Wisdom of Rich Dad

Do you know what a wealth guru is?  A wealth guru is a guy who is usually quite wealthy himself, but whose money principally comes from the sales of books, CDs, and other programs that dispense the unconventional advice that supposedly makes him unique and which is certain to make you wealthy, too.

Robert Kiyosaki, he of the Rich Dad, Poor Dad brand, is one of these gurus.  His own success as a business owner, before fashioning himself as a financial “educator,” was mediocre, at best.  He is supposedly a highly successful real estate investor, but there are few publicly-known details on that.  In short, Kiyosaki appears to be a wealth guru on the basis that so many others are – he has managed to successfully market himself as such.

Kiyosaki recently wrote an article entitled Why the Cheap Will Never Get Rich (find it here: http://finance.yahoo.com/expert/article/richricher/153515), and it’s horrible.  The article is disorganized and rambling, but that’s not the worst part.  The worst part is that when it does dispense advice, it tells people to do all of the wrong things, or rather, tells them to refrain from doing any of the right things.  Here’s a disturbing passage:

“Millions of people are living in fear because they followed conventional wisdom: Go to school, get a job, work hard, save money, buy a house, get out of debt, and invest for the long term in a well-diversified portfolio of mutual funds. Many people who followed this financial prescription are not sleeping at night. They need a new plan. Had they sought out a little financial education, they might not be entangled in this mess.”

A key component to the oftentimes non-specific, rah-rah advice these guys dole out is the insulting of people who engage in the standard practices associated with living prudently and building net worth over the long term. 

It’s about suggesting that the way to wealth is to be “bold,” to leverage yourself to ridiculous levels in order to buy real estate, stocks, businesses, etc., and if it all doesn’t work out, go bankrupt and try it all over again.  Haven’t you heard that real winners are ten-time losers before they become mega-rich?  Well, haven’t you??  Get out there and be a winner!!

When you think about it, the passage quoted above is tantamount to saying that the best way to ensure that you’ll flunk out of college is to never miss a class, study hard every single night, do extra work, and stay after each class to speak with your instructors; the advice simply makes no sense.   

Just the sort of “wisdom” we need right now, don’t you think? 

Hardly.  Not only is it wrong-headed to publicly criticize ideas that have been proven to be the only reliable and time-honored methods of accumulating lasting wealth, but when you also consider that Kiyosaki’s wildly popular Rich Dad, Poor Dad book contains a lot of shaky advice, to include embracing big leverage in order to buy equities (how’s THAT been working for you lately?), and even advice to do that which is illegal, like using your well-connected friends to engage in insider stock trading, his credibility becomes almost completely compromised. 

What is occurring right now in the economy is highly significant, and it will hopefully cause all of us to be even more aware than we were previously about how to forge through choppy financial waters, but nothing I’ve seen has prompted me (or any other prudent financial manager I know) to unilaterally discard solid financial life-lessons and instead embrace the risky ideas for which Kiyosaki and other wealth gurus are famous.       

It’s hard to believe that such nonsense still sells at all these days.  If you want to read a good book about how to substantially increase your net worth, pick up a copy of The Millionaire Next Door by Thomas Stanley and William Danko. 

The book profiles not the “celebrity wealthy,” but rather the “Johnny Lunchbucket wealthy;” those folks who may live on your same street, who always live well below their means, invest their positive cash flow in quality investment vehicles that have proven to perform well over time, and now have a net worth in the seven-figure range.

Contrary to the assertion made in Kiyosaki’s article, wealth and frugality are not mortal enemies, but actually close allies.

People who love wealth gurus don’t tend to appreciate advice like that which is handed out in The Millionaire Next Door.  Why?  Simple; the vast majority of real millionaires don’t earn it quickly, which is the promise of the wealth guru.  Living honorably, dedicating yourself to your labors, paying off your debts, and existing well within your means so that you have more to invest in quality investment vehicles is by no means exciting, but it does work.  The approach of the guru?  Take a bunch of big chances with the financial security of you and your family, and pray you’re one of the few for whom it all comes together. 

Why didn’t I think of that?  I could be RICH now…from selling all of that sexy advice.  

I could be a wealth guru.

Robert G. Yetman, Jr.  Editor-At-Large, www.ChristianMoney.com

It’s being touted as a big win for consumers — but the new credit card legislation that President Obama is expected to sign into law hardly means that cardholders can start swiping that plastic worry-free.

In fact, as the new rules kick in (most will go into effect nine months after the president signs the bill, while others will kick in as early as 90 days afterward)  and banks start curtailing the abusive practices this legislation reins in, other practices will likely emerge that can hurt consumers just as badly. “The pendulum may have swung in the wrong direction”, says Dennis Moroney, research director and senior analyst for TowerGroup, a research and advisory-services firm focused exclusively on the financial-services industry. “The banks now have to respond to these changes.”

You may not like that response. Whether you use your credit cards as a tool to rack up free rewards points or you carry debt that you’re hoping to repay one day, you should watch out for new fees, higher interest rates, less generous rewards and fewer promotional offers. Here’s what you need to know.

Watch out for new kinds of fees

The new law prohibits over-limit fees (unless the cardholder agrees to allow transactions that exceed their limits). To make up for that lost revenue, banks will likely introduce other fees. “You will see a re-emergence of fees for all kinds of other services,” says Robert McKinley, founder of CardWeb.com, which provides industry research and analysis. Among the fees cardholders should watch out for: fees for rewards programs and possibly even fees for checking your balance, he says.

Also, expect annual fees to make a comeback, says Moroney. In the 1980s, annual fees were standard, but were dropped as competition among card issuers heated up. Moroney predicts that some issuers will slap annual fees on all their credit cards, while others will tie the fee to spending thresholds, so that only big spenders get a free ride.

What cardholders should do: To protect against unpleasant surprises, examine credit-card statements and change-in-terms letters carefully. For now, card issuers can change terms at any time with 15 days’ notice, but once the new law is in effect, they will have to give 45 days’ notice.

Prepare for higher rates

Universal default allows card issuers to hike rates if a cardholder’s credit score drops or if they make late payments on other accounts. Once the new legislation is in place, issuers will lose this powerful risk-management tool. Without the ability to hike rates if a cardholder’s perceived risk level rises, card issuers will just start charging higher rates across the board, says Moroney.

“We’re going back to the kind of marketplace we had in the 1980s,” McKinley says. “You’ll see interest rates go back to the 19% to 20% range for most people.” The average variable-rate credit card today charges a 10.79% APR, according to Bankrate.com.

What cardholders should do: To avoid higher interest charges, consumers who carry a balance will have to shop around for lower rates — perhaps in exchange for paying an annual fee, says Linda Sherry, a spokeswoman for Consumer Action, a nonprofit education and advocacy organization. Those who pay their balances in full each month shouldn’t be affected, she says. To compare credit-card interest rates on new-card offers, use sites like CreditCards.com, CardRatings.com or CardTrak.com.

The end of grace periods?

The new legislation requires card companies to give consumers at least 21 days to pay their bills. But it doesn’t require them to offer a grace period, which isn’t the same as the cardholder’s due date — though the two usually coincide, says Chi Chi Wu, staff attorney with the National Consumer Law Center. While the due date designates the day by which a payment must be received for the cardholder to avoid a late-payment fee, the grace period is the time during which the cardholder isn’t charged interest.

McKinley says card issuers may get rid of grace periods altogether, so that cardholders who pay their balances off each month will start paying interest immediately after making a purchase. “The industry has for many years wanted to get rid of the grace period on convenience users,” he says.

What consumers should do: The only way to avoid interest charges if this happens is to stop using credit cards altogether, says Wu.

Say goodbye to 0% APR promotions

Low or 0% introductory APR offers have been a boon to diligent card users who played the balance-transfer game. Banks were able to offer those deals thanks to the card users who made a late payment before the offer expired, triggering the bank’s penalty rate of 20% or more. Now that banks won’t be allowed to increase interest rates on existing balances — and all promotional offers have to last for at least six months — these promotions will likely disappear, McKinley says. At best, consumers with excellent credit may receive introductory rates in the 6% range.

What cardholders should do: If you have a low-APR offer right now, be on your best behavior: Send payments on time and don’t do anything to trigger a penalty rate such as exceeding your credit limit .

Rewards programs will be less rewarding

Credit-card companies have already been scaling back on rewards programs. Once the new legislation kicks in and they feel the squeeze of lower revenue from penalty fees and interest charges, they’ll become even less generous. Spending thresholds will likely go up, Moroney says, so you’ll have to spend more to earn miles, points or cash back. Banks may also adopt more stringent rules, such as wiping out your rewards balance if you make a late payment.

What cardholders should do: If you’ve accumulated a sizable amount of miles, points or cash back and worry that your card may scale back its program, it may be smart to redeem your rewards now — while the free lunch is still available.

Our anemic economy appears to be struggling further still.  By the end of the week, the “soft” stock market became downright cotton candy-ish, plummeting to index lows we’ve not seen in some time. 

The culprit?  Well, there’s a few of them…and they remain the “usual suspects.”  On the mortgage front, we were greeted this week with the cheerful news that a record 9 percent of Americans who have mortgages are now either behind or in foreclosure; almost 1 in 10! 

The jobless rate?  It is now the highest it’s been in five years.  As for oil, sure it’s come down from record prices here recently, but let’s be honest – gas at $3.65 a gallon is still irritatingly high.  In short, things are lousy.

Most people will eventually exit these tough times relatively unscathed, but many will be battered and bruised nonetheless.  Still, once things return to “normal,” it will be tempting for a lot of people to resume the consumer patterns in which they’ve engaged all along, buying and buying, largely with credit, seeking as much house, car, and big-screen TV as they can possibly afford. 

My advice?  Fight that temptation, taking stock of your life and of what we’re going through right now, and endeavor to give yourself the greatest gift money (or credit) can’t buy: peace of mind.

Financial serenity comes about only one way: By living a simpler, less materialistic existence.  Granted, we all like a few creature comforts, but the emphasis in the lives of many has been on creature, as in possessions that tend to devour us in one way or another. 

Take cars, for example.  How much car do you really need?  How big does it have to be?  How many options does it have to have?  How new does it have to be?  The reality is that cars are made so well nowadays that they’re expected to go well over 100,000 miles if properly maintained. 

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The following is the story of how my wife Kim, my best friend Larry Clark and I, began our journey from broke, to rich, to retired in less than 10 years.

When Kim and I started, we were nearly out of money and filled with doubt. We all have doubts. The difference is what we do with those doubts.  In December 1984,  Kim,  Larry and I were on a skiing holiday. 

At night we would discuss our plans for the future. Kim and I were on our last few dollars and Larry was in the process of building another business. On New Years Day, we tried to set some goals. Larry wanted to do more than just set goals for the coming year, he wanted us to set goals that changed our lives.

“Why don’t we write a plan on how we can all become financially free?” he urged.

I had talked about it and dreamt about it. But the idea of being financially free was always in the future, not today.

“Let’s write it down,” Larry said. “Once we write it down, we have to do it, and we’ll support each other on the journey.”

Kim and I looked at each other doubtfully. “It’s a good idea but I think I would rather just focus on surviving for the next year.”

“Come on,” said Larry. “Let’s go for freedom. I don’t want to spend my life working just to pay bills. I want to live. I want to be rich. I want to travel the world while I’m young enough to enjoy it.”

I recalled the words of my rich dad: “The biggest challenge you have is your own self-doubt and your laziness. It is your self-doubt and your laziness that define and limit  who you are. It is your self-doubt and laziness that deny you the life you want.”

It was time to choose. “OK, let’s set the goal to be financially free.” That was New Year’s Day 1985. In 1994 Kim and I were free. Larry went on to build his company, which became one of Inc. Magazine’s fastest growing companies of the year in 1996. Larry retired in 1998 at the age of 46 after selling his company.

How did we do it?

It’s not about how we did it. It’s about why we did it. From 1985 to 1994, Kim, Larry, and I focused on rich dad’s three paths to great wealth:
-  Increasing business skills
-  Increasing money management skills
-  Increasing investment skills

The why is because I wanted to challenge my own self-doubts, my laziness and my past. It was the why that gave us the power to do the how.

My arguments against Larry’s idea were things like: “But we don’t have any money”; “I can’t do that”; “I’ll think about it next year, or once Kim and I get settled”.

Rich dad had told me: “Whenever someone says something like ‘I can’t afford it’, or ‘I can’t do it’ to something they want, they have a big problem. Why in the world would someone say ‘I can’t afford it’ or ‘I can’t do it’ to something they want? Why would someone deny themselves the things they want? It makes no logical sense.”

My own whys
I was fed up with being broke and always struggling for money.
I was tired of being average.
My parents had struggled under a mountain of bills.
Most painful of all, my beautiful wife Kim was in this financial mess because she loved me.

Things got worse for us before they got better. Kim and I lived in a car for about three weeks after our money ran out. So things did not get better just because we made the decision to retire rich, but it was the reasons why that kept us going.

Rich dad used to say: “If you want something, be passionate. Passion gives energy to your life.” Passion is a combination of love and hate. “If you want something you do not have, find out why you love what you want and why you hate not having what you want. When you combine those two thoughts, you will find the energy to go get anything you want.”

For example, I would create the following list:
LOVE
Being rich
Being free
Buying anything I want
Expensive things
Having other people do what I don’t want to do

HATE
Being poor
Being required to work
Not having what I want
Cheap things
Doing things I don’t want to do

So sit quietly to find and define your loves and hates. Then write down your whys. Write down your dreams, goals and plans on becoming financially free, retiring early and retiring as young as possible. Once it is in writing, you may want to show it to a friend who will support you in achieving your dreams. Take a look at this paper with your dreams, goals and plans on a regular basis. Talk about it often, ask for support, be willing to continually learn, and before you know it, things will begin to happen.

I have heard many people say: “Money doesn’t buy happiness.” That statement has some truth to it. But what money does do is buy me the time to do what I love and pay other people to do what I hate doing.