Wisdom of Rich Dad

 have been talking a little bit about financial independence in my previous posts and I mentioned in one that the first step in the journey to financial freedom is to detemine exactly how much money that will be, in order for you to know you’re there.  This number sometimes seems overwhelmingly large when we think about it in such broad terms, I mean, I want so many things that a million dollars doesn’t even seen to appeal to me, anymore.  So, this post will help you detemind a monetary figure of what it will take for you to technically be financially free, based on your lifestyle, today. 

The definition of financial wealth referenced by Kim Kiyosaki, wife of millionnaire entrepreneur, Robert Kiyosaki, in her book “Rich Woman” is: 

“a person’s ability to survive X number of days forward”. 

Basically, what this means is that measured in days, you are as rich as you are able to survive, while maintaining your current lifestyle, if you were to stop working. 

Here is the simple formula to calculate your current financial wealth and it will also give you the figure you need to know to strive for, to attain financial freedom.

Step #1 – Make a List of All Your Monthly Expenses

Example: 

Mortgage    $2500
Property Taxes    $300
Home Insurance    $150
General House Expenses (utilities, etc.)    $350
Car Payment    $550
Gas    $150
Meals & Entertainment    $500
Misc. Purchases    $500
Magazine/Newspapers/Books    $50
Travel/Vacations    $250
(and many others that are personal to you)

The key here is that this is different from a budget statement.  Be honest with yourself on your spending amount.  What you want to do is list your current lifestyle, not trying to cut things out to fit what you know you should be spending. 

Step #2 – Determine How Much Money You Currently Have

This should not include your employment income because, remember, financial freedom means that you can maintain your lifestyle, without having to pay for it through working and, thus, you only work if you want to work.

These things will include:

Savings
Stocks that could be sold or liquidated immediately
Cash Flow from Assets (i.e. you rent an apartment building and cashflow X amount of dollars each month from it)

*  Note:  Do not include things like your car or house that is paid-off or jewelry, etc., because if you were to sell those things, your current lifestyle would not be maintained and that would defeat the purpose of this goal.

Step #3 – Compute

Now, divide the total amount of money you have by your total monthly expenses. 

The figure that you get (i.e. 4.5) would translate as the number of months you are wealthy.  In other words, if you were to stop working, today, you are rich enough to maintain your current lifestyle for four and a half months. 

Therefore, the formula is simply:

Savings (or available cash) + Income coming in without you working / monthly living expenses = Your Wealth 

So, if you’re like many people who don’t have income coming in that is not their employment income (i.e. they trade their time for money), then you have a missing piece in the formula. 

You  now also know how much money you need on a monthly basis to be coming in without working, in order for you to be deemd financially free.  It’s not so bad, right?

By Jonathan Stempel
 
NEW YORK (Reuters) – One in five U.S. homeowners with mortgages owe more to their lenders than their properties are worth, and the rate will increase as housing values drop in states that have so far avoided the worst of the crisis, a new study shows.

About 8.31 million properties had negative equity at the end of 2008, up 9 percent from 7.63 million at the end of September, according to the study, released Wednesday by First American CoreLogic. The percentage of “underwater” borrowers rose to 20 percent from 18 percent.

Another 2.16 million properties could go underwater if home prices fall another 5 percent, the study shows.

First American said the value of residential properties fell to $19.1 trillion at year-end from $21.5 trillion a year earlier, with half the decline in California. Forty-three U.S. states and Washington, D.C., were included in the study.

While states such as California, Florida and Nevada were particularly stressed, the study showed worrying signs of deterioration in relatively healthy parts of the nation.

“The economic slowdown is broadening,” said Sherrill Shaffer, a banking professor at the University of Wyoming at Laramie and a former Federal Reserve official. “As more people lose jobs, it will be more difficult to sustain the levels of pricing and home ownership, and that is a big factor driving down housing prices in more parts of the country.”

Arizona, California, Florida, Georgia, Michigan, Nevada and Ohio remained the most stressed states, with 62 percent of underwater borrowers and just 41 percent of mortgages.

Other areas, though, also face more stress. Connecticut, for example, saw a 25 percent increase in homes with negative equity, while Washington, D.C., had a 44 percent increase.

“Even I continue to be surprised at the tentacles of this financial and economic debacle,” said Robert MacIntosh, chief economist at Eaton Vance Management in Boston. “More people are being laid off, resulting in reduced income and therefore less consumption. That leaves fewer people with money to buy homes, and the mentality is that people believe they should wait six months rather than buy now. Less demand means falling prices.”

Roughly 68 percent of U.S. adults own their own homes, and about two-thirds of these have mortgages. Many economists expect the nation’s unemployment rate to rise above 9 percent before the recession ends, up from January’s 7.6 percent.

CALIFORNIA, NEVADA UNDER STRESS

California had 1.9 million borrowers with negative equity at year-end, more than any other state, followed by Florida’s 1.28 million. About three in 10 borrowers in both states were underwater.

By other measures, Nevada was the most stressed, with 55 percent of owners having negative equity and borrowers on average owing 97 percent of what their homes are worth. About 28 percent owe more than 125 percent of their homes’ value.

Michigan had 40 percent of its homeowners underwater, while Arizona had 32 percent.

New York fared best, with just 4.7 percent of borrowers with negative equity and an average 48 percent loan-to-value ratio, though this could change as employment and bonuses slide in the financial services industry.

According to the S&P/Case-Shiller Home Price Indices, prices of U.S. single-family homes slumped 18.5 percent in December from a year earlier, the biggest drop in the 21-year history of the data.

Many lenders are taking steps to keep borrowers out of foreclosure. The Obama administration has backed legislation that could broaden powers of bankruptcy judges to modify mortgages for troubled borrowers. Among major lenders, only Citigroup Inc has supported such a plan.

MacIntosh expects housing prices to keep falling until “well into” 2010. “There is no magic bullet or magic arrow here,” he said. “It is a question of trying to come up with ideas and seeing what happens. It could take a long time.”

First American CoreLogic is an affiliate of title insurance and real estate services company First American Corp.

(Reporting by Jonathan Stempel; Editing by Bernard Orr and John Wallace)

To most Americans today, Federal Reserve is just a name on the dollar bill. They have no idea of what the central bank does to the economy, or to their own economic lives; of how and why it was founded and operates; or of the sound money and banking that could end the statism, inflation, and business cycles that the Fed generates.

Dedicated to Murray N. Rothbard, steeped in American history and Austrian economics, and featuring Ron Paul, Joseph Salerno, Hans Hoppe, and Lew Rockwell, this extraordinary 42 mins film is the clearest, most compelling explanation ever offered of the Fed, and why curbing it must be our first priority.

You need money to make money, it’s one of those cliches that I actually like and agree with but I am a bigger proponent of cutting out the clichs we hear all the time and getting to the practical application of the principle behind it.

It is just as easy to say you have to have money to lose money. If you think it is easy to make a million dollars by buying a million shares of a stock and waiting till it gains one dollar then it is just as easy to loose a million dollars by buying the same stock and waiting for it to lose a dollar a share.

Einstein’s theory of relativity had nothing to do with money but that doesn’t stop me from stealing his idea and applying it to finances. My economic theory of relativity says that the more money you have the more you can gain or lose, the less money you have the less you can gain or lose. It’s all relative. But ok, what do we do with this information?

Well let’s look at how a person begins the journey. The first place to start making money is by getting a job or starting a business. Once you have an income then you need to save.

Saving also includes investing. If I have a thousand dollars in the bank I have saved that money and if I buy stocks with it, I still saved the money but now I am trying to get more with it.

Read the rest of this entry »

~ Robert Kiyosaki

Whenever I consider new strategic alliances or expansion opportunities, I look for three things: good partners, good financing and good management. Whether we’re looking for investors, partners or vendors, we weigh their experience, expertise, track record and character. The quality of the businesses or individuals we align with directly affects our future.

Are your philosophies and standards aligned? Is there trust and respect and a shared vision for the future? Are the business rules and reporting processes clear and manageable? The best partnerships and alliances are ones that have the potential to deliver big wins–for both sides.

I’ve come to believe that the strongest businesses are relationship-based, not transaction-based. We work to develop relationships with our customers to build loyalty and lifetime value. It’s the same with the B2B deals we strike: Long-term relationships in which both sides benefit and profit trump short-term, transactional plays when it comes to the investment they require and the dividends they pay.

Good financing means strong financials as well as optimal strategies within the deal for managing debt, structuring terms, handling revenues and cash flow, and maximizing tax advantages. Often, the terms of the deal can turn an average opportunity into a great one.

Regarding the importance of strong management, you may have heard the maxim in business that “money follows management.” I often ask myself what other companies see when they put my company under a microscope. If a potential partner or investor asks who your management team is and how strong they are, what will they conclude? That same test applies to the alliance decisions we make as entrepreneurs.

If your management is weak, so is the future of the business. If the management team of the company you’re considering as an alliance partner or vendor is weak or ineffective, so are your prospects of a successful and profitable relationship. Weak management will be challenged in both good and bad times–explosive growth requires as much focus and discipline as managing through a downturn.

It’s easy to find bad partners, lose control of your cash flow and discount the importance of strong management. It’s harder to invest time and resources to find and vet agreements with strong partners, structure a deal that adds value to the entire relationship, and search for, hire, and build a strong and talented team of leaders. No matter how strong your product or service, your attention to these fundamentals–or lack of–will determine your future.

What tips do you have for building long-term relationships with the people who can help a business and investments grow?

You have to be a great leader. It’s something I’m learning. I never stop learning to be a leader. I can’t say I am a great leader. I desire. I strive. I improve my leadership skills.

There’s a great book called “The Starfish and the Spider,” and it’s a great book on leadership. It’s a very simple read. They’re two different leadership styles. In other words, you cut the spider’s head off, the whole animal dies. You can cut a starfish up in a thousand pieces and get a thousand starfish. That’s the difference. I am a starship style. I am not a spider style. It’s a great book on leadership, and I’m consistent in my leadership.

Looking back over the years, is there anything you would have done differently to be more successful today?

I don’t regret anything I’ve done because everything I’ve done has been a learning experience. I never stop learning. I make mistakes constantly. Today, with the economy as hard as it is, I would just say a tough economy means I have to get smarter. That’s all it means. I don’t judge it as good or bad.

Other than being on “Oprah,” what marketing and promotional activities have been successful for you?

Every product I design has a viral component to it. In other words, I don’t have formal sales people working for me or my company. So if a product is viral, and that means if someone recommends your book to someone else, it was designed into the book and my board game.

In other words, I have people teaching people or people selling for me. And in today’s over-cluttered, over-communicated world, the person you’re going to listen to the most is a friend who says, “Hey, I read a great book, or here’s a great product I recommend.” It is the most powerful form of marketing there is. It’s also the oldest form of marketing there is.

Who are some other people that you look up to and have guided your career along the years?

Well, I have partners who I respect tremendously. I only do business with people I respect. You look at all of our company, and my advisors are real advisors. They are not financial planners. They are not celebrities. They are people hitting the trenches every single day.

Another thing too, I don’t have to know anything. I just have to know who knows. The reason I say that is I’m coming out with a new book called “The Conspiracy of the Rich” which is a Web book, and it’s for free.

Well, why am I doing this? Because I know it’s going to make me money. I don’t have to be the smartest person on Earth. I just have to know who is smart, who has ethics, who has integrity and who shares the same values I do.

What is your top advice for the entrepreneurs out there, and people who just have a good business idea, who are afraid to move forward?

I will say it again. Have them read the book “Before You Quit Your Job.” You’ve got to take advice from people who’ve done what you want to do. The point is, if you’re going to be successful at anything in life, you’ve got to spend time with people who practice what they preach. If you’re afraid, you’re probably hanging out with other cowards.

So in this economy, if we’re going into a depression, you better have Plan B ready to go. Don’t hope the economy is going to come back. Don’t hope Obama is going to save you…because they’re not. They can’t. You’ve got to save yourself. This is not a time to be afraid. This is a time to be brave. This is a time to become smarter. Not to become Chicken Little with the sky falling. And if you can do that, you’ll be an entrepreneur. If you can’t do that, you’re finished. This is the time to learn.

I think everyone sees the professional business side of you. Maybe you’d like to share some of the things you like to do in your free time?

Well, I hate to say this. Business is my game. It’s more than a hobby to me. It’s my life. And I’ve always surrounded myself with the best people…my greatest pleasure in life is hanging out with really smart people who are part of business and business teams.

What I cannot stand is illegal, immoral and unethical acts. I’m ripped to shreds constantly in the blogs. And I just have to be true to me. I know my accountants and my attorney wouldn’t be around me if I was a crook. Do you see what I’m saying? If you’re a crook accountant, you’ll hang out with a crook business leader.

Is there anything else you would like to share that we haven’t touched on that may help some of the entrepreneurs out there?

You are the company you keep. And if you improve, then the people around you will improve. It’s a very easy measurement. And what that comes up to is instead of trying to change the world, just change yourself.