Wisdom of Rich Dad

If you ever read the rich dad, poor dad series especially cash flow quadrant then this game would be familiar for you.

The origin of this game is in a form of a board game (like a monopoly). But if you have ever played it, there are significant differences.

The objective of this game is to teach the financial literacy and to understand more about financial statements in a simple manner. The best part of this game is that how you play the game reflects your perception about money.

At start, you will have to choose what dream that you want to be realized. Isn’t it interesting? In our daily life it is very important to set short term and long term goal.

After you choose your dream, the game will randomize the profession for you. The professions range from low to high salary. But, it is not very important that you get the low or high paid work. The most important is how you stick to your plan and manage your financial life to reach your dream.

 

Now, things are getting quite complicated for the beginners. You will counter the balance sheet and income statement. It is the chance to learn about financial vocabularies and their meaning in the simulation provided by the game. You will learn about stock, stock options, property and compound interest.

The game play itself is quite simple. The rat (representing our daily life) will face many circumstances that needed your attentions. Each of your decision will bring long term consequence to your financial position. Just keep in mind that the goal is to have enough passive income to cover all your living expenses.

 

A nice book to read, a nice game to try.

Most small business owners never get past the equivalent of a self-employed practice with help. Businesses with up to 10 employees are usually oriented around the skills of their owners. The other people assist and the business owner provides the core talent to deliver client or customer results.

Where there are two or three owners, sometimes this may grow to 20 or 30 people, but the same point holds true. You usually find that you have one owner for up to 10 employees, or “helpers”. This still falls into the “S” category, identified by Kiyosaki in his book The Cash Flow Quadrant.

Why do small business owners get stuck into “S” type businesses?

We have identified 7 core factors that account for this unfortunate truth.

1. Small business owners are good at serving their clients and customers, not at growing businesses. They have their success due to their diligence at plying their skill, whether it be in dentistry, landscape architecture, or hanging door frames. The skills at generating customer satisfaction are where these entrepreneurs thrive, not in growing a business that offers that service.

2. These people have never grown a “B” type business before. I rarely meet anyone who currently has a $1 million, a $2 million or even a $5 million business who has experienced owning and operating a $10 million business in the past. This lack of experience in running a larger business shows. People just aren’t sure how to grow. This keeps these owners stuck in their smaller businesses, unable to grow them to the size they want.

3. Many small business owners are under the misguided notion that hard work and plenty of it will get them their goals. This is simply not true. Productivity is a function of design and structure, not your good intent, and not your hard work. Hard work just won’t get it done. Like it or not, that is a fact. Without the appropriate structure, you can work all you want, but you won’t achieve the results you desire. Most small business owners fail to recognize that fact.

4. Most small business owners get caught in a “success-trap” within an “S” type business. I have seen it often, where people are so good at what they do that they attract many loyal repeat and referral customers to them, all with individual needs that must be addressed. This increased demand eats up the owner’s time, leaving little if any time to design and grow the new, larger business. Yes, success can be a trap that thwarts you from your goals.

5. Most business owners don’t know how to train others or transfer what they do to other staff. You may have gained a loyal following from your intuitive skills, but that is very different from a distinct set of skills called training and transferring your knowledge to teach others your profession. Without this additional competency, it is very difficult to scale at the level needed to become a “B” type business.

6. Owners of “S” type businesses don’t know the perspective that is required to develop and operate a “B” type business. People who own and run “B” type businesses think of things from a much different perspective. While an “S” person, when faced with a challenge, will think, “How can I get that done for my client”, a “B” type person will look at the same issue and say, “How can my business be structured (without me) to tap this opportunity for all future clients?” Subtle, but very different thought processes leading to vastly different results.

7. There hasn’t been a place to go to learn how to take a business from “S” to “B”. Most available training either require small business owners to adopt large business methodologies (which do not usually work in smaller businesses). They are expected to stop their own companies and try to build their own business like a franchise of hundreds of locations, while still trying to make ends meet. None of these strategies has proven to consistently work to move the owner of an “S” type business into the “B” realm.

By Robert T. Kiyosaki 

In 1983, the Harvard Business School published “A Perspective on Entrepreneurship,” a paper that defined the differences between entrepreneurs and employees. This paper, written by Professor Howard H. Stevenson, is one of the most articulate articles on this particular subject that I have read. While many differences were examined, I found two in particular to be especially insightful.

The first difference between entrepreneurs and employees is:

1. Employees are resource-oriented. Entrepreneurs are opportunity-oriented.

A person with an employee mindset might say, “I would start my own business but I don’t have the money.” Or “I’d love to invest in that piece of real estate, but I don’t have the down payment.” In both of these examples the person focuses on their resources–in this case their lack of money, rather than the opportunity.

In a similar situation, a person with an entrepreneur’s mindset might say, “Let’s start the business and we can finance the business from the cash flow.” Or “Tie up the property and we’ll find the money later.

“My poor dad was a man who saw many opportunities, but failed to act on them simply because he was resource-oriented. Instead of taking action, he often said, “I wish I could do it, but I can’t afford it.” Or “I would go into business for myself, but I need a steady job. I have a mortgage and you kids to feed.

“My rich dad (my best friend’s father, an entrepreneur who taught me a lot about how the rich think about money) was a man who started with nothing, but eventually became one of the richest men in Hawaii. Today, when you look at Waikiki Beach, you see some of the biggest hotels along the ocean on land his family owns. He said, “If you do not have resources, you need to become resourceful.” That is why he forbade his son and me from saying the words “I can’t afford it.” He said, “Poor people say ‘I can’t afford it.’ That’s why they’re poor.” Instead he insisted we learn to say, “How can I afford it?” He believed that when we said, “I can’t afford it” our minds were turned off and went to sleep. When we asked ourselves, “How can I afford it?” our minds, our greatest resource of all, were turned on and put to work.

The second difference between entrepreneurs and employees is:

2. Employees prefer to manage via hierarchical structures.
Entrepreneurs manage via networks, utilizing the resources of other people and organizations.

This means that employee-type leaders would rather hire people and bring their talent “in-house.” Rather than have an outside firm do their creative work, an employee-type leader would prefer to hire the talent and have them under their control. While there are economic reasons for doing this, the report stated that the primary reason is control. This is because employees gravitate to a leadership style that is more suited to a military command-and-control type of organization.

My poor dad was successful in the hierarchical structure of the government, eventually rising to the top of the educational system as Superintendent of Education and running for Lieutenant Governor for the State of Hawaii. After losing that race–and his position as Superintendent of Education–he tried his hand at entrepreneurship. He purchased a national ice cream franchise that failed in less than a year. Why? While the reasons were many, one reason was his leadership and management style. When he said, “Jump”… no one jumped.

Instead of the military’s command-and-control leadership style, my rich dad used a more cooperative and collaborative style of leadership. He encouraged his son and me to learn to lead and manage people who are not required to follow our orders–people who did not need to jump when they heard the word “Jump.” Rather than hire people and bring them in-house, rich dad networked with other people and organizations, which tended to reduce his costs and at the same time increase his resources and influence in the marketplace.

Today, The Rich Dad Company follows my rich dad’s advice. Instead of becoming a stand-alone publishing house, we choose to cooperate via a joint venture agreement with The Time Warner Book Group, as well as licensed publishers around the world who offer our books in 43 languages. In this way, we keep our core staff small, yet we utilize the thousands of employees of publishers around the world.

But leveraging the assets and resources of partners is not enough. It’s important to choose the right partners–ones who are aligned with your goals and values. Choosing the right partners can make the difference between success and failure–as I’ve learned the hard way.

As The Rich Dad Company has grown, we have worked with partners who have opened doors to opportunities that were much greater than what we could have been able to pursue on our own. In an entrepreneurial spirit, we formed alliances with major media organizations and international promotion firms that leveraged the Rich Dad brand with their worldwide networks.

In doing so, we–as entrepreneurs–stay small, yet increase market share by cooperating rather than competing… by networking rather than hiring employees and bringing work “in-house.

“In 1989 the world changed. That’s when the Berlin Wall came down and the World Wide Web went up. Instead of a world of walls, we became a world of webs… networks of people working cooperatively rather than competitively. It is a special honor for me to be recognized by Amazon.com, a pioneer in the brave new world of the web, founded by a great entrepreneur, Jeff Bezos. We at The Rich Dad Company join in celebrating Amazon’s successes and salute your leadership in this world of webs rather than walls.

There are key, fundamental differences between the mindset of an employee and the mindset of an entrepreneur. One of the great things about this world of webs is that the world is now open for business to billions of people who choose to think as entrepreneurs–rather than employees.
 

Robert Kiyosaki categorized people into 4 different quadrants called the Cashflow Quadrants depending on where their income or cash comes from.

The quadrants represent:

• E – Employee
• S – Self-employed worker
• B – Business Owner
• I – Investor

If you just meet a new person, how can you quickly guess if the person is in the E, S, B, or I quadrant without asking that person specifically about it?

One of the way is to listen to their words.

E Qudrants

• “I am looking for safe and secure job with good pay and excellent benefits”
• “You can’t teach an old dog new tricks”

S Quadrant

• “I charge a standard rate of $30 per hour for my service”
• “Nobody can do it better than me”

B Quadrant

• “I’m looking for a new operation manager to run my company”
• “Why should I dirty my hand when I can get someone else better to do it for me”

I Quadrant

• “Is my cash flow based on an internal rate if return or a net rate of return:
• “Although it is high risk, if the numbers are right, I will take the chance”

So which kind of statements sound most like you?

The Cashflow Quadrants was created by Robert Kiyosaki in “Rich Dad, Poor Dad” book, and later lead to the book called “Cashflow Quadrants”.

Kiyosaki created the Cashflow Quadrant to help in figuring out where you are.  For if you do not know why you are, you will not know where you should be heading to.

 The quadrants are represented by : 

• Employee
• Self-employed worker
• Business Owner
• Investor

Where you belong in the quadrants is dependent on how your main source of income is being generated.

Employee earn income by working for other people.  You get paid for your time and effort.
Self-employed worker earn income by working for themselves.  They own the job.
Business Owner earn income from the businesses they owned.
Investor earn income from their investments. They place their money in business opportunity to earn more money.

In general sense, those people in the B and I quadrants achieve their financial success much faster than those peopel in the E and S quadrants.  Business Owner and Investor are more likely to be richer than Employee and Self-employed Worker.

The E (Employee)
People in the E quadrant is wary and fearful of economic uncertainty as their income is dependent on their job and their job is interrelated to the economy.  They therefore have a strong need for job security.
Employees can be CEOs of companies or delivery boy.  It is not what they do or how much they earn that make them Es.  Rather it is a fact that they are working for others, and earning salaries and benefits.

The S (self-employed)
S types are their own bosses.  Robert Kiyosaki referred them as “do-it-yourselfers”.  When it comes to money, they are fiercely indepent souls.  They don’t like to have their income depend on other people.  They expected to be paid well if they worked hard.  They also understand that if they don’t work, they won’t get paid.
This group includes professional such as doctors, lawyers and architects, who spend years in school.  It also includes small business owners.  For example, restaurant owners, travel agents, car mechanics, plumber, hairstylists as well as direct commission salesperson such as real estate agents.

Robert Kiyosaki described these above 2 groups as people who are trading their time for money.  How much they earn is limited by the amount of time they have.

The B (Business Owner)
The difference between S and B is that B can leave their businesses for a year and return to find it still profitable as before.  That is not the usual case with someone in the S quadrant.  When an S leaves his or her business for a year, chances are there is no business to return to.
The motto of a B is – Why do it myself when I can hire someone better to do it for me?
A successful B requires technical business skills.  To succeed, B’s need to know more than just how to build superior products or services.  They need to know how to build solid network of business systems.  They have to be skilled in the art of leadership.  Successful B’s bring out the best in their people so that their people will carefully tend the network of business systems.
Perhaps the greatest knowledge that B’s have is the understand of the concept of leverage.  Robert Kiyosaki said that successful business owner learn how to leverage on other people’s money (OPM) and other people’s time (OPT).

The I (Investor)
Regardless of which quadrant people make their money in, if they hope someday to be truely rich, they must utlimately move into the I quadrant.  For it is here that money becomes converted to wealth.
What is wealth?  Robert Kiyosaki said wealth is not measured in money.  It is measured in time.  It is the number of days you can survive without physically working and still maintian your standard of living.  I types don’t have to work because their money is working for them.
Robert Kisoaki described the I quadrant as the playground of the rich.  That does not mean that everyone in the I quadrant will achieve financial success.  You can be in the I quadrant and still be poor. In fact, you can still be poor in the E, the S and the B.  You can be get bankrupt.  Your investments can go wrong.      

So you want to your financial success, you got to shift yourself to the right side.  Shift to the B or even the I quadrant.  Moving from one quadrant to another is a matter of choice.  Shifting quadrant means altering how you think and how you look at the world.  This might be easy for other while difficult for others.  If you are receptive to change, it would be easy.  If you resist change, it would be difficult.  It all depends on you.

Robert Kiyosaki in his “Rich Dad, Poor Dad” book, classified people in 4 main quadrants based on how their main source of income is being generated.  The quadrants are known as the “Cashflow Quadrants” as depicted in the diagram below.

And how well to illustrate the meaning of the cashflow quadrants than using a story which Robert Kiyosaki told here.