Wisdom of Rich Dad

By Robert Kiyosaki

When I speak to entrepreneurs, I’m often asked the same question: “How do you raise money?” Most people don’t like my answer.

In 1974, I asked my rich dad the same question. I was getting out of the Marine Corps and had decided I would become an entrepreneur. My rich dad answered, “The number-one skill of an entrepreneur is the ability to sell. If you can’t sell, you should consider another line of work.” 

That year, I joined Xerox Corp. as a sales rep–not for the money, but for the sales training. For two years, I was the worst salesperson. But by my fourth year, my sales skills had improved–and so did my income. I understood then what my rich dad meant when he said, “Sales equals income.” That statement was true back then, is true today and will be true tomorrow. Yet instead of becoming lifelong students of sales, many people look down on the art and science of sales. They often think of how they view salespeople–as pushy, arrogant, won’t-take-no-for-an-answer arm-twisters–and convince themselves that they want nothing to do with sales.

I know many people who vigorously protest the idea that selling is part of their jobs. Entrepreneurs cannot afford that luxury. Raising money is a function of sales ability. And ultimately, the success of every venture hinges on sales. I’ve heard people say things like, “I am a leader, not a salesperson.” In simple terms, if you can’t sell, you’re out of business. You may have the best product, best education and nicest office, but if you can’t sell, you’re history.

My rich dad often said, “There are three people an entrepreneur needs to sell to: investors, employees and customers.” He also said, “These three people are your sources of money.”

Raising money is an entrepreneur’s most important job. The entrepreneur who can sell makes the most money and is a better leader. The entrepreneur with weak sales skills usually has low profits, large debts and difficulty growing his or her business. Such entrepreneurs are often heard saying, “My customers aren’t buying,” “I can’t raise any capital” or “It’s hard to find good employees these days.”

Although I didn’t like it when my rich dad gave me this advice years ago, I’m grateful that he shared it–and that I took it seriously. Today, my company is cash-rich and debt-free, simply because we sell. As I’ve stated in my book, I am a bestselling author, not a bestwriting author. 

I got this from a friend via email.  Not sure who the author is, but they are good points to note while learning to invest. 

There are four major risks that investors face when investing in stocks.

Risk #1: The economy

The most pressing risk of investing in the stock market is that the economy can always take a downturn. A combination of factors can cause the market indexes to lose significant percentages. In fact, we are just now returning to the levels of the pre-September 11 market.

In general, the economy is just going to happen. There is nothing you can do to control it. Most young investors are best off if they just ride out the downturns. Investing for the long run really helps. In fact, many investors use the downturns to pick up stocks that are good solid companies at a slightly lower price.

If you are an older investor, a major downturn of stocks can be devastating if you haven’t moved the significant portion of your portfolio from the stock market and into bonds or fixed-income securities. This is where management and risk tolerance really comes into play. Don’t put things off. You never know about the economy.

Risk #2: Inflation

Inflation will always be a risk to investors. It hits everyone, no matter their savings or portfolio size. It will destroy the value of your dollar. It is the cause of recessions. We like to believe that we can control inflation, but sometimes the cure is just as bad as the problem. Higher interest rates can help to mitigate inflation, but they can also hit the market in a negative way.

Investors usually retreat to hard assets, such as real estate, when inflation gets high. But in most cases, stocks are usually a pretty fair protection against inflation. the idea is that companies have the ability to adjust prices to the rate of inflation. There are some industries and sectors that adjust more than others, so you should diversify your investments. Investors are hurt by inflation by the erosion of the value of the dollar. Those on a fixed income will suffer the most. That is why it is a good idea to keep a portion of your assets in stocks, even when retired.

Risk #3: Market Value

Market value risk occurs when the market turns against your investment, or even ignores your investment. For example, the market often chases the next hot stock, leaving many good companies behind. Some investors will use this to their advantage — buying stocks before the market realizes their potential.

However, it can also cause your investment to flat-line while other stocks rise.

Diversification between different sectors of the economy is key. When you spread out your investments, you have a better chance in participating in growth.

Risk #4: Becoming too conservative

There is nothing wrong with being careful. However, you can go too far in how conservative you are. If you never take any risks, it is probably that you will not reach your investment goals. You know that investing in a savings account for the next 20 years isn’t going to give you enough of a return to retire. You have to be willing to accept some risk. Just keep it under a close eye.

When you know the risks of investing and research your stock potentials, you make decisions that help you not only mitigate risk, but eliminate a large portion of stress as well.

by Sharon Lechter
CPA, co-author of Rich Dad series of books 

Rich Dad said, “If you want to be rich, who you know is more important than what you know.” He explained further, saying, “Business is a team sport and investing is a team sport. The average investor or small-business person loses financially because they do not have a team. Instead of a team, they act as individuals who are trampled by very smart teams.”

People in the “E” (employee) and the “S” (self-employed) side of the CASHFLOW Quadrant (right) are taught to operate as individuals so they do not learn how to build a team. They often make less money than they could or would like because they tend to do everything on their own. Successful “B” (business owners) and “I” (investors) surround themselves with a team of experts in every area of law, tax, accounting, insurance, or securities so they find advisors who have assisted other people along their path to success.

An important distinction when selecting your team is that you want advisors who are strategists to the rich, not salespeople. Rich Dad’s Advisors counsel the rich, but are not salespeople to the rich. There is a big difference. Strategists get paid for their expertise and advice. Salespeople get paid for selling you something. Always know which type of advisor you are talking to. Also look for professionals who have personal experience in the specific area you are seeking advice. Does your real estate broker personally own any investment properties? Remember, there is nothing better than first-hand experience.

Want to be like Robert Kiyosaki and get rich via investing into real estate?

Then you have to start learning how to become a real estate investor!

- Robert Kiyosaki 

Tax season always means a deluge of tax advice. Unfortunately, most of it is futile and lightweight.

I say that because most people work for their money rather than have their money work for them. The problem with working for your money is that you pay more in taxes as your income goes up. In fact, if your income passes $65,000 as a W-2 employee, you may find yourself being double-taxed with the Alternative Minimum Tax, or AMT.

Working hard to earn more money and then giving it away in higher taxes isn’t financially intelligent, even if you do put some of it into a retirement account. On the other hand, making your money work hard for you means your earnings are taxed less, if at all.

Better Financial Advice

Recently, on a popular morning TV show, a personal finance expert recommended putting half of your tax return into your IRA, which she claimed may yield (for the average person) a whopping $25,000 gain over 40 years.

The problem with this advice is the likely decline in the purchasing power of the dollar — inflation — over that 40 years. I estimate that in 40 years, $25,000 will probably have the equivalent purchasing power of $250 today. Try getting excited about living on $250 when you’re old.

To me, it’s better to inform people about who pays taxes and who (legally) doesn’t pay taxes. If you can minimize taxes or avoid paying them altogether (again, legally), you can make a lot more money today instead of having to wait, with your fingers crossed, for 40 years.

Playing by the Rules of the Rich

Years ago, my rich dad told me, “When it comes to taxes, the rich make the rules.” He also said, “If you want to be rich, you need to play by the rules of the rich.” The rules of money are skewed in favor of the rich, and against the working and middle classes. After all, someone has to pay taxes.

There are many ways that the rich make a lot of money and pay little to no money in taxes, and anyone can use them. As an illustration, here’s a real-life situation in which I played by the rules of the rich and minimized my taxes:

• 2004: My wife, Kim, and I put $100,000 down to purchase 10 condominiums in Scottsdale, Ariz. The developer paid us $20,000 a year to use these 10 units as sales models. So we received a 20 percent cash-on-cash return, on which we paid very little in taxes because the income was offset by the depreciation of the building and the furniture used in the models. It looked like we were losing money when we were in fact making money.

• 2005: Since the real estate market was so hot, the 380-unit condo project sold out early. Our 10 models were the last to go. We made approximately $100,000 in capital gains per unit. We put the $1 million into a 1031 tax-deferred exchange. We legally paid no taxes on our million dollars of capital gains.

• 2005: With that money, we purchased a 350-unit apartment house in Tucson, Ariz. The building was poorly managed and filled with bad tenants who had driven out the good tenants. It also needed repairs. We took out a construction loan and shut the building down, which moved the bad tenants out. Once the rehab was complete, we moved good tenants in and raised the rents.

• 2007: With the increased rents, the property was reappraised and we borrowed against our equity, which was about $1.2 million tax-free, because it was a loan — a loan which our new tenants pay for. Even with the loan, the property still pays us approximately $100,000 a year in positive cash flow.

Kim and I are currently investing the $1.2 million in another 350-unit apartment house in Flagstaff, Ariz., a hot property market.

Move Money, Don’t Park It

This is an example of an investment strategy known as the velocity of money. As I’ve written before, moving your money makes more sense than parking it in cash, bonds, equities, or mutual funds — the strategy most financial advisors recommend.

Kim and I have several such scenarios active at any one time. We have lots of monthly cash flow, which we reinvest, but we rarely have any liquid cash sitting around to be taxed.

In the above example, we started with $100,000 we earned tax-deferred from another investment. The $100,000 eventually allowed us to borrow over $20 million from banks, tax-free. How long would it take you to save $20 million by parking your money somewhere, as most financial advisors recommend?

Chipping Away at Taxes

Clearly, one of the reasons the rich get richer is because they earn a lot of money without paying much, if anything, in taxes. They know how to use banks’ tax-free money to become richer.

Anyone can do the same. For instance, instead of paying capital gains tax on the sale of our condo units, real estate laws allowed us to defer paying these taxes and invest them into another property instead. The cash that does come from this property goes into our pockets at a lower tax rate because there’s no Social Security or self-employment tax to pay, and the tax rate is further reduced by the depreciation of the property.

On the flip side, the poor and middle class toil away for their money, pay more in taxes the more they earn, and then park their earnings in savings and/or retirement accounts. In the meantime, they receive little or no cash flow on which to live while waiting for retirement — when they’ll live on their meager savings.

Doesn’t it make more sense to play by the rules of the rich, and earn more while paying less in taxes?