Wisdom of Rich Dad

The title to this post is a little off in that most times people invest in things in order to get wealthy.  Either way you look at it, there is much research on this subject.  Funny thing, it is not primarily mutual funds or even individual stocks that make up the portfolios of the wealthy.

First, lets define wealthy. 

There are three generally agreed upon categories.  The mass affluent which has a net worth outside of their primary home of $100,000- $999,999.  The wealthy which has a net worth outside of their primary home of $1,000,000- $9,999,999.  And the super wealthy which has a net worth outside of their primary home above $10,000,000.

Interestingly, the investment strategy is basically the same between the wealthy and the super wealthy. And the higher you go in net worth for the mass affluent the more they look like the other two classes.

So how do they invest?  What financial instruments do they use?  Well, the truth is they use all sorts of financial instruments, but there are two main strategies which set them apart from those that have less than them.

First, is real estate.  The largest categories of investments for the wealthy is real estate and it only gets larger as you go up the wealth ladder.  Of course they all own a primary home.  But a second home is the next largest category of real estate investment.  And as you go up the scale they own 3,4 or more homes. 

Next category is income producing real estate.  The wealthy own apartment buildings, commercial buildings, duplexes, etc. that will produce income for multiple generations.  REIT’s (real estate investment trusts) are favored by the wealthy. Raw land is bought and sat on until the investment blooms.

The next largest category is businesses. Usually they control or own large blocks of a business that can be best called creative or niche businesses.  The wealthy have been able to identify unique ways to satisfy needs.  Many times the discovery has come out of a industry that they worked in for years, first as a employee.

They also own some of the traditional investment classes like stocks, bonds, mutual funds.  However, it is at much smaller percentages than the non-wealthy.  For example, the super wealthy own individual stock and mutual funds, but the median ownership is around $1,000,000 for individual stocks and $500,000 for mutual funds. 

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If you’re a bit financially strapped at the moment, consider it a temporary situation and focus on the future. If you have a job and are making enough money to support yourself, you’re off to a great start. Sure, there’ll be things you’d like to have that you can’t afford-but that’s okay. Keep telling yourself that you’ll be in better financial shape next year and enjoy the experience of being out on your own.

To stay on the right financial track, remember these two things:

1. Resist the temptation to use credit cards to buy what you want, but can’t afford. You’ll get yourself in a huge rut if you do this and end up with less in the future.

Be patient and know that eventually, you’ll have more buying power.

2. Be aware of financial opportunities, and take advantage of them when they’re available.

Many people miss chances to improve their financial positions because they don’t know what’s available to help them do so. By reading this series, you’ve shown that you’re interested in your personal finances and are willing to take the initiative to learn how to get, and keep, your finances healthy.

We’ll look closer at these areas of financial opportunity later in this series, but it’s important that you know what opportunities to look for. The sooner you start making the most of your money, the more money you’ll have later.

• 401(k)plans. We’ll get into more detail about these little goldmines later, but suffice it to say that 401(k)s are a great way to save money. If you’re eligible to participate at work, make sure you do. IRAs and the new Roth IRAs and other retirement plans also are good vehicles for saving.

• Compounding interest.Starting to save even a little bit of money when you’re young will pay off big time because of time. The longer money is invested, the faster it grows. That’s called compounding, and it’s a great way to see your money grow.

• Lower interest rates. If you’re paying 18 or 20 percent interest on your credit card, you might be able to get a significantly lower rate just by shopping around and asking. A couple of points can make a big difference.

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~ David Shafer ~

The hardest thing for some folks to understand is why taking advice from or turning your money over to experts doesn’t work.  After all, that is what we have been trained to do, listen to experts!

There are two problems with this strategy.

First, is the problem of our own emotional/mental structures. 

Taking advice from experts doesn’t change our own mental structures.  If we don’t change the way we think about money, if we don’t change our understanding about money, if we don’t create a wealth creating environment in our lives, then we will fail to create wealth.  It is as simple as that. 

By going to a “financial expert” we are demonstrating an unwillingness to take control of our own lives and that is what needs to be done in order to create wealth.  Study after study demonstrates this. We can not outsource control and expect to have above average results.

Secondly, the masses of “financial experts” out there are mostly folks just like you, that haven’t taken control of their own finances, or turn themselves into active participants in their own financial lives. 

What, you say?  Yes, that’s right how many folks in the financial expert category are actually wealthy?  How many have made their wealth through investing?  Most, if they have acquired any wealth, do it by having superior sales abilities that turns into superior income. 

But as a class, they are wealth underachievers, meaning they have less wealth given their income, than the average.  I read that the average “financial expert” has an income of $80,000, in which they aren’t very good, at least below average, at turning into wealth.

Millionaire lesson No. 1
Build a strong brand, and don’t be afraid to promote your product with passion.

Millionaire lesson No. 2
Don’t be afraid to go out on your own if you possess the competence and know people who can help you reach your goal.

Millionaire Lesson No. 3
Identify trends and be patient, even if it means waiting a decade to make an investment.

Millionaire Lesson No. 4
Success on the Internet isn’t serendipitous. Don’t court investors until you have adequate traffic and initial revenue.

Millionaire Lesson No. 5
Plan for the very long term. Gary Gardelli waited two years to get the job he wanted and more than 30 years for the payoff.

Millionaire Lesson No. 6
Combining an old way of doing things with a popular new trend will resonate with customers and clients.

Millionaire Lesson No. 7
It doesn’t take a fortune to build one. Saving a little at a time is an established path to accumulating wealth.

Millionaire Lesson No. 8
Forgo the safe route and find an employer who will help you live up to your potential.

Reading Robert Kiyosaki’s book ‘Business Shool ’ , I learned that there are 5 types of dreamers, they are:

1. Dreamers who dream in the past. These are people like ex-football stars, or people who graduated from a prestigeous university, whose good days are behind them and all they can talk about, is the days when they were famous. If you are one of these people, create a new dream in the furure to work towards and come alive again, as people who dream in the past are people whose life is over.
2. Dreamers who dream only small dreams.These are people who only dream small dreams, as they want to be confident that they will be able to achieve it. The sad thing is that eventhough they know they can achieve it, they never do. They are the people who say later in life, ” I should have done that years ago, but never got round to it”.
3. Dreamers who have achieved their dreams and have not set a new dream. A lot of people who achieved the dream they had in highschool, after achieving the dream and working in that profession for years, end up bored with life. If you are one of these, It is time for a new dream and a new adventure.
4. Dreamers who dream big dreams but do not have a plan on how to achieve them…so they wind up achieving nothing.  These are people who often say “I’ve just had a major breakthrough”, let me tell you all about it or “This time I’m going to make this work”. They are trying to achieve a lot, and try to do it on their own. Very few people achieve their dreams on their own, so find a plan, and a team that will help you make your big dreams come true.
5. Dreamers who dream big dreams, achieve those dreams and go on to dream bigger dreams. I want to be this kind of person, don’t you?

Another successful addition to the range of financial books written by Robert T. Kiyosaki together with Sharon L. Lechter, Who Took My Money is a worthy read. It is divided into 2 main parts.

The 1^st aims to address the importance of having a synergy of advisors as well as taking into account their different points of view.

The 2^nd is about the synergy of various assets and financial forces.

Take a look at the content page below. Study it carefully, which part does it answer the question of Who Took My Money?

 (Part 1)

What should I invest in?

1. Ask a Salesperson

2. Ask a Cattle Rancher and Then Ask a Dairy Farmer

3. Ask Your Banker

4. Ask Your Insurance Agent

5. Ask The Tax Man

6. Ask a Journalist

7. Ask a Gambler

8. Ask Newton

9. Ask Father Time

 (Part 2)

Ask an Investor!

10. 4 Reasons Why Some People Can’t Become Power Investors

11. The Power of Power Investing

12. Gambling Rather Than Investing

13. How to Find Great Investments

14. How to Be a Great Investor

15. Winner or Loser?

It is obvious that the book deals more with investments rather than money loss. In my opinion, Who Took My Money is just a provocative title aimed at boosting book sales. It is human psychology, books with cheeky titles fare better than books with boring titles. If this book were to be titled ‘Investments’, it would be competing with the numerous other books already titled this way. Misleading…because Kiyosaki does not spend many pages explaining where our money is disappearing to (taxes are your single largest expense). Criticisms aside, this book is developed in an unorthodox ‘interview style’, making it both intriguing and engaging at the same time.

Rather than doing a whole summary of the book resulting in a diluted book review, I want to share something I learnt from the chapter ‘The Power of Power Investing’, which I feel is the most important chapter of the book.

Why the Rich Get Richer!

Conventional attitudes and wisdom lead us to be working in the E and S quadrant. Usually individuals in this group will only have 1 source of income which is their paycheck and they cannot survive prolonged periods without it. Referring to the chart, they save, reduce debt, pay off mortgage, buy paper assets first and invest in a long term retirement plan.

Turn your attention over the right side of the chart.

Instead of operating from the E-S quad, the rich operate in the B-I quad. Instead of using their own money & time to invest, the rich also use other people’s money and other people’s time and money! Instead of investing in paper assets first, the rich invest in Business, Real Estate followed by paper assets last.

Professional Investors use various forms of leverage for their own gain. They use banks to leverage their money and keep it moving. An example would be putting 10% down payment of a piece of property and borrowing the remaining 90%. Whatever profits gained would not be shared with the banker, even though the banker has 90% of the risk. Bankers would collect interest, which is paid by the tenants.

While people on the left side of the chart work alone, people working on the right side of the chart have a whole team of advisors working together, ensuring their money is properly managed, leveraged and protected. Essentially, people on the left side PARK their money while those on the right side ACCELERATE their money, ensuring rapid growth.

‘This is the basic plan that the richest investors in the world follow.’

~Big Words from Robert T. Kiyosaki

- menofwords.com-