Wisdom of Rich Dad

By Lou Wallace

Historically a first tier lender has been an institutional lender such as a Bank or similar company which falls under the regulatory agencies such as the FDIC or Federal Reserve.  The rates of interest they charge are almost always tied to Prime, or to the Libor rate of interest.  The interest charged is at quoted rate plus a factor which can be as high as 4%.  An example would be if the rate was agreed to be the prime rate, you would take that rate and add 4% to it which would get you your annualized interest rate.

The second tier lender is usually a company which does not fall under these regulatory agencies.  In some states they are regulated by the state banking laws.  But all second tier lenders are restricted to lending to businesses and are restricted from making any type of consumer loans.  All of the loans are secured by collateral and almost always personal guarantees of any owners of more than 20% of the stock.  Interest rates are usually tied to the prime rate but the rate which is added on rate is higher than a Banks because of the additional cost of doing business.

The final tier is usually an individual or individuals who lend money but are quite often interested in one particular industry or type of collateral.  The terms from these lenders tend to very high interest rates and low loan to value ratios.

In the current banking economy few first tier lenders are actually making loans.  Therefore the second tier lender is acquiring a larger market base as companies who traditionally would have secured first tier financing are only option is to obtain financing with the second tier lenders.

That being said, one has to ask themselves if a lender who is not making loans can be considered a 1st tier lender.  Likewise if a commercial finance company is lending money in this economy can they still be looked upon as a second tier lender when they are the only segment of the business community that is lending money.

Usually I cringe when our leaders in Washington try to help improve our finances. I’m afraid their efforts may do more harm than good. But two new ideas being discussed inside the Beltway could actually make it easier to prepare for retirement. Both center on the income you’ll generate from your 401(k).

First, in January, the Obama administration said it wanted to promote the availability of annuities in 401(k)s and similar plans. Only 22% of such plans now offer them.

This initiative isn’t as detailed as some annuity ideas that have been floated. But as long as annuities are not mandatory — or laden with onerous fees — I favor the notion of making them an option since they would allow more workers to turn some of their nest egg into guaranteed income for life.

The second idea is a Senate bill that would require your 401(k) to inform you of the projected monthly income you could expect at retirement based on current savings.

I agree with the concept: We should encourage people to focus on the income their 401(k)s might generate, rather than their balances. But it seems to me you’re better off knowing how much income to expect if you keep saving until you retire. That’s the approach Social Security takes with its annual statements.

How long it will take for these initiatives to get through the legislative and regulatory process is anyone’s guess, but in the meantime you can put the concepts into practice in your own planning.

If you’re near retirement, see how much income your savings would yield through an inflation-adjusted immediate annuity. You can find a calculator that will provide such a figure by Googling “Vanguard Lifetime Income Program.” Then combine that figure with your Social Security benefit, which you can get from the Retirement Estimator at ssa.gov.

If you think you’ll have trouble living comfortably on the sum of these two figures, you may want to think about postponing retirement.

If you’re years from retiring, see if you’re on the right path. Many 401(k)s offer tools that project income given how much you’ve saved, how much you’re contributing, and how much longer you plan to work.

In either case, you’ll get a decent sense of how much income you can expect. And when it comes to gauging your preparedness, the feds have it right: Income’s the thing.

Rich Dad, Poor Dad, Robert Kiyosaki reveals the secret and shocking truth of Paper Money.

Robert reviews and explains why paper money has, and always will, go bust.

If there is a recovery in Americans’ finances, they don’t see it.

The Federal Reserve reported Thursday that the net worth of U.S. “households” increased at about a 5% annual rate in the fourth quarter, a good deal slower than the blistering 20% pace over the two previous quarters, but still a solid increase.

Not long after the news was posted on the Wall Street Journal’s Web site early that afternoon, the vituperative comments began to flow. Many simply dismissed the data as inaccurate or worse. The numbers simply didn’t jibe with what they were seeing in their own finances or those around them.

Most of the gain in wealth has come from the rebound in the stock market, which drove a 15.4% annual rate of gain in households’ equity holdings in the period. For the year, their equity holders increased 30.9%.

And that was reflected in the latest Forbes 400 list, the annual tally of the world’s plutocrats’ lucre. Among Americans — who were relegated to the No. 2 and 3 slots by Mexican magnate Carlos Slim — Microsoft chairman Bill Gates saw a $13 billion increase in his net worth, to $53 billion, while his bridge partner, Berkshire Hathaway honcho Warren Buffett, gained $10 billion in wealth, to $47 billion, both largely because of gains in their investment portfolios.

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Last week, President Obama addressed the Nation after one year in office. He made it clear that the focus of effort will now shift from mega bailouts to encouraging small business.

This is a very strategic move, and completely in sync with demographic trends. Supporting the start up and growth of small businesses will help the economy but more importantly, will play a key role in job creation by having a direct impact on the unemployed either through incentives to start a small business or providing funds to grow small businesses and allowing them to hire new employees.

In addition, such a focus spreads the wealth much more than the large bailouts, so more Americans will actually benefit from the incentives, and consequently, there will be a significant amount of public support for these types of economic measures. But most important of all, Obama’s new jobs bill is a sign of the times – don’t count on the large corporations for your security.

Ten years ago, Robert Kiyosaki published the book, the Cashflow Quadrant in which he describes the four types of money management profiles. He explains that we are misled into believing we are secure by getting a steady job with benefits, paying off our mortgage, and buying mutual funds.

Kiyosaki built his entire Rich Dad brand on the mission of financial education where he explains that we should be striving to get out of the rat race and become business owners and investors if we want true financial security.

Time magazine has recently reported that by 2019, up to forty percent of the American workforce will be independent contractors. This trend is already manifesting itself as the Global Entrepreneurial Movement gains momentum. Technology convergence, and the internet is making it much simpler to get into business than ever before.

These winning conditions make it an ideal time for someone to decide they should start their own business. In addition, there are limitless opportunities to exploit but one has to be careful not to fall for the abundance of scams that pollute the web. A bit of education, a field of interest, some motivation, and access to the internet are all one really needs to get started.

So while Obama and Kiyosaki are in line with Time magazine’s prediction, the question will soon become how do we ensure that all these small businesses survive longer than their first year? To do so, business owners will need a solid foundation of basic business skills and a solid plan. Without these two elements, the money spent on the jobs bill, may not have any long term benefit at all.

Odds are, you’ve at least heard of Robert Kiyosaki, captain of a cottage industry that began with his book Rich Dad, Poor Dad. I meant to read the book long ago, but within a few years, there were so many sequels that I somehow lost interest. Still, I recently decided that I should look into the guy, at least a little, to see what he has to say.

On the plus side
There are indeed a bunch of good things one can say about Mr. Kiyosaki. His little empire has certainly gotten some people thinking about their finances when they otherwise might not have done so. That’s a good thing.

He’s got some good advice, too, such as:

• Spend less and save (and invest) more. It’s hard to argue with that.
• Consider making money in real estate (though I believe he pushes real estate more than he should).
• Teach your children about money.
• Protect yourself with insurance.

But.
Kiyosaki has also offered a lot of advice that I don’t agree with. For example, here are some things he said a few years back in an interview. The most startling thing I read was this:

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