Wisdom of Rich Dad

Robert Kiyosaki’s “Rich Dad, Poor Dad” book illustrated the importance of financial literacy and exposed the low level of financial literacy in the US.

While Office of Financial Education was created in 2002 in the US with the objective to improve on the financial literacy, Nathan Dungan argued that it has not shown results

He wrote in KCCI.com Money column:

A few weeks ago, I was flying back to Minnesota, my home state, after doing a workshop for a large community organization and the thought hit me — we need a secretary of personal finance.

Now before you dismiss the idea as being too “out there” or “too redundant” — don’t we already have a Department of the Treasury? — please indulge me while I make the case.

As it currently stands, the Department of the Treasury does oversee the Office of Financial Education, created in 2002, and according to the Department of Treasury Web site, claims to do the following:
 
“The Office of Financial Education works to promote access to the financial education tools that can help all Americans make wiser choices in all areas of personal financial management, with a special emphasis on saving, credit management, home ownership and retirement planning. The Office also coordinates the efforts to improve financial literacy and education for people throughout the United States.”

With all due respect to the fine people who work in the Office of Financial Education, the status quo isn’t working.

Here are four quick reasons for my criticism:

Our personal savings rate went negative in 2005 for the first time since 1933. The current savings rate for young adults 25 to 34 is negative 6 percent.
Our personal credit management in this country is abysmal and getting worse. The average credit card debt per household in the U.S. is $9,000 — an increase of 167 percent from 1990 to 2005.
While 69 percent of American households own their home, they increasingly use their accrued equity to pay off credit cards and finance other consumer purchases.
A stunning 75 percent of all U.S. workers have saved less than $100,000 for retirement.

We have Cabinet-level positions for energy, transportation, education and labor, why not personal finance? After all, 70 percent of our total economy is dependent on consumer spending. Our economy won’t keep growing if we don’t ensure the financial health of all our citizens.

Now more than ever we need to acknowledge the need and recognize the urgency this issue has for all Americans. It’s time we give it the prominence it deserves by naming a secretary of personal finance.

Robert Kiyosaki in his book “Rich Dad, Poor Dad” listed 6 personal obstacles, which can block the financial success of even the most financially literate.

In the previous 2 articles, I have talked about 2 of these personal obstacles.  They are Fear and Cynicism.

In this article, I will cover the next 2 obstacles, which are Laziness and Bad Habits.

Laziness
Who are the laziest people in the world?  Busy People!
Robert Kiyosaki proclaimed that busy people are often the laziest.

“I am too busy. I don’t have time for that!”  Does that sound familiar?

The truth is not you are too busy to do anything. It is just that you are too lazy to make time for it.  In fact, Robert Kiyosaki sees busyness as a form of avoidance.  If you act busy, stay busy and think you are busy, you can avoid some of the things you don’t want to face – like exercising and taking care of your wealth.
  
So how can you cure laziness?

Robert Kiyosaki recommends that you do that with a little bit of greed.  Greed is generally perceived to be bad.  But just a little bit of greed put into good use, can actually spur you to break out of your laziness.

The fact is that inside each of us, we all secretly harbour a desire to have new or exciting things.  That is the little greed.  We have been told by our parents and others to suppress that desire.  We have been made to feel guilty about it.

Robert Kiyosaki quoted this simple scenario to illustrate this: How many times children have asked for something from their parents and gotten the reply, “Do you think I print money?”  In truth, guilt is worse than greed.  Guilt stifles dreams.

It is only when we learn to stop saying “Life is too hectic to change it” and instead say “It’s time to exit this rat race and find new ways to earn wealth”, we are starting to cure ourselves of our busy laziness.

Bad habits
When you pay your bills at the first of the month, do you have anything left over?  Probably not.  If so, that is the main reason you are struggling financially.  You have bad habits.

According to Robert Kiyosaki, the worst financial habit is paying your creditors before you pay yourself.  That does not mean you should not pay your bills on time.  What it means is that you should pay yourself first, before you pay your bills.

When he first heard of this principle of paying yourself first from his Rich Dad, Robert Kiyosaki was totally puzzled like most people.  The reasoning behind this simple principle of paying yourself first, as Rich Dad explained to Robert Kiyosaki, is that if you pay everyone else first, there will be nothing left for yourself.  Without money for yourself, how are you going to be able to build up your wealth?

In fact, you should still pay yourself first even if you are short of money.  Robert Kiyosaki’s Rich Dad believed that the pressure from the creditors will be so great that it would force us to seek out creative ways of generating other source of income to pay off the creditors.  If you had pay the creditor first, you would not feel the pressure to find additional income source and set aside a portion of your income to build up your wealth.

So start cultivating the habit of the rich by paying yourself first! 

In the previous article, I listed the top 6 personal obstacles quoted by Robert Kiyosaki, which can potentially prevent even the most financially literate from reaching their success goal.

They are:
1. Fear
2. Cynicism
3. Laziness
4. Bad Habits
5. Arrogance
6. Disappointment

I went on to talk about the first obstacle, Fear.  The fear of losing money and how the rich and the poor managed their fear differently.  I will continue with the next obstacle in this article.

Cynicism
The second obstacle that Robert Kiyosaki listed is Cynicism.

If you can remember, there is this character in a children’s fable that ran around the farmyard, warning the other animals that the sky is falling?  Remember Chicken Little?

He was a classic cynic.  His attitude towards life is full of doom and gloom. 

Inside each of us, we all have some chicken little in us.  Robert Kiyosaki exclaimed that there are chicken little everywhere, especially in the financial world!  Financial cynics would speculate and declare the sky is falling.  In truth, most of these warnings are just a lot of empty note.  We hear all these noises from friends, family, co-workers and the media.  We hear noises all around us.  And because there is a little bit of chicken little inside each of us, we tend to succumb to it.  We adopt the “rather be safe than sorry” attitude.

If we want to achieve financial success, Robert Kiyosaki advises that we need to make up our mind and stop listening to the clucking of the cynics.  Cynics are nothing more than alarmists doing nothing but spending and wasting all their time spreading fear.  We should ignore them because cynics never win.  It is the people who read a situation correctly who end up winning, ie, the analyst.  We should chase our chicken little away.

Robert Kioysaki mentioned, “Cynics blind you of opportunities while analysis opens your eyes to possibilities.  One lead to paralysis, the other lead to action”.

Peter Lynch of Fidelity Magellan recalls when the threat of nuclear war was so prevalent in the 1950s, people began building expensive fallout shelters and accumulated food and water. If they had instead used their hard-earned dollars to make some wise investments then, they probably would be financial independent today.

To inspire us to change our attitude of doom and gloom, and chase away our chicken little, Robert Kiyosaki relates the story of Colonel Sanders. 

Colonel Sanders, at the age of 66, lost his business and found that his Social Security was not enough for him to live on.  So he had to go around the country trying to sell his recipe for fried chickens.  He was turned down 1009 times before finally someone bought it.  And he went on to become a millionaire at an age when most people are retiring on pension.

If you are in doubt and feeling afraid, do what Colonel Sanders did to his chicken little – he fried it!

One of the key to riches is to be financially literate.  This was what the Rich Dad taught in Robert Kiyosaki’s “Rich Dad, Poor Dad”.

Does wealth then come automatically once you became financially literate?

Not necessarily and not certainly.  Robert Kiyosaki believes that despite attaining a certain level of financial literacy, personal obstacles can prevent even the most financially literate from attaining their financial goal.  These people will still continue to work a full time job, living from paycheck to paycheck instead of living a life which they dream of.

Robert Kiyosaki listed the top 6 personal obstacles to your financial success as
1. Fear
2. Cynicism
3. Laziness
4. Bad Habits
5. Arrogance
6. Disappointment

1. Fear
The main reason why 85% of the world struggle financially is fear – The fear of losing money.  But fear is not the real issue here.  The real issue is how you handle fear.  Robert Kiyosaki explained.
 
Robert Kiyosaki understood from his Rich Dad that the primary difference between rich people and poor people is how they manage the fear of losing money.  When suffering a loss in finance, some would just give up.  Others will try to transform the loss into a win.

As John D. Rockfeller said, “I always tried to turn every disaster into an opportunity.”
Winners are those who are inspired by failures. Losers are those defeated by failures.  In short, the rich will still act in spite of fear.

Robert Kiyosaki commented that people are so afraid of losing money, they played it too safe and eventually do not attain their financial success.  If they have some cash, most people would go out and bug big houses, big cars and other “ego” toys.  Or they would go on long vacations, which they justified as they deserved it, rather than investing.

If not, they invest all their money in balanced portfolios – in CDs and low-yield bonds and mutual funds and a few individual stocks.  Drive by fear, these are people playing not to lose.  Most of us, fall into this category.  We want to protect our capital.  We are low risker takers.  Of course, a balanced portfolio is definitely a lot better than no portfolio.  It seeks safety through diversity.  It is important to have a financial plan for security and comfort first. 

However, if you have any desire to become wealthy, you need to focus and not diversify.
You must put a lot of eggs in a few baskets rather than putting a few eggs in many, as advocated by Robert Kiyosaki. 

If you are frightened by the prospects of failure, then play it safe first.  Continue to keep your day job until you have accumulated enough money resources to buy bonds and mutuals.  Consult with your financial advisor or planner to see what your portfolio should be if needed and adjust accordingly as you goes along.  You work at attaining your security and comfort first before working on attaining your financial goal.  Your journey to your financial goal will be therefore be very much slower and take a very long time.

If the prospect of failure, however, inspired you to carry on fighting for your financial success, may be you should challenged yourself to change your financial habits. 
As it says “No risk, no gain”.  Higher return in investment is usually accompanied by higher risk level.  If you want high return in investment, you need to face higher risk level.  Don’t play it safe anymore.  You will need to increase your risk appetite and learn to taken on some calculated financial risks based on your financial literacy. 

As Robert Kiyosaki puts it, “Increase your financial knowledge and then learn to take some calculated financial risks.  The more financial education you have, the more you can manage and minimized the risk.”

Managed the risks well and the gain will follow, and you will be on the fast track towards your financial goal.

In the next few articles, I will carry on to describe the rest of the personal obstacles to your financial success as defined by Robert Kiyosaki.

The important of financial literacy highlighted in Robert Kiyosaki “Rich Dad, Poor Dad” has triggered the awareness that there is a lack of that knowledge.  Realizing that, some schools has started incorporating lessons to impart some basic money principles to the youngs.

Randi Weiner of THE JOURNAL NEWS (www.thejournalnews.com) reports:

BLAUVELT – Welcome to Louis Moretti’s fifth-grade class, where the 10-year-olds can tell you why owning a house is a liability and where they look down their noses at owning iPods because they’re permanent and unrecoverable losses to your income.

“Rich and poor are states of mind and have nothing to do with the money in your pocket,” Moretti told the 22 Cottage Lane Elementary School students who sat upright, their eyes fixed on their teacher, notebooks open to their Finance Friday agendas. “It has to do with your assets and your mind. Your greatest asset is your mind and financial literacy.”

Since September, Moretti has given an hour each Friday to teaching his students about money.

The 38-year-old educator is a former financial analyst who decided to meld his passion for financial matters with his passion for teaching.

“I’ve always been a part of business and money (management), but never really totally understood it until last summer when I read this book, ‘Rich Dad, Poor Dad,’ ” he said. “I think it just made me realize that money was not so much that hard thing in your pocket. That’s what I’m trying to do with these kids. Bring it to a level they understand; just give them the basic skills.”

Moretti said he did a survey of parents and found that few if any of them spoke about money to their children. Most people learn basic financial literacy when they’re given their college diploma and sent out to find a job. He wanted his students to have an advantage, to understand how to write a check and how money flows before they have to learn from their mistakes.

Camille Schmidt, 10, admitted she didn’t know much about money when school started.

“I just thought if I eventually get out of college, I’ll get a job and try to make a lot of money or something, but now I’ve learned all about assets and liabilities and the way I was planning it, I probably would have a million liabilities,” she said.

Classmate Kayla Bautista, 11, said she never used to talk about money with her family, but since learning about gross and net income, she now has a better understanding of family finances.

The Cashflow Quadrants was created by Robert Kiyosaki in “Rich Dad, Poor Dad” book, and later lead to the book called “Cashflow Quadrants”.

Kiyosaki created the Cashflow Quadrant to help in figuring out where you are.  For if you do not know why you are, you will not know where you should be heading to.

 The quadrants are represented by : 

• Employee
• Self-employed worker
• Business Owner
• Investor

Where you belong in the quadrants is dependent on how your main source of income is being generated.

Employee earn income by working for other people.  You get paid for your time and effort.
Self-employed worker earn income by working for themselves.  They own the job.
Business Owner earn income from the businesses they owned.
Investor earn income from their investments. They place their money in business opportunity to earn more money.

In general sense, those people in the B and I quadrants achieve their financial success much faster than those peopel in the E and S quadrants.  Business Owner and Investor are more likely to be richer than Employee and Self-employed Worker.

The E (Employee)
People in the E quadrant is wary and fearful of economic uncertainty as their income is dependent on their job and their job is interrelated to the economy.  They therefore have a strong need for job security.
Employees can be CEOs of companies or delivery boy.  It is not what they do or how much they earn that make them Es.  Rather it is a fact that they are working for others, and earning salaries and benefits.

The S (self-employed)
S types are their own bosses.  Robert Kiyosaki referred them as “do-it-yourselfers”.  When it comes to money, they are fiercely indepent souls.  They don’t like to have their income depend on other people.  They expected to be paid well if they worked hard.  They also understand that if they don’t work, they won’t get paid.
This group includes professional such as doctors, lawyers and architects, who spend years in school.  It also includes small business owners.  For example, restaurant owners, travel agents, car mechanics, plumber, hairstylists as well as direct commission salesperson such as real estate agents.

Robert Kiyosaki described these above 2 groups as people who are trading their time for money.  How much they earn is limited by the amount of time they have.

The B (Business Owner)
The difference between S and B is that B can leave their businesses for a year and return to find it still profitable as before.  That is not the usual case with someone in the S quadrant.  When an S leaves his or her business for a year, chances are there is no business to return to.
The motto of a B is – Why do it myself when I can hire someone better to do it for me?
A successful B requires technical business skills.  To succeed, B’s need to know more than just how to build superior products or services.  They need to know how to build solid network of business systems.  They have to be skilled in the art of leadership.  Successful B’s bring out the best in their people so that their people will carefully tend the network of business systems.
Perhaps the greatest knowledge that B’s have is the understand of the concept of leverage.  Robert Kiyosaki said that successful business owner learn how to leverage on other people’s money (OPM) and other people’s time (OPT).

The I (Investor)
Regardless of which quadrant people make their money in, if they hope someday to be truely rich, they must utlimately move into the I quadrant.  For it is here that money becomes converted to wealth.
What is wealth?  Robert Kiyosaki said wealth is not measured in money.  It is measured in time.  It is the number of days you can survive without physically working and still maintian your standard of living.  I types don’t have to work because their money is working for them.
Robert Kisoaki described the I quadrant as the playground of the rich.  That does not mean that everyone in the I quadrant will achieve financial success.  You can be in the I quadrant and still be poor. In fact, you can still be poor in the E, the S and the B.  You can be get bankrupt.  Your investments can go wrong.      

So you want to your financial success, you got to shift yourself to the right side.  Shift to the B or even the I quadrant.  Moving from one quadrant to another is a matter of choice.  Shifting quadrant means altering how you think and how you look at the world.  This might be easy for other while difficult for others.  If you are receptive to change, it would be easy.  If you resist change, it would be difficult.  It all depends on you.