Wisdom of Rich Dad

After reading Robert Kiyosaki’s book Rich Dad Poor Dad and loving it, I eagerly wanted to get into his book Rich Dad’s Before You Quit Your Job: 10 Real-Life Lessons Every Entrepreneur Should Know About Building a Multimillion-Dollar Business, even though it’s too late for me since I already work for myself.

Overall it’s a pretty good book, but not as captivating at the original, probably because this time he’s not telling stories as much as detailing the thought process people should be ready for before deciding to start working for themselves. In that vein, I wish I’d been able to read it before I went out on my own.

What’s really different about this book is that the most important lessons to be learned are actually in the introduction and chapter one. If, after reading those two chapters, your mindset isn’t geared correctly based on the criteria, then it’s probably best not to even start the process of working for yourself.

For instance, his list of 10 excuses people usually utter as to why they feel they can’t go into business for themselves is illuminating right from the beginning, and later he mentions that one shouldn’t wait for all the lights to turn green before pulling the trigger. He uses Microsoft as the perfect example of that philosophy; we all have experience with that.

Kiyosaki loves the number ten, obviously, because he then lists 10 reasons people need to consider before they actually transition from employee to entrepreneur. Those things are:

1. Ability to change philosophy from security to freedom

2. Ability to operate without money

3. Ability to operate without security

4. Ability to focus on opportunity rather than resources

5. Having different management styles to manage different people

6. Ability to manage people and resources they do not control

7. Team and value oriented rather than pay or promotion oriented

8. Active learner – no graduation day

9. Generalized education rather than specialized

10. The courage to be responsible for the entire business
And, the book is subtitled 10 Real-Life Lessons Every Entrepreneur Should Know About Building Multimillion-Dollar Business, which is the heading for the ten chapters in the book. He actually calls the first nine Sharon’s Insights, named after the person he wrote the book with, Sharon Lechter, with whom he co-founded the Rich Dad Organization.

There is a lot one can get from this book. For instance, he has his five jobs every entrepreneur needs to have covered; he has his three biggest mistakes most independent business owners make; he has the six ways an entrepreneur can raise money; on and on.

He talks about the Cash Flow Quadrant, which is also another book of his, and I’ll admit that I’ve never quite gotten a hold of the principles of that. One thing I thought was interesting was the transition process that most people go through when they’re transitioning from an employee to an entrepreneur. There’s stage one, you become unhappy as an employee with 13 steps; stage 2, overcome the fear of getting started with 14 steps; and stage 3, just start, with 10.

In the last chapter, near the end of the book, he offers ten tips, with explanations, of what people should do before they quit their jobs. Truthfully, if you only had time to read the introduction, chapter one, and chapter ten, you’d learn a lot. There’s so much information in Before You Quit Your Job that what I’ve shared here is really just scraping the barrel.

There are many stories in here, and, after I came to grips with the fact that it wasn’t going to be Rich Dad, then I was open to learning some of the things he said in this one, even though I had already become an entrepreneur of sorts. This is a must read book for anyone thinking about, or who already is, an entrepreneur.

~~~

source:http://www.circleoneconnect.com

If you have read Robert Kiyosaki’s books you know that one of his big griefs is that schools do not teach proper financial knowledge. After working in the school system, in primarily low income and first generation middle class schools, I have come to not only agree with this statement, but to say that this lack of financial Knowledge is about to seriously hurt us as a country.

I don’t to come across as a doomsdayer here. I don’t believe that we are already in full crisis mode, but I do see us racing toward that. Without the proper financial knowledge the poor and the middle class are just going to get weaker, and the rich are going to get stronger. There is going to be an ever widening gap.

For me growing up in a solid middle class family I was not given any financial knowledge at all. As a matter of fact speaking about money was almost as bad as speaking about sex. My parents were deeply in debt, and they still are. As I learn more I am beginning to realize that my parents are even deeper in debt than they think. It is a shame.

So who has to make up for it? Well in my case it is me, my brother and sisters. But are we going to be in any better shape? Not without learning on our own. The only financial knowledge I got in school was how to balance my checkbook, and an elective class on the stock market crash of the 20’s and the Great Depression, and most of that class was on the Great Depression.

It is an evil cycle to get into and very difficult to break out of. In our school we say we give education about finances but it still is taboo. I run a game at the end of my Algebra class that I call Rich Student. Yes it is a total rip off of Robert Kiyosaki’s books, but it does not have anything to do with his game. The discussions in the class are limited only due to time. We talk a little bit about how Real Estate works, a little bit about how the Stock Market and true investing works, and we talk about developing incomes on line. Some students get it right away and do well, some never understand. But, if the students don’t have me as a teacher they will go their whole career without getting any financial education at all.

Lets talk solutions, not problems. So what is needed?

• Budgeting Skills

  We need to go beyond balancing the checkbooks, beyond saying simple subtract our bills from our paycheck, and start teaching what the rich already know. We need to teach our students to pay themselves first and if they can’t pay their bills they need to either figure out how to eliminate some, or find more money somewhere.

• Credit Scores

  It seems to me that the middle class and the poor must rely on their credit scores more an more to get out of where they are at. How do we protect this? How do banks calculate this. Most students, and probably their parents, have no idea what this means. They need help to get out of where they are at. That help is so dependent on this score. Students need to understand more about this.

• Real Estate

  Not only do the students not understand about houses they are misinformed. Houses may be an investment if bought properly, but they are not an asset. Students have no idea that they can pay up to 4 times the purchase price for a home after all their payments are done. They have no idea that a larger down payment and a better credit score will result in lower payments. They have no idea how to buy a house that will result in an income generation.

• Investing

  Students are completely confused about investing. They think that their parents are investors because they have a 401K or some mutual funds. They have no idea what it means to be an investor and invest in companies. As a matter of fact most students are afraid of investing in companies because they think that it is too hard. They don’t understand how to do it so they don’t. They have no idea what the difference is between a mutual fund, a retirement plan, and what stocks, or shares in a company are.

It is a no wonder that underprivileged kids think that the only way that they are going to make money is to play sports, rap, or deal drugs. It is sad that those are their heroes. If you disagree substitute teach in a public city school and listen to the conversations. You may be surprised at what they talk about.

~ www.coachkip.net 

My passive income march is starting to take shape, I have found a couple of great resources and mentors that have been successful at creating their own Financial Freedom through passive income and I am studying how they achieved their success and applying the strategies myself.

As there are naturally a lot of people looking at their financial situation at the moment, with the changes in mortgages, house prices and inflation, I am reminded of a story about peoples choices when it comes to looking for a return on their investment.

Oprah Winfrey had invited Robert Kiyosaki to be a guest on her fantastic daytime TV show to talk about Personal Finance and Raising Your Financial IQ. At a questions and answers from the audience session, one lady raised her hand and asked the question to Robert Kiyosaki:-

” I have $10,000 to invest, what would you advise I invest it in?” Oprah quickly responds, ” Robert, would you like me to handle this one for you?” She then goes on to ask the lady why she feels it is necessary to ask someone how to invest money, when she should be learning about it herself.

Now I know some great Financial Planners and Independent Financial Advisers who are experts in their field and I have done in the past exactly what that lady did and simply asked their opinion on what I should do with my money. I have also bought shares in companies I do not know exists, how many of us willingly talk to a broker, or buy shares online in “XYZ” mining company, when in fact we have never even SEEN the mine. It is all fascinating!

I spent a day recently at a seminar of 500 women, all had their own businesses and what struck me was the high percentage of those women who had found their financial circumstances had changed beneath them by events such as divorce or redundancy that had left them with a life to rebuild and a financial status that was fragile at best.

The reason I have chosen to carry out my own investing is because it is the provider of not only a sound financial independence of my own and choices for my family, but because I do not see why I should ask someone else to look after my financial future above myself.

~~~

source:http://witoo.wordpress.com/2008/05/24/why-do-people-ask-a-stranger-about-investing/

There’s been a lot of posts on leverage lately in the blogworld so I didn’t think it would hurt to have one more…

Also – I’m in no way advocating anyone use leverage for investments unless they are comfortable with the extra risks.

Leverage is an instrument that almost everyone uses when they buy their house. Although most people buy a house to live in, not as an investment, it’s an example of where people are using leverage and they might not even realize it.

If you ask people on the street about how they feel about borrowing to invest they might give you a lot of negative feedback. I suspect this is a holdover from times when margin accounts were the only way to borrow for investing. The problem with margin accounts is that if your investments drop in value enough then you have to come up with cash to pay the difference which is why certain investors were running out of windows in 1929.

My opinion is that leveraged investing can be a useful tool but definitely entails extra risk. However it occurs to me that sometimes the idea of leveraged investments can be a question of semantics.

Consider the following:
Person A gets a $200k mortgage on his house with a 25 year amortization. After five years, his mortgage is $185k and he also has $10k in cash that he has saved. This person decides to invest the $10k into a dividend stock, let’s say…BMO. So now he has a $185k in mortgage and $10k of stock.

Person B also gets a $200k mortgage on his house with a 25 year amortization. After five years, his mortgage is $175k but he has no extra cash to invest because he has been making extra mortgage payments. This person decides to borrow $10k from his secured line of credit and buys $10k of BMO as well and gets the tax rebate on the interest paid.

According to popular wisdom, person A is the epitomy of responsible investing using good old cash to buy his stock. Person B on the other hand has made a deal with the devil and plunged into leveraged investing.

So what’s the difference between the two? The only difference I can see is that Person B can write off his interest on his investments and Person A can’t. Obviously there are interest rate differences but I’m ignoring those since they shouldn’t be too significant.

Moral is – if you don’t make extra payments on debt and use cash to do investments then you would be better off to put that cash into the mortgage and then borrow it out again for those investments and get the tax rebate.

And yes, I realize that this logic was the genesis of the Smith Maneuvre but rest assured that I don’t recommend that particular strategy.

~ http://www.four-pillars.ca ~

1. High Dividend Stocks

There are a lot of stocks that paying quarterly or yearly dividends. Over time, the power of compounding (with a little help from inflation) can substantially increase the value of your dividends. My mother bought the Indian subsidiary of Unilever (Ticker: UL) called Hindustan Lever about 20 years ago. She’s being reinvesting most of her dividends and today her annual dividends are larger than the value of the original stock purchase. American Capital Strategies (ticker: ACAS) has been growing its dividends approximately 10% every year. According to The Dividend Investor,

If we invested $100,000 in ACAS on December 31, 1997 we would have bought 6906 shares. Your first quarterly check would have been $1,726.50 in March 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend payment would have risen to $17,095 by December 2007. For a period of 10 years, the quarterly dividend has increased by 300 %. If you reinvested it though, your quarterly dividend income would have increased by 890%.

Yes, reinvesting the dividends in companies that have historically kept increasing their dividends is key. Even though you might get only 2.5% return today, eventually with the increase in stock price and rise in dividends, your annual return should be greater than 12%. This concept is very well explained in Prof. Jeremy Siegel’s excellent book, The Future for Investors, which I highly recommend.

2. Oil & Gas Royalties

While there is a lot of fraud and speculation in direct oil drilling programs, they can be very, very lucrative for investors. Charlie Munger invested about a $1,000 in such an oil drilling program in the 60s and he’s estimated that its paid out over $500,000 in royalty payments since then. Apparently it still pays out $2,000 a month. Of course, most people NEVER see these sort of returns, but for the average person, investing in Canadian Oil & Gas Royalty Funds (or Income Trusts) is the next best thing. I’ve invested quite a bit of money into both the direct oil wells and the Canadian Income Trusts (or Canroys) and the overall result has been pretty positive in both (which is in excess of 12%).

3. Royalties on Books and Patents

Royalties on Books and Intellectual Property Rights can be even more lucrative. However writing a best-selling book or creating a something thats worth patenting can extremely time consuming and expensive. For most authors and inventors, its a labor of love – something that they would pursue even if there was no monetary reward to it. But many ebook writers who sell get-rich-quick books about “making money online” are getting very wealthy. Most of these books are garbage and the only people getting rich are their authors and resellers. Not a very ethical way to make money.

4. Rental Income on Properties Bought at the Bottom of a Real Estate Cycle.

If you bought rental buy and hold property in California, Nevada, Arizona or Florida during 2005 and 2007, my heart goes out to you. A lot of smart people got suckered into buying at the top of the market and are paying for it. However, if you buy correctly, preferably at the bottom of a real estate cycle, real estate can provide excellent passive income and fantastic tax advantages as well. According to Charlie Munger at the 2008 Wesco Financial Annual Shareholder meeting, “most real estate investors don’t pay any income tax, except once every 20 years or so“. Bought correctly (that is based on value, not speculation), rental properties can provide a steady stream of cashflow that is somewhat inflation-indexed. I say somewhat, because in the short-term anything can happen, but over a long period of time, real estate is going to match the rate of inflation.

5. Investing In Timber

Similar to Canroys, there are companies that grow trees specifically for timber and pay pretty decent dividends. There are also direct tree-planting programs where you can invest a minimum of $5,000 and own a portion of a timber operation. The company does all the work for you and supposedly cuts you a check once a year after a specific time interval. The endowment funds of Harvard and Yale have apparently been investing in timber for several years now with great returns.