Wisdom of Rich Dad

By Robert Kiyosaki 

Don’t want to drive a car without a steering wheel? Then you wouldn’t want to make investments in which you have little influence over six crucial business controls.

A great quote from Warren Buffett goes: “I’m a better investor because I’m a businessman, and I’m a better businessman because I’m a better investor.”

So let me tell you how to be a better investor by being better at business.

Business knowledge varies among these three kinds of people:

Non-Investors: They expect that someone (such as their parents, their kids, a spouse, a company, or the government) will take care of them when their working days are over.

Passive Investors: They turn their money over to someone or some organization, such as a mutual fund, to manage. It’s the passive investor who tends to believe the financial planners’ mantra of “work hard, save money, get out of debt, invest for the long term, and diversify.”

Active Investors: These people tend to manage their own portfolios and assets, as well as hand-picking their advisors, who are not brokers or sales people. To be a successful active investor requires a higher financial IQ, more real world entrepreneurial business experience, and a very smart advisory team.

For non-investors and passive investors, investing is risky. The main reason is because these two groups of people have no control over the investments they’re involved in. While active investors know there’s risk, they also realize that the greater the control they have, the less the risk.

Getting a Grip on Business

What do I mean by control? Let me illustrate using the example of driving a car. To be a safe driver, there are six basic controls we all must have:

Steering wheel
Gas pedal
Brakes
Gear shift
Driver’s education/license
Insurance

You wouldn’t drive a car if you didn’t have any one of the above controls. Yet, when it comes to investing, this is what most people do — they invest without having any influence over the six basic controls of investing or a business:

Income
Expenses
Asset value
Liabilities
Financial education/management
Insurance

The reason Warren Buffett says he’s a better investor is because he’s a businessman who has control of those six levers of a business. In other words, he can tell how good an investment is by how well management manipulates these basic controls. In most of his investments, Buffett doesn’t just buy an equity position, he does his best to buy control of the business.

A good business person wants control over their business. For example, if sales are down and expenses are up, a good business person knows what to do to correct the situation. In my real estate investments, as soon as interest rates began to drop around 2000, our team immediately refinanced our debt (liabilities) on our properties, which reduced expenses, increased income, and boosted the intrinsic asset value of the property.

When I invest in real estate, I have lots of insurance. If a building burns or a tenant falls, I have insurance to cover those risks. A mutual fund has no insurance. That is why $7 trillion to $9 trillion were lost when the market crashed in 2000. Today, in spite of not having any insurance against losses, millions of employees happily deposit their money in their 401(k).

Know What You’re Doing

The bad news for most non-investors and passive investors is they pick investments that don’t welcome investor control. In fact, most non-investors and passive investors invest in the riskiest of all investments — savings, stocks, bonds, and mutual funds — all dangerous picks since investors lack control.

Ask yourself these questions:
Do you have control over the dollar’s fluctuation in value?
Can you get Bill Gates to reduce Microsoft’s expenses or replace its new marketing team?
Do you have any control over interest rates?
Do you know your mutual-fund manager personally?

While I do have some money in stocks, bonds, and mutual funds, most of my resources are in investments I control.

Even worse, most financial advisors — be they stock brokers, financial planners, or corporate investment advisors — don’t have any control, either. In other words, asking most financial advisors for investment advice is like a asking a taxi driver who’s driving a car without a steering wheel, gas pedal, brakes, or insurance to take you to the airport.

That’s why investing is risky for most non-investors and passive investors. As Warren Buffett says, “Risk comes from not knowing what you’re doing.”

Money can buy a lot of things. What has it bought Robert Kiyosaki?

“Lifestyle,” he says. “I like my lifestyle.  It’s much better than being poor.”

Robert Kiyosaki’s definition of a good lifestyle does not include laziness.  He typically gets up at 3 a.m. and writes while things are quiet, until about noon .  In addition to books, he also writes a bi-weekly column for Yahoo! Finance called “Why the Rich Are Getting Richer”and a monthly column for Entrepreneur Magazine titled “Rich Returns.”

His other businesses, including real estate investing, demand time, too.  Plus, he and his wife, Kim, are often pulled into a grueling travel schedule, speaking, teaching (he has performed live at Madison Square Garden), appearing on such shows as MSNBC, CNBC, Oprah and CNN, and promoting PBS fund drives, where he and his teachings have been featured.

“We thrive on all the activity,” says Kim.  “When you’re winning, it’s fun.  And Rich Dad is doing phenomenally well. As long as we keep winning we’re going to keep going. It’s not the money that drives us anymore. I don’t mean to be flippant, but it’s a game.  Of course, there are times when we’re so exhausted we decide to take some time off.  Next month we’re going to our house in Hawaii and just chill out for two weeks.”

Exercise helps the Kiyosakis keep up with their demanding schedule.  Not long ago, Robert Kiyosaki started working with a trainer who put him on an intense exercise schedule and a strict eating regimen.  Kim confides that Robert has lost 55 pounds in the past year.

For mental exercise, Robert reads.  “I put together study groups and we study books in depth,” he explains.

What does Robert enjoy doing when he’s not working?

“Working!” he says.  “I have the luxury of having enough money that I don’t have to work.  But I’ve already retired once and I hated it.  So I work at what I love doing.  I’m working with Donald Trump, Magic Johnson … my work is my fun.”

Robert Kiyosaki enjoys the rewards of his work.  He likes fast cars and nice surroundings.  He loves the luxury of not having to fly commercially when he travels, flying in a private plane instead.

How would you like your lifestyle to be when you have reached your financial success?

A short video clip of Robert Kiyosaki introducing what is going to be taught in his 2 live seminars in end April – Entrepreneurship Workshop and Real Estate Investing 

In the video, Robert Kiyosaki recommended a book called “The Long Tail” by Chris Anderson. 

This seems like an interesting book which talks about the visionary look at the future of business and what is called the long-tail phenomenon.
Check it out!

Robert Kiyosaki loves success.  But he’s not afraid of failure.  He loves the benefits of wealth.  But he’s not afraid of being broke.

Today, he is a poster child for success.  Confident, energized and excited to be alive, he lives with his wife Kim in a beautiful Phoenix home, flies in a private jet and enjoys the rewards that only international celebrity and wealth can bring.

The author of the blockbuster, Rich Dad Poor Dad, he hob-knobs with Donald Trump, preaches his doctrine of financial literacy to millions of people throughout the world in books and speeches, and owns an extensive portfolio of income-producing real estate, an oil company, a gold mine, a silver mine and other investments.

But Robert hasn’t always been rich and successful.  As recently as 1985 he was broke and homeless.

“Kim and I lived in a car for two or three weeks,” he explains.  “We ran out of money.”

Most people would be devastated by such traumatic circumstances.  What effect did it have on Robert?  “Not much,” he says simply.  “I’d been without money three times before that.  I don’t have the same fear most people have.  I don’t like being out of money, but I’m not afraid of it.  It’s really not that bad.  It’s just uncomfortable.

Another thing Robert is not afraid of: economic downturns.  “I like it when the bubble bursts,” he says.  “That’s when it’s easy to get rich.  That’s when bad investors lose their properties and good investors buy them.  If you’re a smart investor, it shouldn’t matter whether the times are good or bad.”

For Robert Kiyosaki, fearlessness is a success strategy.

What is your success strategy?

April is National Financial Literacy Month and a good time to start teaching your children and teenagers about financial literacy and sound money management. According to the JumpStart Coalition, the average high-school graduate lacks basic skills in the management of personal financial affairs. Many are unable to balance a checkbook and most have little to no insight into the basic survival principles involved with earning, spending, saving and investing.

Because students most often cite their parents as their No. 1 source of financial knowledge, it’s time to think twice about what you are — and aren’t — teaching them. Before your young adult leaves home for college or joins the daily workforce, consider these tips to help improve your kid’s financial savvy.

Set a good example.
Young adults learn by watching what you do, so the more they see you practicing good money skills, the more they’ll learn.

Get them involved.
Allow them to participate in your everyday financial responsibilities, such as comparison shopping. Let them sit with you while you pay the bills, so they can see the totals of your monthly obligations, including utilities, phone bills, mortgage payments and insurance costs.

Be honest.
While you don’t have to disclose all of your financial information to your children, involve them with the family finances as much as you are comfortable. Hiding family financial limitations will only confuse your child as they face their own financial challenges later in life.

Teach them to use credit wisely.
Using credit can be a tremendous asset or a costly mistake. Explain the consequences of misusing credit. For example, if a student racks up a $1,000 credit-card bill their freshman year, and pays the minimum payment each month, they will finish their bachelor’s degree, complete their master’s program and still have three more years to go to pay off their spending spree.

Finally, keep an open line of communication with your child; you might be their only resource for financial advice and information.

In one of previous post, Robert Kiyosaki explained why he uses the franchising business model to grow his business.

If you are interested to start your own business, instead of starting everything from scratch, becoming a franchisee is one of the best way to jumpstart your own business.

When you are presented with a franchise opportunity, request for a copy of the franchisor’s Uniform Offering Circular (UFOC), which contains financial and material information about the franchisor.  The Federal Trade Commission (FTC) mandates that franchisors provide a financial disclosure document to all prospective franchisees prior to signing the Franchise Agreement.  This document is an integral part in the franchise selection process, as it discloses everything material about the company, both good and bad.

It is a highly recommended that you seek assistance when reviewing financial information, such as from an accountant, especially when you have limited financial knowledge in this area.  Hiring an accountant to review the UFOC and financial statements may cost anywhere from a few hundred to several thousand dollars, but if you compare this cost to the overall financial investment you are preparing to make, it may pay off if they uncover negative information.  A franchise attorney can look for potential clauses that could lead to problems.

Whether or not you seek help with reviewing the UFOC, there are several things you can do to verify the information contained in the document and uncover potential red flags. Substantiating financial statements is important, as the government does not review UFOCs to ensure their accuracy, they only require that franchisors provide it to prospective franchisees.

Franchisors may or make not make straight-forward earnings claims (most often they do not) but will supply information from which you can calculate gross sales. A good way to substantiate earnings claims is to contact existing franchisees and find out their earnings.

Some things to consider when reviewing the UFOC include whether it reveals any unusual risks taken by the franchisor and if they have a questionably high litigation record, how its franchise outlets are performing, and how well the company’s intellectual rights are protected.  If they are not properly protected other businesses could use the same name or logos and open up shop in your area, possibly taking away your business and profiting from the name recognition you paid to use.