Wisdom of Rich Dad

Thomas Stanley and William Danko, author of “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy”, created a formula to help you determine whether you are indeed wealthy based on your income. The formula is as follows:

(Age x pretax annual household income from all sources except inheritances)/10

This formula is what your expected wealth should be. So for instance, Jane is 34 years old. She earns pre-tax $120k annually and has investments which give her $20k income every year, she also inherited $300k from her parents. What is Jane’s expected wealth?

Her expected wealth is $476,000 (34 x $140k/ 10). This means if Jane has a networth of around $476,000, she is well on track or an “average accumulator of wealth (AAW)” . If Jane has less than $238,000 (one-half of $476,000 ), then Jane is considered an “under accumulator of wealth (UAW)”. However, if jane has more than $952,000 (double her expected wealth), then Jane is considered a “prodigious accumulator of wealth (PAW)”.

Give it a try and see if you are a AAW, UAW or PAW.

Staci Carsten (http://allpacificmortgage.blogspot.com)

Several of the people I meet who want to become real estate investors, have been reading Rich Dad Poor Dad, and they’d like me to tell them how to hurry up and get rich off real estate. Usually I refrain from telling them that not even Kiyosaki, himself, got rich overnight in real estate. He got rich giving seminars and writing books about how to get rich overnight in real estate (and once he had a lot of money to invest, he was able to make some nice real estate investments too – just like anyone with several thousands of dollars burning a hole in their pocket can do).

But some of his investment advice isn’t really so bad, if you have the time, the wherewithal and the cash to do it. However, there’s one piece of advice that he gives that is so false and ridiculous, I’m surprised when I hear people believing it. He says that his (nonexistent) “rich dad” told him that his personal residence is not an asset, but a liability.

So let’s first put this nonsense to the Accounting 101 test. Accounting 101 says that anything you own is an asset, and anything you owe is a liability. Therefore the mortgage against your house is a liability, the house itself is an asset. With any luck the house is worth more than you owe, so that you have a positive net worth. If that’s not the case, it doesn’t turn the house into a liability, it just means you, unfortunately, have a negative net worth. Even your car is an asset, though a deprecating asset and therefore not really a sound investment – your car loan is still the liability.

Furthermore Kiyosaki only considers real estate an “asset” if it’s paying you cash every month. This is not the definition of an asset. If it’s making you money every month, it’s generating positive cash flow in accounting-speak. But even if you’re feeding it because the payment is higher than the rent or because it’s vacant, it is still your asset. It’s just not a money-making asset – yet. In this marketplace, unless you have about a 35% down payment, the odds are slim that you’ll be able to buy an investment property that will generate a positive cash flow. That doesn’t mean that real estate is not a good investment. You’ll still have an appreciating asset, and over time rents will increase with inflation while your mortgage payment will remain fixed.

The bottom line is twofold. First,a real financial advisor is a far better bet for good information on investing than a clever infomercial creator. And second, real estate investing is part of a long-term investment plan, not a get-rich quick scheme.

What’s the best way Americans can prepare for retirement? How should people invest their money?  

As some people know, my rant is: “Why doesn’t our school system teach kids about money and investing?” Rich or poor, smart or not smart, we all use money. Really that’s where it starts. I know 95 percent of the people don’t do that; they turn their money over to a financial planner. If you have no financial education, then I would follow the financial planner’s advice of start young, save and invest in a well-diversified portfolio of probably index funds, but that’s not the way I do it. I’d rather invest in my education.

Let me say it this way: I have a friend who buys a new set of golf clubs every year, but he won’t spend a dime on golf lessons. And he can’t understand why his golf game is still terrible. It’s not the golf clubs, it’s not the stock, it’s not the bonds, it’s not the real estate that makes you a better investor, it’s your knowledge, it’s your wisdom. So I would rather invest a lot of money in golf lessons and none in golf clubs and I’d have a better chance of winning the game.

But in the world of investing, most people would rather invest in a stock and a bond and nothing in their brains and that’s why they don’t get those high returns. Or they say such silly things as “investing is risky” or “get out of debt and save money” and all those little platitudes that the financial planners teach you, which is good advice for a person who really has limited financial training.

What is the single best piece of advice you have to give someone who is poised on the brink of retirement — especially someone who is in that 80 percent of those not financially prepared for it?

Your best asset is really your brain, and if you haven’t educated it, then you’ve underused your best asset. I would be very concerned with this idea of saving money. The purchasing power of your dollar is going down and when the Federal Reserve reduces the interest rate, that means the interest on the revenue you receive from your savings goes down. Today you really have to learn how to invest. Let’s say bread is $3 a loaf today and in 10 years it might be $8 a loaf. You’ve really got to start thinking in that kind of financial environment simply because the U.S. dollar is going to keep dropping. Americans who are holding dollars are in very big trouble.

I would really invest in getting some degree of financial education. If you’re over 60, I don’t think the idea of investing for long term is a reality. I would probably look at starting some business on the Web, something that is minimal physical output and you can learn how to buy and sell stuff on the Web. Hopefully that will keep you alive with the cash flow.

When I start talking to people about building a passive income business by following the teachings of financial freedom guru Robert Kiyosaki, I immediately hear about people’s plans for buying real estate.

Anyone who has read the book Rich Dad, Poor Dad thinks that Robert Kiyosaki is all about investing real estate and buying rental or commercial property in order to achieve the financial freedom of their dreams. So, they instantly start putting all their money into real estate.

Reality check: That’s not book’s message. I try to listen patiently (after all I also believe that real estate can be a great investment vehicle), but the reality is you need a solid plan to achieve financial freedom, not a one off strategy.

Authors Robert Allen, Robert Kiyosaki, David Bach, and many, many talk about building multiple streams of passive income, that means having more than one investment vehicle, and making sure all those vehicles deliver passive income.

For beginners: passive income is income that comes in day in day out without you having to work to get it. Put simply, you are not trading hours for dollars. A true passive income business is one that if you were to leave it alone for a period of time, such as a year, you could return and find it more profitable (or at least generating the same level of income) as before you left. Passive income investments are the true path to financial freedom.

So what is the principle that Rich Dad truly talks about. He calls it the Power Investing Principle.

1 – Start a part-time business for the cashflow & tax advantages.
2 – When the market is right invest in real estate. (Now is not the time.)
3 – Invest your excess cash from the real estate in paper assets.

Unfortunately, a lot of people jump into step 2, real estate, without a lot of background knowledge about how to make that investment a lucrative one.

Here’s a clue, the property needs to generate passive income (that means it should be putting money into your pocket not taking money out). Capital gains (betting on an increase in value) should be a bonus not your sole reason for buying.

One of the first steps in building a solid passive income plan is to identify how you plan to generate passive income. The plan should include a number of sources including businesses, real estate and paper assets. The reason for this is to create a stable platform on which to build financial freedom you need all the elements.

Now, lets go back to the power investing formula and look at number 1: Build a business. Why do you want to build a business first? Simple: businesses provide the financial backing (cashflow) to support real estate investing. Makes sense right?

While there are only three steps in the power investing principle, you need to take the time to understand the systems behind each one. For example, master the business building system then move on to the system for residential real estate investing.

Taking it step by step will lead to prosperity and reduce your risks along the way.

Making money from the comfort of your home with a web-based business is an ideal opportunity for some. However, while many will ponder the decision, action comes very slowly.

Doubt will surface and a “too good to be true” mentality will creep in. Leaving the comfort and security of their present job situation will create anxiety in those that need absolute security. But it doesn’t have to be that way.

Starting an online marketing business can be built part-time using one of the duplicable systems out there. That way, the new e-entrepreneur can learn from a mentor – someone who has cleared the path before. There are many opportunities out there. Investigate them and make a decision.

Robert Kiyosaki of Rich Dad fame espouses the philosophy “just do it”. Take the risk, but only after doing a due diligence investigation.

In one of the Rich Dad courses that I took, we were offered an excellent tool.

We were told to ask the question: What is the best thing that can happen? and write down your answer. Then ask yourself: What is the worst that can happen? and write that down too.

Now for each of the items under: What is the worst that can happen?, ask yourself if you can handle that. For example if you had put down that you wasted time; write down whether you can handle that. If one of the worst things is that you lose $1,000 then ask yourself if you can handle that and write down that answer too. If you can handle the worst outcome, you may want to proceed but if you cannot handle it, then you should pursue a different opportunity.

Basically ask yourself if the potential reward of the best possible outcome is worth the risk of the worst possible outcome.

Building a business does take time and usually some money. You can invest both to various degrees. Some people will put in more time and less money. Others put in more money and less time. Neither is necessarily better than the other.

It depends, of course, on where you invest your time and money. Perhaps if you have less money to invest in your new business you need to spend more time deciding the best bang for your buck. This may even be a better strategy than just throwing money at all of the investments that are presented to you as you build your on-line business.

Once you make the decision to start, you must commit yourself to your goal. This will involve planning your time and money strategy wisely to maximize the possibility of the best outcome being realized. Learn and continue top learn from all opportunities presented to you.

Many are offered to you by whatever affiliation you make with your web-based business. Others are available by searching the internet or asking people whose success you admire.

For example, I chose to learn about the success of Robert Kiyosaki by reading his Rich Dad series, listening to his CDs and completing his courses. Robert Kiyosaki is concerned that people will not have the financial resources to look after themselves in his retirement and has dedicated a big portion of his life to educate people in the financial realm.

I liked his altruistic motive and wanted to learn what I could. Find your own interest and pursue it. Take action and learn, reap the result, and repeat the process. It will be your guide to success.

Mark Styranka

http://www.ExcitingDestiny.com

Final part of Rick Sloboda’s “13 Reasons of Why Most Business Fail”

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9. Fighting change

Accept change, insists Jack Welch, former GE CEO and best-selling author. “Business leaders who treat change like the enemy will fail…” he stated. “Change is the one constant, and successful business leaders must be able to read the ever-changing business environment.” Accordingly, it’s important to promote an openness to change by teaching colleagues to see change as an opportunity — “a challenge that can be met through hard work and smarts.”

10. Neglecting points of contact

Consider every point at which your company makes contact with a prospect: your office, receptionist, website, business card, sales call and so on. Business advisor and bestselling author Harry Beckwith stresses the need to study each point of contact, and improve each one significantly. Otherwise, it may be your only one — or even your last.

11. Wrong packaging

Author Robert G. Allen, who is credited with making many millionaires in the U.S., cited an “info-preneur” who spent years and tens of thousands of dollars creating a product called Compact Classics, which condensed all the great classic fiction and non-fiction books into a two-page format. No one bought it until it was re-titled to The Great American Bathroom Book. Allen reported: “The idea caught on and millions dollars later, the idea is still pumping out cash.”

12. Culture of bureaucracy

Good to Great and Built to Last author Jim Collins warns businesses to avoid bureaucracy, which he calls “the cancer of mediocrity.” He explained: “Most companies build their bureaucratic rules to manage the small percentage of wrong people on the bus, which in turn drives away the right people on the bus, which then increases the percentage of wrong people on the bus, which increases the need for more bureaucracy…” The solution? Build a culture of discipline with an ethic of entrepreneurship to get a “magical alchemy of superior performance and sustained results.”

13. Narrow-mindedness

The late Napoleon Hill, credited for influencing more people into success than any other person in history, wrote: “The person with a ‘closed’ mind on any subject seldom gets ahead.” In fact, he noted, intolerance means that one has stopped acquiring knowledge. “The most damaging forms of intolerance,” he documented, “are those connected with religious, racial and political differences of opinion.”