Wisdom of Rich Dad

~  Ray Parker
~  The Arizona Republic
 

Teens at Willis Junior High seem more familiar with spending money than making it, especially during this holiday season.

Many of them own iPods. But few of them knew they could own a piece of the company that makes it: Apple.

Rod McKinnis, a former economics professor and Chandler business owner, visited the Chandler school Tuesday to give some 500 students the bottom line that often separates rich and the poor: financial information.

A lot of the listeners got turned on to investing, like Lisa Nickerson, 14, said she liked what McKinnis had to say about compounded interest.

To illustrate the concept, students were shown the dangers of buying a car like a loaded BMW 750iL costing about $75,000. First-time buyers could pay 25 percent interest on the car loan over four years, eventually doubling the cost of the car to $150,000.

“This is the bad way to compound interest,” said Sharitta Allen, Gilbert branch manager of M&I Bank, who also spoke to the students.

McKinnis, founder of a Chandler-based financial consulting group, gave the alternative: If students invested $25 a month over 20 years at 12 percent interest, the pot would build to $147,059.

“It kind of makes you think differently about that Christmas money,” he told the eighth-graders.

Referring to the book Rich Dad, Poor Dad by Robert Kiyosaki, the financial planner said the poor tend to invest in items that go down in value (cars, brand-name clothes), while the rich invest in items that increase in value (stocks, bonds, mutual funds).

Over the past 60 years, he said, the stock market has averaged a 15 percent return.

“I want you to be equally excited about buying stock in the Wii, in Nintendo, as buying one,” McKinnis said. “When it comes to a major purchase, think if this is going to be an asset or liability.”

Social studies teacher John Prothro brought the speakers to school hoping students would get a new perspective on what to do with their holiday money.

“All the young people are fascinated by how money grows,” Prothro said.

McKinnis suggested the following strategies for a teen to become the next Donald Trump.

• Create investment goals with a target for 15 percent annual return.

• Review the results every six months.

• Protect your credit score, which determines interest rates on loans, among others.

• Develop a relationship with a local bank.

~ Robert Kiyosaki ~ 

Alan Greenspan said we would enter an Age of Turbulence between 2010 and 2011, when baby boomers begin retiring and straining government financial systems. I believe the Age of Turbulence is already here. On the same day Greenspan gave that prediction, a Phoenix entrepreneur announced his new business: an auction website for nurses, where they offer their professional services to the highest bidders–namely, hospitals. He was swamped with calls from nurses.

Combine baby boomers’ increased needs for medical care, a shortage of nurses and an entrepreneur, and you get turbulence. While this is good for the entrepreneur and the nurses, I feel for hospital administrators trying to keep costs down while working to keep nurses and patients happy.

Even if the government denies it, we all know inflation is occuring. We know retiring baby boomers will cause a shortage of employees throughout the system. We also know there’s a baby bust generation following the baby boomers. This means even more fuel for the Age of Turbulence: fewer workers, inflation, technology and higher wages. For the entrepreneur, this means planning–and making changes–now.

As entrepreneurs, we need to figure out how to increase profits and decrease expenses to pay higher wages. This requires creative thinking and the courage to make changes before the storm hits. So . . .

1. Downsize early. About three years ago, while the economy was good, I began encouraging certain employees to move on while they could still find new jobs at higher pay. They weren’t bad workers; most just didn’t fit the culture of my business, had grown stale or had lost their creative spark.

2. Hire less and pay more. Rather than rushing to fill the vacancy, I watched to see which employees would voluntarily pick up the slack. Once I knew who my real leaders were, my team began hiring. Today, we have fewer workers who do more work and receive more pay.

3. Step up advertising. With the savings in wages, we went to TV, web, radio and print media and negotiated long-term advertising and promotion contracts. It’s amazing how much of a discount and better treatment you receive when you’re willing to commit to a long-term relationship.

4. Increase distribution. For the past two years, we’ve been developing a franchise delivery system. Just as nurses want to become free agents/entrepreneurs, others do, too, and we realized we needed to tap into that entrepreneurial spirit.

Our preparation for the Age of Turbulence began nearly a year ago. What are you doing?

Today Financial editor Jean Chatzky on using the bleak market to your advantage:

This past week, Robert Kiyosaki, author of “Rich Dad, Poor Dad,” one of the best-selling personal finance books of all time, dropped by my radio show to talk real estate.

Yes the waters are rocky, the mortgages may be harder to come by, but particularly if you’re interested in buying rental properties with an eye toward becoming a bit of a mogul yourself, Kiyosaki says now is as good a time as any.
The stats seem to bear him out. Home prices fell 1.7 percent in the third quarter of this year, according to the S&P Case/Shiller Home Price Index and many experts, including Kiyosaki, are predicting a continued decline. He says to people like him and Donald Trump, his co-author on a volume called “Why We Want You To Be Rich,” (Rich Press) the fact that prices are going to plummet even further is good news: It makes buying even more lucrative.

But investing in rental properties isn’t a decision to be taken lightly. It requires a whole lot of know-how and (preferably) a shining credit report. You also need a firm understanding of exactly what you’re signing up for, which means knowing your local market inside and out.
Here’s how you can turn today’s bleak market to your advantage:

Get your credit in shape
True, you can probably purchase a property with a middle of the road credit score. But do you want to? A low credit score means a high interest rate on your mortgage, and that increased expense is going to cut into your overhead pretty dramatically.

So, take the next 12 months to improve your credit score before diving in. Pay your bills on time, turn down offers of new credit and reduce your outstanding balances. Based on Kiyosaki’s prediction, you’ll still have time to get in while the getting is good.

Study up
Jumping in without knowing the basics is the wrong move. Before you sign on any dotted lines, take the time to read a few solid (and up-to-date) books on real-estate investing. Once you feel you have a pretty good — albeit broad — handle on the subject, you can start scoping out the market where you plan to buy.

“You need to go out and see the area for yourself. Look at a lot of properties, get a handle on what they are renting for, and how much insurance and property taxes will be so you don’t have any surprises,” advises Thomas Lucier, an investor in Florida and author of “The No-Nonsense Real Estate Investor’s Kit,” (Wiley, 2006). Do it in person, but also check out the classified sections of your local newspapers to get a feel for the rents.

Spot a good investment
Location is key, obviously, and a good rule of thumb is to not buy rental property in an area where you yourself wouldn’t be willing to live. That means looking at crime rates, as well as walking the neighborhood during the day and after dark. It also means looking at things like the age of the property (an older building can mean more repairs), and enlist the help of a good inspector who will spot any structural problems. If your inspector finds something, you can then weigh your options — often, these kinds of issues can be used as bargaining chips to lower the price, but if they’re severe, you may want to just move on.

Start small
Lucier suggests a duplex that will allow you the ability to live in one side and rent out the other. Even Kiyosaki, who says he now only buys apartment buildings with more than 300 units, started with a small condo on the island of Maui, Hawaii. “I’ve ridden the market up and down, and that’s how I got smart,” he explains. As you gain experience, you can slowly begin to expand your portfolio.

Focus on cash flow
The key to making money off of your investment properties is thinking in terms of cash flow rather than capital gains, says Kiyosaki.

“When I buy a piece of real estate, my first question is what’s my cash flow? What’s my rental income from the property? A property is only worth its rent.” That means adding up your mortgage payments, property taxes, insurance costs and maintenance, and subtracting that figure from what you can reasonably charge for rent. The amount that’s left? It’s your salary. Increase it by becoming a do-it-yourselfer, if you have the time and skill to fix a leaky faucet.

Here’s wishing one and all, a Merry Christmas and a happy new year.

Personal finance expert Mike Schiano offers smart money strategies for college students and their parents.

http://s3.amazonaws.com/ym-radio/YM_RADIO_2007-08-17.mp3

By Harriet Johnson Brackey , South Florida Sun-Sentinel

October 01, 2007 

FORT LAUDERDALE, Fla. – College students have the burden of big tuition bills, heavy student loan costs and textbook prices that are out of sight. And, it seems, $1 billion in bank-account overdraft fees, too.

The Center for Responsible Lending, a nonprofit group, raised an alarm about the burden of bank overdraft charges on students. The Durham, N.C.-based group also questioned cozy relationships between banks and colleges, where the banks pay the schools in return for exclusive rights to market their services on campus.

Student ID cards can also be used as bank debit cards at three major Florida schools – the University of Florida (Wachovia), Florida State (SunTrust) and Florida Atlantic University (BankAtlantic) – and at least 100 more nationwide.

Every time a student overdraws an account, the report says students on average are shelling out more than $3 in bank overdraft fees for every $1 they are overdrawn, the study said.

“When the partner bank uses abusive overdraft practices, these deals come at the expense of the students’ financial well-being,” the report said.

Banks don’t see the overdraft fee issue in the same light. “Of course I don’t agree that it’s abusive. That’s because in the case of a student we try to do so much education up front,” Kathy Harrison, spokeswoman for Wachovia. “We’re not trying to abuse that student, we’re trying to build a relationship, to get a customer for life.”

Students account for about 6 percent of all overdrafts, the center found in its study of thousands of banking transactions. Students tend to use debit cards more often than older adults and debit cards are the leading cause of overdrafts, the report said.

All that adds up to a total overdraft bill, every year, of $963 million for people ages 18 to 24, the study said.

“We wanted schools to know that if they are going to do these partnerships, they should make sure their students are protected,” said co-author Leslie Parrish.

The report was released as the U.S. House Financial Services Committee prepares to take up legislation in October, sponsored by Rep. Carolyn Maloney, D-N.Y., that would limit bank overdraft practices.

The bill would require banks to tell people at the ATM and possibly at the checkout counter when their accounts run dry, prohibit banks from charging overdraft fees unless customers have agreed to pay them and ban two practices that tend to contribute to overdrafts. Those include banks delaying posting deposits and clearing big checks ahead of smaller ones, despite the order in which the checks are posted.

The center’s report urged universities not to partner with banks that have what it called “abusive overdraft policies,” which can jeopardize their students’ financial welfare.

Florida State University receives $270,000 a year from SunTrust for the being linked to the FSU student ID, said Paul Strouts, associate vice president for administration. That comes from a fee of 30 cents for any transaction made on a non-SunTrust automated teller machine and a 1 percent fee based on the average monthly balance of student accounts that are linked to the FSU card.

Even so, Strouts said the cost of offering the FSU card is greater than the amount SunTrust pays the school. That’s because the card also contains a smart chip, which allows students to load money for use in vending machines, to do laundry or to pay other expenses. Students are not required to have an account at SunTrust to use the FSU card.

To encourage financial responsibility, FSU several years ago produced a video about credit cards that is given to all students as they enter the school. And FSU says it requires SunTrust, which has a branch on campus, to explain its policies well to students.

“Students know what the relationship (between FSU and SunTrust) is and we insist that they communicate clearly to students,” Strouts said.

At the University of Florida, the school’s relationship with Wachovia produces $3 a year for every active student account linked to its “Gator 1″ identification card. That adds up to around $15,000 a year, said Bob Miller, associate vice president for business affairs. “We’re not sharing in any kind of benefit from any overdraft fees.”

Wachovia waives the overdraft fee for the first overdraft from a UF student, Harrison said. A bank counselor will try to reach the student to explain the situation. After the first time, the overdraft fee at Wachovia is $22 and then $35 for every time afterward.

BankAtlantic pays Florida Atlantic University $75,000 a year plus 50 cents for every new account linked to the school, said Kenneth Jessell, vice president of financial affairs. One reason the school likes the arrangement, he said, is it allows the school to directly deposit financial aid refunds, putting the money into the student’s hands more quickly and securely than if the school mailed a check.

The Center for Responsible Lending looked at 4,036 consumers who had at least one overdraft at the 15 largest banks in the nation between January 2005 and June 2006. From that database, it sorted out 18- to 24-year-olds – the typical student age range – and found that they account for almost 6 percent of the worst overdraft situations.