Wisdom of Rich Dad

Growing your business comes down to basic multiplication–just make sure you add in the human factor.

Robert Kiyosaki  -  Entrepreneur Magazine – April 2008

One of the biggest dilemmas you will face after you get your business up and running is the decision to either grow or stay small. Obviously, most entrepreneurs opt to keep their businesses small because it’s much easier to control and manage a small business. And that’s because growth requires people.

As my rich dad often said, “Business would be easy if not for people.” If you choose to grow your business, being able to lead and manage people is one of the most important skills you can possess.

As the number of people grows, the number of relationships grows–and grows exponentially once you have four people in the business. For example, a one-person business has zero relationships; add a second person, and the relationship dynamic kicks in. Add another person: three people and three relationships.

But look what happens with the fourth person: four people and six relationships. Visualize each person as a dot, and draw a connecting line between each of the dots. You’ll see that with four people, you’ll have six connecting lines. Take it a few steps further and do the math: Seven people equals 21 relationships; 100 people means 4,950 relationships!

Many businesses grow by adding employees, then contract because they fail to grow internal communications systems and procedures. Instead of employees working together as a team to serve their customers, the exponential number of relationships causes internal chaos.

One of the problems with exponential growth of relationships is that it requires managers and leaders with exceptional people skills. But many entrepreneurs make the mistake of hiring team members that have great technical skills but lack equally great people, communication and leadership skills.

A few years ago, I brought on a brilliant attorney who was great at practicing law but absolutely horrible when it came to working with people. It was soon obvious to me that this attorney should only be in a windowless, one-person office and kept far away from contact with any other living creature. It took nearly a year to repair the damage this single brilliant technician did in just four months.

Before adding employees, you must honestly answer the following questions:

• How are my/their leadership skills?
• How are my/their organizational skills?
• How are my/their people skills?

Then it all comes back to the age-old question: “How do you find great people?”

To answer this, I turn to my good friend Donald Trump, who says, “Set the example and you will be a magnet for the right people.” That means doing what you say you will do, holding yourself to the highest standards, working to exceed expectations, learning from your mistakes and then sharing those lessons with others.

I am by no means an expert on money or business. Recently I talked about reading ‘Rich Dad, Poor Dad” by Robert Kiyosaki.

It really did have an impact on me and I’ve been thinking about how to use my dispensable income wisely. I thought of the ways money flow in and out of my life. As well as saving, which I can’t really afford to right now, I thought of four others.

Two are positive and two are negative. Two are extreme and can make or break you. The other two aren’t as drastic.

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Plus is money that comes into our lives through selling something we already have. What we are really selling are valuable assets which are more valuable than we realize. The main one is time which is extremely valuable but we usually sell it quite cheaply. In my case this involves labouring on a building site for minimum wage while I could be at home using my time to start a business. Another example is a skill such as a builder building a house for money. While you are getting paid, like time you have to actually show up and produce every time in order to receive your money.

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Once we get our money we usually spend it. Subtraction is money going out of our lives in small steps. These are usually essentials such as food but can include things we waste our money on such as a new TV or a restaurant meal.

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Division is when we use money to buy something but it also takes money away from us on a regular basis in the form of bills, maintenance or credit. Kiyosaki calls this a ‘liability’ which includes a car, a house, sky/cable TV and addictions such as smoking. Liabilities can easily lead to debt.

×Multiplication’s are the best things you can seek. These are ‘assets’ and when you buy them they keep giving you more money. This is how the rich get rich and they use money from their assets to buy more assets. According to Kiyosaki when you have enough assets then you can buy liabilities and luxuries.

I suppose it’s easier said than done and I have yet to buy any assets. At least I now know what to look for and I’m a bit more conscious with my money.

~~ http://lifesbestfriend.blogspot.com ~~

~ Sunday Business Post ~

Keith Cunningham lost his entire $300 million fortune at 40 and then made it all back. Now, he’s giving lessons in “wealth mastery”, writes Niamh Hooper.Half of all businesses started today will not last beyond two years, and 80 per cent will not last beyond five years.

As we face into an economic downturn, thousands of Irish businesses are digesting these statistics and are looking for help. Some turn to American entrepreneur, author and businessman Keith Cunningham for tips on “wealth mastery”.

Regarded as a world authority on business turnaround, Cunningham claims to be the “Rich Dad” in the international Rich Dad, Poor Dad book series that has sold over 26 million copies worldwide.

In the four years since the first book was published, it has proved to be the most popular book series in Ireland on “getting money to work for you, rather than you working for money”.

Nice concept. But in Cunningham’s company, it’s more than a concept.

In an interview with The Sunday Business Post before giving his Igniting Your Business seminar to a sell-out audience of 550 people in Dublin, Cunningham said success was determined by one thing.  Commitment to mastery.

The 57-year-old straight-talking Texan’s story is an inspiring one. Having started out in business at 11 with his own profitable door-to-door egg delivery service, he went on to create a $300 million business in Cable TV and real estate.

By 40, he had lost it all.  His money, his wife, his kids – everything.  “I got cocky, I think pride was my downfall, I got complacent.” He declared personal bankruptcy in 1991 and took an 18-month sabbatical.

“On my think time, I studied all the world’s religions, all the “ologys”, read 180 books and attended many seminars. I began re-evaluating who I am, what I stand for and what my life is about. I had stopped learning, stopped growing. I re-emerged with a commitment to mastery.”

“The most powerful thought for most people is that hell on earth would be to meet the person you could have been.”

During his time off, he met and mentored Robert Kiyosaki, providing the business information in the Rich Dad, Poor Dad books.  “I got him interested in business and he got me interested in teaching”, he said.

Within three years of his return, Cunningham had rebuilt his net worth. In recent years, he has mentored thousands of successful business people, sharing with them his mistakes and learnings of the past 35 years in business. He has also written the book Keys to the Vault.

The concept of mastery – “what you learn when you think you know it all” – comes down to three things, he said.

First, you’ve got to decide what you want, what you stand for.  Make a commitment.  Without it, nothing is possible.

Secondly, learning and practice.  If you’re unwilling to learn the critical skills and tools, it’s unlikely you’ll ever be successful.

Thirdly, a commitment to correcting. Most people hate the idea of being wrong.  The need to be right is part of the human condition, but it is that need to be right that makes you obsolete,  Cunningham said.

The need to be right is what causes people to stop listening, to stop learning. I believe people have a choice – you can be right or you can be rich, but you can’t be both.  It’s impossible.  People who are rich are all about finding out what other people want, then they go and get it and they give it to them.

But most business people have such a need to be right – they force their “good idea” onto the consumer, as opposed to asking what the consumer wants.

If you look at the best in the world, at what they do, none of them got there by being comfortable, Cunningham said.  They have taken risks and learned critical skills and tools.

Not a fan of the millionaire and get-rich-quick books on the market, he said the only people getting rich from them were their authors.

He doubted whether they could point to any student who had been successful using their method.

“The whole idea of passive income advocated in many of these books makes no sense. If you look at Bill Gates, Warren Buffet, Michael Dell and Richard Branson – did any of them create or get to keep their wealth by being passive?

As soon as we start talking about putting in 50 per cent and hoping to get 100 per cent, putting in the least to get the most, it doesn’t work.”

In giving advice to aspiring entrepreneurs, Cunningham keeps it simple: start by being an apprentice.

“We’ve lost the idea in the 20th and 21st century of being an apprentice under someone who is a master, someone who can teach the mistakes and the things not to do. If you’ve got to rely on trial and error, you’ll never get there.

Everything you want in your life lies outside of your comfort zones – it lies the other side of fear.

If you could have what you wanted by staying within your comfort zone, you would already have it,” he said.

Robert Kiyosaki appeared on ABC New in April to teach audience how to get smart with their Money.

Click on the image below to launch the video:

It also is critical to look at your overall financial situation to determine if you are getting ahead from one year to the next. A “net worth statement” helps you determine “where you stand” and serves as a measure of your overall financial position.The net worth statement is a summary of your financial position at a particular point in time (on a given date). It is a list of all your financial assets (what you own) and all of your financial liabilities (the debts that you owe). Net worth is the dollar amount you have when you subtract everything you OWE from everything you OWN.

You will need this information when you:

• borrow money;
• apply for a home mortgage;
• determine insurance needs;
• plan your retirement;
• write your will and determine estate planning needs in the event of death, divorce, or remarriage;
• settle a divorce.

What Are Your Assets?

Assets are any financial or material possessions that have monetary value. On the net worth statement the value is listed at the current market value, not what you paid for it. Assets include things such as:

• Cash on hand or in savings accounts (including certificates of deposit or checking accounts)
• Stocks, bonds, mutual funds
• Cash (not face) value of life insurance
• Money others owe to you
• Annuities, retirement plans
• Employee benefits such as company stocks
• Your home
• Other real estate and business interests
• Automobiles, trucks, other vehicles
• Household furnishings, antiques, jewelry, books, coins, artworks, etc.

What Are Your Liabilities?

Liabilities are the financial obligations or debts you owe to other persons or institutions. Included are:

• Mortgages
• Installment loans (cash advances, auto, etc.)
• Department store and credit card debts
• Taxes owed
• Unpaid bills (medical, utilities, etc.)
• Any other liabilities

Figure Your Net Worth

Total your assets and your liabilities. Subtract the liabilities from the assets. The result is your financial net worth.

Now that you have taken the time to calculate your net worth, how do you feel about your financial situation? Happy? Relieved? Discouraged?

If you are a bit discouraged, do realize that a negative net worth statement may easily happen to someone just starting out on their own or to young families. Just as a photograph shows how you looked at one specific time, so too, the net worth statement reflects your financial situation at only one point in time. It should be updated at least once a year or as your financial situation changes.

 If you are not satisfied with your net worth and want it to grow, develop a plan to increase it. More income, lower living expenses, and/or more investment growth are some alternatives.

To increase your savings you may have to cut spending in some areas. Also, make sure that your savings and investments are yielding the best financial return for your situation. You may want to reduce your present debt level by making regular payments and not adding any other debts. These are more specific examples that may result in increasing your net worth.

If you are like most people, your overall goal will be to increase your net worth each year. Developing a financial plan means taking control of what you have now and disciplining yourself to manage your money to reach these goals you have set for yourself and your family.

1. Build Your Mental Wealth Muscles

This is my absolute favorite lesson from the book. The author would constantly hear his poor dad saying, “I can’t afford that.” However, his rich dad said that instead of saying you can’t afford something, ask yourself…

“How can I afford this?”

The first statement requires no thinking. You want something. You don’t have enough money. Therefore, you can’t afford it.

The second statement is so much better. You want something. You don’t have enough money. So, let’s find some way that I can create enough money to be able to afford it. The difference between these two statements is incredible!

“Forcing yourself to think of how to make extra money is like going to the gym and working with weights. The more you work your mental muscles, the stronger they get.”                

- Robert Kiyosaki, author “Rich Dad, Poor Dad”

So, let’s say you wanted to buy a new big screen TV, but you don’t have enough money. What can you do to be able to afford it? Let’s come up with a plan…

I don’t know you, but I bet one thing you could do is find some unneeded junk around the house and sell it on eBay. With that alone, I bet you would have enough for your big screen. Or, at least half of it anyways!

Another thing you could do is start a savings plan for it. I bet you could easily save five dollars here or five dollars there. Cut back a little on your usual spending habits. Then, use those savings to help pay for the big screen.

The point is, next time you want something you can’t afford, use your mental wealth muscles to find ways that will make you be able to afford it. The more you use these muscles, the better they get. And the more money you will find yourself accumulating.

2. Increase Your Financial Intelligence

It’s a fact, schools don’t teach students nearly enough about money as they should. You learn history and you learn how to find what x is equal to, but you never learn what financial options that you have.

I’ve learned that increasing your financial intelligence is a self-study. High school or college is never going to teach you as much as you should know. You’re going to have to pick up the books and learn it yourself. So…

What areas of financial intelligence do you need to learn? Rich dad suggests four main categories. Those are…

1. Accounting – You’ve got to be able to read financial statements.
2. Investing – You have to learn to grow your assets until you are financially free.
3. Understanding Markets – You have to know supply and demand and how to take advantage of it.
4. Law – You need to learn to protect yourself. And also know what you are and aren’t allowed to do.

Being heavily schooled in these four subjects is essential towards wealth. You’ve got to go to the library or go online and find books on these subjects.

One thing is certain, you can never learn enough about these subjects. It should be a lifetime study. Each book you will read will hopefully give you one more piece to the financial puzzle. With each book you read, you will learn something new that will help you on the road towards financial independence.

It doesn’t matter where you are at financially right now. Get started learning what very few people know about acquiring wealth.

3. Spend More Money On Assets, Less On Liabilities

Rich Dad, Poor Dad talks heavily about distinguishing between an asset and a liability.

In case you don’t know, an asset is something you buy that grows in value over time. A liability is something that loses value over time.

The best example of a liability that I know of is your car. With every time you drive it, it loses value. The mileage that it accumulates makes it worth less and less, should you ever decide to sell it.

Most people spend a majority of their income on liabilities. Whether it be a car, a nice new TV, video games, etc. You should spend as much as you possibly can on assets instead of liabilities. So, what are some examples of assets that you can buy? Well, there are basically four main categories…

1. Investing – Whether it be in stocks, bonds, or anything else. A smart investment will grow largely in value for you over time.

2. Business – You can save up money to start your own business. This is a great asset that can earn you a ton of money. You can even hire other people to run the business for you, you just need to have the money to get it started.

3. Real estate – The fact is that many people make a fortune through real estate. It’s a high-risk, high-reward kind of business.

4. Other – Anything that you think will grow in value over time, and you enjoy buying, is a great asset for you. For example, if you love collecting baseball cards, they will be worth a lot more 40 years from now than they are today.

Do everything possible to set up multiple streams of income. By having as many assets working for you as you possibly can, your money will start to grow for you exponentially. The more you have invested, the faster it will grow.

Be smart and make it a habit of spending as much as you can on assets , and as little as you can on liabilities.

4. Why You Should Own A Business

There is a big difference between owning your own business and working for one. This big difference, for the most part, deals with taxes.

Taxes are the largest expense for a majority of people. It can easily cost you 30% if your income. Meaning that you are working 3-4 months out of the year just so you can pay for taxes.

When you work for a company, there is very little you can do about this tax situation. It’s basically inevitable that you are going to have to pay the maximum in taxes. However…

If you have your own business, you have many more options!

The greatest loophole there is when it comes to taxes is tax deductions. When you have your own business, anything that is considered a business expense can be put as a tax deduction, which further decreases the amount of taxes that you have to pay.

From my own experience with building websites (a home-based business), tax deductions have done wonders for me. All of my hosting fees, my high-speed Internet, and all of the personal development books that I purchase are all tax deductible!

Many of these things I would purchase even if I didn’t have a website to run. But because I do have an income-producing website, it makes these things tax deductible! Saving me lots of money whenever tax time comes around.

Even if you own a business, you are still probably going to have to pay some taxes. But the percentage that you are going to pay will be far lower when compared to what you would have to pay if you worked for a business instead of owning one!

5. Get A Job To Learn

Most people get a job to earn a paycheck. But a better way to think about getting a job is what you will learn from it.

Having a job is an opportunity to get first-hand experience learning and applying new skills. By having a job, you get to learn time management so you can get as much done as possible. You also improve communication skills when you interact with other employees.

Everything about a job can be used as a learning experience.

Choose a job, not for how much it pays, but for what you will learn from it. If a job will teach you the skills that will help you make a fortune later in life, then don’t worry about how much it is paying you. It will work out in the end.

Basically, keep the long term future in mind when you are choosing a job. Is this job going to help you in the long term? If it isn’t, it’s time to go searching for something that is.

6. Why You Should Pay Yourself First

You’ve probably heard the term “pay yourself first” before. But if you haven’t, it basically means to set aside some of your income first, before you pay your bills and the other things you have to pay for.

So, if you decide to save 10% of your income, you first take 10% out of your paycheck, then you do your best to live off of the other 90%.

It’s easy to see why this is a great strategy. Especially if you use that 10% to buy assets that will help you become financially free. But what are some of the other advantages of “paying yourself first.” Well…

As we have already learned, it’s important for us to build our “mental wealth muscles.” And, as it turns out, paying yourself first is a great way to build those muscles.

You probably already have a strong motivation to pay all of your bills on time. That way you don’t have to pay any late fees, or receive phone calls asking where the check is. Well, when you pay yourself first, you have even less money to pay off those bills! So, the secret is you can use that motivation to help you find ways to be able to pay your bills on time.

Whether it be reducing your spending, or finding ways to earn more money, either way it works out very nicely for you!

By paying yourself first, you force yourself to be better with money so you can still pay your bills on time. And not only that, it’s nice psychologically when you know that a percentage of your income is yours to keep! I don’t know about you, but I like thinking that my money is mine and that nobody can take it from me.

Pay yourself first. Set aside 10-20% of your income and live off the rest. This will automatically force you to be smarter with money and also build your mental wealth muscles to find ways of earning yourself a fortune.