you love to be masters of money, the better. Money is a powerful force. Unfortunately, people use the power of money against them. If your financial intelligence is low, money will run all over you. It will be smarter than you, you will work for it all your life. To be the master of money, you need to be smarter than it. Then money will do as it is told. It will obey you. Instead of being a slave to it, you will be the master of it. That is financial intelligence.
I have new heroes as I grow older. I have golf heroes such as Peter Jacobson, Fred Couples and Tiger Woods, I copy their swings and do my best to read everything I can about them. I also have heroes such as Donald Trump, Warren Buffett, Peter Lynch, George Soros and Jim Rogers. In my older years, I know their stats just like I knew the ERAs and RBI of my baseball heroes. I follow what Warren Buffett in vests in, and read anything I can about his point of view on the market. I read Peter Lynch's book to understand how he chooses stocks. And I read about Donald Trump, trying to find out how he negotiates and puts deals together.If I could leave one single idea with you, it is that idea. Whenever you feel "short" or in "need" of something, give what you want first and it will come back in buckets. That is true for money, a smile, love, friendship, I know it is often the last thing a person may want to do, but it has always worked for me. I just trust that the principle of reciprocity is true, and I give what I want. I want money, so I give money, and it comes back in multiples. I want sales, so I help someone else sell something, and sales come to me. I want contacts and I help someone else get contacts, and like magic, contacts come to me. I heard a saying years ago that went, "God does not need to receive, but humans need to give."
It reminds me of the story of the guy sitting with firewood in his arms on a cold freezing night, and he is yelling at the pot-bellied stove, "When you give me some heat, then I'll put some wood in." And when it comes to money, love, happiness, sales and contacts, all one needs to remember is first to give what you want and it will come back in droves. Often just the process of thinking of what I want, and how could I give what I want to someone else, breaks free a torrent of bounty. Whenever I feel that people aren't smiling at me, I simply begin smiling and saying hello, and like magic, there are suddenly more smiling people around me. It is true that your world is only a mirror of you. So that's why I say, "Teach and you shall receive." I have found that the more I sincerely teach those who want to learn, the more I learn. If you want to learn about money, teach it to someone else. A torrent of new ideas and finer distinctions will come in.
- Stop doing what you're doing. In other words, take a break and assess what is working and what is not working. The definition of insanity is doing the same thing and expecting a different result. Stop doing what is not working and look for something new to do.
- Look for new ideas. For new investing ideas, I go to bookstores and look for books on different and unique subjects. I call them formulas. I buy how-to books on a formula I know nothing about. For example, it was in the bookstore that I found the book The 16 Percent Solution, by Joel Moskowitz. I bought the book and read it.
- Find someone who has done what you want to do. Take them to lunch. Ask them for tips, for little tricks of the trade. As for 16 percent tax lien certificates, I went to the county tax office and found the government employee who worked in the office. I found out that she, too, invested in the tax liens. Immediately, she was invited to lunch. She was thrilled to tell me everything she knew and how to do it. After lunch, she spent all afternoon showing me everything. By the next day, I found two great properties with her help and have been accruing interest at 16 percent ever since. It took a day to read the book, a day to take action, an hour for lunch, and a day to acquire two great deals.
- Take classes and buy tapes. I search the newspapers for new and interesting classes. Many are for free or a small fee. I also attend and pay for expensive seminars on what I want to learn. I am wealthy and free from needing a job simply because of the courses I took. I have friends who did not take those classes who told me I was wasting my money, and yet they're still at the same job.
- Make lots of offers. When I want a piece of real estate, I look at many properties and generally write an offer. If you don't know what the "right offer" is, neither do I. That is the job of the real estate agent. They make the offers. I do as little work as possible.

Moral of the story: Make offers. People who are not investors have no idea what it feels like to be trying to sell something. I have had a piece of real estate that I wanted to sell for months. I would have welcomed anything. I would not care how low the price. They could have offered me ten pigs and I would have been happy. Not at the offer, but just because someone was interested. I would have countered, maybe for a pig farm in exchange. But that's how the game works. The game of buying and selling is fun. Keep that in mind. It's fun and only a game. Make offers. Someone might say "yes." And I always make offers with escape clauses. In real estate, I make an offer with the words "subject to approval of business partner." I never specify who the business partner is. Most people do not know my partner is my cat. If they accept the offer, and I don't want the deal, I call my home and speak to my cat. I make this absurd statement to illustrate how absurdly easy and simple the game is. So many people make things too difficult and take them too seriously.
Finding a good deal, the right business, the right people, the right investors, or whatever is just like dating. You must go to the market and talk to a lot of people, make a lot of offers, counteroffers, negotiate, reject and accept. I know single people who sit at home and wait for the phone to ring, but unless you're Cindy Crawford or Tom Cruise, I think you'd best go to the market, even if it's only the supermarket. Search, offer, reject, negotiate and accept are all parts of the process of almost everything in life.
- Jog, walk or drive a certain area once a month for ten minutes. I have found some of my best real estate investments while jogging. I will jog a certain neighborhood for a year. What I look for is change. For there to be profit in a deal, there must be two elements: a bargain and change. There are lots of bargains, but it's change that turns a bargain into a profitable opportunity. So when I jog, I jog a neighborhood I might like to invest in. It is the repetition that causes me to notice slight differences. I notice real estate signs that are up for a long time. That means the seller might be more agreeable to deal. I watch for moving trucks, going in or out. I stop and talk to the drivers. I talk to the postal carriers. It's amazing how much information they acquire about an area.
- As for stocks, I like Peter Lynch's book Beating the Street for his formula for selecting stocks that grow in value. I have found that the principles of finding value are the same regardless if it's real estate, stocks, mutual funds, new companies, a new pet, a new home, a new spouse, or a bargain on laundry detergent.
- Why consumers will always be poor. When the supermarket has a sale on, say, toilet paper, the consumer runs in and stocks up. When the stock market has a sale, most often called a crash or correction, the consumer runs away from it. When the supermarket raises its prices, the consumer shops elsewhere. When the stock market raises its prices, the consumer starts buying.
- Look in the right places. A neighbor bought a condominium for $100,000. I bought the identical condo next door to his for $50,000. He told me he's waiting for the price to go up. I told him that his profit is made when you buy, not when you sell. He shopped with a real estate broker who owns no property of her own. I shopped at the foreclosure department of a bank. I paid $500 for a class on how to do this. My neighbor thought that the $500 for a real estate investment class was too expensive. He said he could not afford it, and he couldn't afford the time. So he waits for the price to go up.
- I look for people who want to buy first, then I look for someone who wants to sell. A friend was looking for a certain piece of land. He had the money and did not have the time. I found a large piece of land larger than what my friend wanted to buy, tied it up with an option, called my friend and he wanted a piece of it. So I sold the piece to him and then bought the land. I kept the remaining land as mine for free. Moral of the story: Buy the pie and cut it in pieces. Most people look for what they can afford, so they look too small. They buy only a piece of the pie, so they end up paying more for less. Small thinkers don't get the big breaks. If you want to get richer, think bigger first.
When my company was in the market for computers, I called several friends and asked them if they were ready to buy also. We then went to different dealers and negotiated a great deal because we wanted to buy so many. I have done the same with stocks. Small people remain small because they think small; act alone, or don't act all.
The important words being "done" and "do". Act now!
The year was 1991, and the real estate market in Phoenix was terrible. People were giving houses away. I suggested to my classmate that he buy a house with some of the money in his mutual fund. The idea intrigued him and we began to discuss the possibility. His primary concern was that he did not have the credit with the bank to buy another house, since he was so over-extended. I assured him that there were other ways to finance a property other than through the bank. We looked for a house for two weeks, a house that would fit all the criteria we were looking for. There were a lot to choose from, so the shopping was kind of fun. Finally, we found a 3 bedroom 2 bath home in a prime neighborhood. The owner had been downsized and needed to sell that day because he and his family were moving to California where another job waited.
He wanted $102,000, but we offered only $79,000. He took it immediately. The home had on it what is called a non-qualifying loan, which means even a bum without a job could buy it without a banker's approval. The owner owed $72,000 so all my friend had to come up with was $7,000, the difference in price between what was owed and what it sold for. As soon as the owner moved, my friend put the house up for rent. After all expenses were paid, including the mortgage, he put about $125 in his pocket each month. His plan was to keep the house for 12 years and let the mortgage get paid down faster, by applying the extra $125 to the principle each month. We figured that in 12 years, a large portion of the mortgage would be paid off and he could possibly be clearing $800 a month by the time his first child went to college. He could also sell the house if it had appreciated in value. In 1994, the real estate market suddenly changed in Phoenix and he was offered $156,000 for the same house by the tenant who lived in it and loved it. Again, he asked me what I thought, and I naturally said sell, on a 1031 tax-deferred exchange. Suddenly, he had nearly $80,000 to operate with. I called another friend in Austin, Texas who then moved this tax deferred money into a mini-storage facility. Within three months, he began receiving checks for a little less than a $1,000 a month in income which he then poured back into the college mutual fund that was now building much faster. In 1996, the mini-warehouse sold and he received a check for nearly $330,000 as proceeds from the sale which was again rolled into a new project that would now throw off over $3,000 a month in income, again, going into the college mutual fund. He is now very confident that his goal of $400,000 will be met easily, and it only took $7,000 to start and a little financial intelligence. His children will be able to afford the education that they want and he will then use the underlying asset, wrapped in his C Corporation, to pay for his retirement. As a result of this successful investment strategy he will be able to retire early. Thank you for reading this book. I hope it has provided some insights into utilizing the power of money to work for you. Today, we need greater financial intelligence to simply survive. The idea that it takes money to make money is the thinking of financially unsophisticated people. It does not mean that they're not intelligent. They have simply not learned the science of making money. Money is only an idea. If you want more money simply change your thinking. Every self-made person started small with an idea, then turned it into something big. The same applies with investing. It takes only a few dollars to start and grow it into something big. I meet so many people who spend their lives chasing the big deal, or trying to mass a lot of money to get into a big deal, but to me that is foolish. Too often I have seen unsophisticated investors put their large nest egg into one deal and lose most of it rapidly. They may have been good workers but they were not good investors. Education and wisdom about money are important. Start early. Buy a book. Go to a seminar. Practice. Start small. I turned $5,000 cash into a $1 million dollar asset producing $5,000 a month cash flow in less than six years. But I started learning as a kid. I encourage you to learn because it's not that hard. In fact, it's kind of easy once you get the hang of it. All of you were given two great gifts: your mind and your time. It is up to you to do what you please with both. With each dollar bill that enters your hand, you and only you have the power to determine your destiny. Spend it foolishly, you choose to be poor. Spend it on liabilities, you join the middle class. Invest it in your mind and learn how to acquire assets and you will be choosing wealth as your goal and your future. The choice is yours and only yours. Every day with every dollar, you decide to be rich, poor or middle class.
When my real dad said to me, "Go to school, get good grades, and find a safe secure job." he was recommending I work for earned income. When my rich dad said, "The rich don't work for money, they have their money work for them," he was talking about passive income and portfolio income. Passive income, in most cases, is income derived from real estate investments. Portfolio income is income derived from paper assets... pa per assets such as stocks, bonds, and mutual funds. Portfolio income is the income that makes Bill Gates the richest man in the world, not earned income. Rich dad used to say, "The key to becoming wealthy is the ability to convert earned income into passive income and/or portfolio income as quickly as possible." He would say, "The taxes are highest on earned income. The least taxed income is passive income. That is another reason why you want your money working hard for you. The government taxes the income you work hard for more, than the income your money works hard for." The key to financial freedom and great wealth is a person's ability or skill to convert earned income into passive income and/or portfolio income. That is the skill that my rich dad spent a lot of time teaching Mike and me. Having that skill is the reason my wife Kim and I are financially free, never needing to work again. As my rich dad would say, "A real investor makes money in an up market and a down market. That is why they make so much money." One of the reasons they make more money is simply because they have more self-confidence. Rich dad would say, "They have more self-confidence because they are less afraid of losing." In other words, the average investor does not make as much money because they are so afraid of losing money. As Warren Buffet, America's richest investor says, "Risk comes from not knowing what you're doing." My board games teach the simple basics of fundamental investing and technical investing while people are having fun. "If you want to be rich, you must know what kind of income to work hard for, how to keep it, and how to protect it from loss. That is the key to great wealth." Rich dad would also say, "If you do not know those differences in the three incomes and do not learn the skills on how to acquire and protect those incomes, you will probably spend your life earning less than you could and working harder than you should." As rich dad states in lesson #1, "The rich do not work for money. They know how to have money work hard for them." Rich dad said "Earned income is money you work for and passive and portfolio income is money working for you." And knowing that little difference in incomes has been significant in my life. Or as Robert Frost's poem ends by stating, "And that made all the difference."