Wisdom of Rich Dad

By KARA McGUIRE, Star Tribune 

Every other Tuesday night, Mike Jacka and at least a dozen others can be found in a Minneapolis hotel meeting room, buying and selling real estate, evaluating stock investments and leveraging their assets in the hopes of getting out of the rat race. In just hours, millions are made and lost.

Lucky for the losers, it’s only a game — called Cashflow 101. The object: To save your colorful plastic rat from too much work for too little pay and transport it onto the “fast track” to wealth. The winner escapes the rat race by making wise investments that increase passive income until it exceeds expenses.

Cashflow 101 was created by Robert Kiyosaki, best known for his “Rich Dad, Poor Dad” personal finance books. A new, similar game, the Millionaire Maker Game, was launched last year by Loral Langemeier, an author and former Cashflow 101 distributor.

Langemeier claims it takes three to five years to become a real-life millionaire if you read her “Millionaire Maker” books and play her game. She says most people have a hobby or perform tasks such as dog-walking or tutoring that could be turned into a business. “But we’re not taught to do that,” she says. Her game opens people’s minds to the possibility that they can “create an unlimited amount of cash.”

Langemeier and Kiyosaki are trying to tap into the growing market for personal finance help. The market has moved beyond financial self-help books to include an ever-expanding array of seminars, websites, games and televisions shows, all aiming to teach people about the tools to financial freedom.

Langemeier and Kiyosaki, based in California and Arizona, respectively, claim that their games help lay the foundations for becoming successful real estate investors, business owners and, ultimately, millionaires.

But some are skeptical of their advice, which often goes against the suggestions of financial planners and conventional wisdom. In a video that Jacka showed to the group at one meeting, Kiyosaki says boldly that investing in a 401(k) is “a suicide mission,” and that savers are “losers.”

“I don’t want to save for retirement,” he says. “I want somebody else to pay that for me.”

But paying for his advice can be pricey; Cashflow 101 costs $195. A Kiyosaki seminar running in the Twin Cities Jan. 8-10 (more information: http://www.richdadeducation.com/), purports to be free, but his materials will be for sale. And with workshops in multiple locations around the country during that time period, Kiyosaki can’t attend them all.

According to the Millionaire Maker Game’s website, pay $500 to distribute the game and you’ll receive sales training, two games, additional Langemeier materials and the option to buy additional games for $75. Her game sells online for $74.95 at Barnes & Noble ($67.45 “members price”).

Willing to pay

But devotees like Jacka gladly pay the price. He charges participants $10 to play Cashflow 101 with his real estate club, a group of veteran or wannabe real estate investors who pay as much as $399.50 per year for a membership for the group’s guest speakers, networking and educational events.

Jacka became a real estate investor in 1992, after being inspired by a late-night infomercial that touted the benefits of being a landlord. But without the game to play or a real estate club to join (he founded the Minnesota Real Estate Investors Association in 2002), he said he made “tons” of mistakes, selling properties too early and failing to generate extra cash.

Before Cashflow 101, “I couldn’t make heads or tails of my real-life balance sheets,” he says, and he credits the game for helping him grow his business of running the club, taking care of four single-family homes and evaluating potential deals.

Danny Hecker, who is pursuing real estate investing full time, says the game helps him with “the mind-set of minimizing your expenses and maximizing your assets.” He and his wife are thinking about selling their boat and possibly downsizing their North St. Paul home in order to free up cash for investing. “Instead of bringing on bigger luxuries, we’ll probably pursue more assets,” he said.

Hecker has played the game three times after reading some of Kiyosaki’s books. On this particular December night, he drew the lawyer identity — high income, but also high expenses. Joe Pepka, a part-time real estate investor, selects the janitor card. But it’s not long before he begins to clean up, despite his small salary.

Pepka draws a card. “Oh, yeah!” he shouts before reading aloud his option to buy real estate for zero down. “Oh, sweet. You got a good one off the bat,” says Jacka, who says you can still find zero-down offers in the real world despite tighter mortgage lending. That night, Hecker just wasn’t drawing cards that allowed him to reduce his expenses or increase his income.

For Pepka, he’s drawn to real estate in his real life because “it’s a way to make money — if you do it right — without a lot of investments.” He says he’s beginning to use strategies that he learned from playing the game, such as “partnering with people and using other people’s money to do deals.” After several profitable investments that night, Pepka won the game.

A fixed deposit probably ranks as the most conventional investment avenue for domestic investors. More importantly, given its offering, it makes an apt choice for risk-averse investors. In this article, we present five things investors must look at in an FD.

 

 

1. Credit profile

The fixed deposit’s credit profile is an indicator of the degree of risk associated with it in terms of timely repayment of the principal and interest payment. For example, an ‘AAA/FAAA’ rating is indicative of the highest level of safety. Typically, an FD with a higher rating would offer lower returns vis-vis an FD with a lower rating.

The additional return in a lower rated FD is in effect a compensation for the higher risk borne. Investors would do well to decide on the quantum of risk they are willing to bear and then select an FD.

 

2. Rate of return

Rate of return or interest rate indicates the return that the FD investor will clock. At any point in time, it is not uncommon to find various entities like banks, small savings schemes and corporates offering differential returns on similar rated FDs. Investors on their part would do well to scout various options and select the FD that offers them the best return at a rating that suits them.

 

3. Interest payout options

Investors can generally choose between various interest payout options like monthly, quarterly, annually or on maturity. Ideally, the investor’s need for liquidity should be used to determine which interest payout option is chosen. Selecting the interest payout ‘on maturity’ option can help investors benefit from the compounding effect and clock a higher return.

 

4. Tenure

The FD’s tenure is the period over which the investor stays invested. By and large, a longer tenure translates into a higher rate of return. Investors must match their investment tenure with their needs/objectives. For example, if the investor has an expense to meet 3 years hence, he can invest an appropriate amount in a 3-year FD to ensure that the maturity proceeds match his future obligation.

On the same lines, if there is a 5-year investment tenure, then investments can be considered in tax-saving FDs; this will help the investor simultaneously benefit from tax sops under Section 80C.

 

5. Premature withdrawal

An often-ignored aspect of FD investing is the premature withdrawal clause. Investors opting for a premature withdrawal can be penalised by either being given a lower rate of return or zero interest depending on the terms and conditions of the FD. Investors would do well to acquaint themselves with the implications of a premature withdrawal before making an investment.

Alan Jacques is President of a successful Canadian company and excellent teacher of subjects related to money, wealth and entrepreneurial businesses.

This is his Quick Reference Guide To Wealth inspired by Robert Kiyosaki’s work:

–> Click here to watch Robert Kiyosaki’s message here!

Cash flow problems can kill businesses that might otherwise survive. According to a U.S. Bank study, 82 percent of business failures are due to poor cash management. To prevent this from happening to your business, here are my 10 cash flow rules to remember.

1. Profits aren’t cash; they’re accounting. And accounting is a lot more creative than you think. You can’t pay bills with profits. Actually profits can lull you to sleep. If you pay your bills and your customers don’t, it’s suddenly business hell. You can make profits without making any money.
2. Cash flow isn’t intuitive. Don’t try to do it in your head. Making the sales doesn’t necessarily mean you have the money. Incurring the expense doesn’t necessarily mean you paid for it already. Inventory is usually bought and paid for and then stored until it becomes cost of sales.
3. Growth sucks up cash.  It’s paradoxical. The best of times can be hiding the worst of times. One of the toughest years my company had was when we doubled sales and almost went broke. We were building things two months in advance and getting the money from sales six months late. Add growth to that and it can be like a Trojan horse, hiding a problem inside a solution. Yes, of course you want to grow; we all want to grow our businesses. But be careful because growth costs cash. It’s a matter of working capital. The faster you grow, the more financing you need.
4. Business-to-business sales suck up your cash. The simple view is that sales mean money, but when you’re a business selling to another business, it’s rarely that simple. You deliver the goods or services along with an invoice, and they pay the invoice later. Usually that’s months later. And businesses are good customers, so you can’t just throw them into collections because then they’ll never buy from you again. So you wait. When you sell something to a distributor that sells it to a retailer, you typically get the money four or five months later if you’re lucky.
5. Inventory sucks up cash. You have to buy your product or build it before you can sell it. Even if you put the product on your shelves and wait to sell it, your suppliers expect to get paid. Here’s a simple rule of thumb: Every dollar you have in inventory is a dollar you don’t have in cash.
6. Working capital is your best survival skill. Technically, working capital is an accounting term for what’s left over when you subtract current liabilities from current assets. Practically, it’s money in the bank that you use to pay your running costs and expenses and buy inventory while waiting to get paid by your business customers.
7. “Receivables” is a four-letter word. (See rule 4.) The money your customers owe you is called “accounts receivable.” Here’s a shortcut to cash planning: Every dollar in accounts receivable is a dollar less cash.
8. Bankers hate surprises. Plan ahead. You get no extra points for spontaneity when dealing with banks. If you see a growth spurt coming, a new product opportunity or a problem with customers paying, the sooner you get to the bank armed with charts and a realistic plan, the better off you’ll be.
9. Watch these three vital metrics: “Collection days” is a measure of how long you wait to get paid. “Inventory turnover” is a measure of how long your inventory sits on your working capital and clogs your cash flow. “Payment days” is how long you wait to pay your vendors. Always monitor these three vital signs of cash flow. Project them 12 months ahead and compare your plan to what actually happens.
10. If you’re the exception rather than the rule, hooray for you. If all your customers pay you immediately when they buy from you, and you don’t buy things before you sell them, then relax. But if you sell to businesses, keep in mind that they usually don’t pay immediately.

Tim Berry is the “Business Plans” coach at Entrepreneur.com and is president of Palo Alto Software Inc., which produces the industry’s leading business planning software, Business Plan Pro, as well as other popular planning applications for businesses.