Today, because of the multitude
of choices we all have, it is easy to get distracted from where we want to go
in life. I offer you a few suggestions on how to find your path and stay on
your path to great wealth, if you should choose to do so.
One night in 1975, I sat in my
little apartment and began to choose the path I was now to take. I had to again
decide which dad’s path I would follow, my rich dad’s or my poor dad’s. I had
been off track for 10 years and it was now time to get back on track.
These are some of the decisions
I made and have continued to make over the years.
Step One: Decide to
Be Rich
That night in 1975, I had to
stop feeling sorry for myself and decide again to be rich. I went over some of
the lessons my rich dad had given me - lessons that were more important than
money, because they would ultimately create the financial empire I wanted.
I sat quietly that night and my
lessons began all over again. I could hear my rich dad talking. “The only difference
between the rich, poor and middle class,” he said, “is the kind of lifestyle
they want. You don’t have to be psychic to tell a person’s future. If you
listen to the words a person uses, they will tell you their future.”
Rich Dad believed that words
were a person’s most important tool.” He constantly reminded me to watch the words I spoke, simply
because he believed that the words you speak and the words you think ultimately
become the world you live in”. He
often quoted the Old Testament “And the word became flesh”.
So that night, I remembered
Rich Dad reminding me to listen to different people’s words. I noticed that
poor people often said
“I just want enough money to
pay the rent.”
“I need a few dollars to get to
the next pay day.”
“After I pay my bills, I don’t
know how my family can afford to eat.”
People who used words such as
these, often focused only on “financial survival”. Rich
Dad often referred to these people as “poor” people, because they were poor
managers of money. So a person who thought or spoke words such as these was
constantly fighting for financial survival, regardless of how much money they
made.
The middle class used different
words because they had different ideas about how to use their money
“Our home is our most important
asset and our largest single investment.”
“We’re setting a few dollars aside every
month, so we can afford the down payment on our dream home.”
“We’re saving money for our
children’s college education and our retirement.”
I noticed that the middle class
focused on comfort. That is why so many of them say, “I don’t want to be rich.
I just want to be comfortable.”That night, I recalled the
words my rich dad’s rich friends used
“How did you finance your
shopping center did you syndicate it with a joint venture partnership or did
you go to a hard money lender for the interim money”
“My underwriter has a new
private placement, pre-IPO offering. Do you want a position in it?”
“I bought the shares through my
corporation because the long-term tax consequences are better.”
The rich used the vocabulary
found in the asset column. Rich Dad said, “The rich are rich because they are
not focused on day-to-day short-term survival, or the expense column as the
poor are. Nor are the rich focused on comfort and the acquisition of
liabilities using credit, as the middle class is.
The rich are rich because they
focus on the long-term acquisition of assets… assets such as stocks, bonds,
businesses and income producing real estate. Many times the rich will forsake
meals, a steady pay check, a vacation, or the comfort of a nice home, to build
or acquire real assets.”
So decide to be rich, even if
you are broke and penniless today. In Rich Dad Poor Dad, I wrote of the
difference between being poor and being broke. Poor is a state of mind where
thoughts such as “I can’t afford it” or “Live below your means” come from.
Being poor is but being broke is
temporary.
The opening chapter of The
CASHFLOW Quadrant is called, “Why Don’t You Get a Job” It begins with my wife
Kim and I being homeless for about 3 weeks. Even though we were virtually out
of money, we continued to strive to become rich, to build a business and invest
through that business.
Today, even though we have
plenty of money and several businesses, nothing much has changed. We continue
to build businesses, reinvest in our businesses and invest through those
businesses.
In The CASHFLOW Quadrant, I
wrote about Be-Do-Have. “Be” is the most important part of the three word
formula. Most people want to “Have” what the rich have, but they often are not
willing to do what the rich “Do” to have what the rich “Have”.
So whether you have money or
not, it is important to “Be” rich if you decide to do so, which means being
willing to make being rich more important than merely surviving financially or
being comfortable.
Step Two: Decide What
Kind of Money Problems You Want
There are only two kinds of
money problems “Not enough money or too much money”. Unfortunately,
the kind of money problem most people know is not enough money.
Rich Dad stressed that his son
Mike and I know not only how to make money but what to do with the money we
made. Rich Dad said, “Most people know how to work for money, but they do not
know how to have people and money work for them.” So he taught us how to plan
on having too much money.
He said, “If you want to be
rich, you must make sure your excess money creates more excess money. You must
know what to do with your excess money before it gets to you. Most people, when
they receive any excess money, spend it foolishly or just park it in the bank.”
So decide what kind of money
problems you want.
Step Three: Write
Your Plan and Follow It
After choosing between being
rich, poor or middle class, and then choosing between too much money or too
little money, it’s time to write your plan.
If you have chosen to be rich,
even though you are broke today, and have decided to have the problem of too
much money, read on. If you do not plan to be rich or to have too much money,
then you need not read any further.
Rich Dad’s plan started with a
few basic goals
1. Change the characteristic of
your income. Start a part-time business.
2. Change the characteristic of
your expenses. Convert personal expenses into business expenses.
3. Place your business inside a
legal entity.
4. Have your business buy your
assets.
5. Harness the power of
reinvesting.
If you’re willing to be a
little uncomfortable to become very rich and retire early, develop your plan —
even though you may be broke, but not poor, today. And if you are already rich,
Rich Dad’s plan may help you become richer and happier…even beyond your wildest
dreams.
Step Four: Decide on
Where You Want to do Your Banking
Rich Dad often said that you
could tell the difference between the rich, poor and middle class simply by
where they went to get their money or to do their banking.
Rich Dad said, “A poor man’s
bank is a pawn shop.” A pawn shop lends money on “assets” that a banker would
not loan money on. When a poor person is short of cash, they will often go to
the pawn shop and put their chainsaw, microwave oven, jewelry, TV sets, tools,
or watches up as security.
The pawn shop gives them cents
on the dollar, because what the poor spend their money on is not worth anything
after they buy it anyway. The pawn shop makes money by charging legal usurious
interest rates.
The middle class has the
creditworthiness to use banks, savings and loans, or credit unions for their
lines of credit. A popular form of credit for this group is the credit card,
which is easy to obtain.
The rich also use banks. But
they often use different banks. They use the services of investment bankers, or
find private capital from wealthy individuals, or money from institutions such
as pension funds, insurance companies or the stock market.
The rich, if successful as
business people, have fewer problems raising large sums of money and at better
interest rates.
So decide where you will do
your banking.
Step Five: Choose
Your Friends and Partners Wisely
One of the reasons the rich get
richer is because they spend time with other rich people. Most of my best
investments come from my rich friends, not from my stock brokers or real estate
brokers. It is important to know if a person’s aspirations are to be rich,
comfortable or simply survive.
“Friends who merely
want to be comfortable or survive will not understand why you want to be rich
and may unconsciously pull you down”. And besides, the investment
tips I get from people who only want to be comfortable are often tips on
investments that no one else wants.
How do you find people who are
rich or want to be rich? Rich Dad had a simple answer “It’s what you know that determines who you know. If you want to
change who you know, simply change what you know.” So the
most important investment you can make is in your financial education and
financial experience. Invest in that first and the people you spend time with
will change.
Step Six: Give
Yourself Time
It takes time to build a
business as well as an investment portfolio. Building a business is not the
same as getting a job. With a job, you expect to be paid soon after starting
work. With a business, you may not be paid for years, if you are paid at all.
That is why I recommend keeping your daytime job and starting a part-time
business.
It is said that 90% of all
businesses fail in the first 5 years. In my opinion, there are two main reasons
for this sad statistic. One reason is lack of education and experience.
Business is not something you can learn in school. Business is a combination of
formal education, experience and guts.
The second reason is lack of
money. We have heard the old cliche “Killing the goose that lays the golden
egg”. When starting a business, many people kill the baby-goose before it’s old
enough to lay the golden egg.
In other words, most small
businesses are undercapitalized, which means the new business owner tries to
support him or herself and often a family on a business that is not yet up and
running. So the business is drained of cash when it needs it most to grow.
Step Seven: Start
Small, Dream Big
In 1975, I realized that my
$700 in savings was not much when compared to Mike’s hundreds of millions of
dollars, which were rapidly growing into a billion dollars. Initially, I felt
like giving up, saying to myself, “What’s the use. I’ll never have more than
Mike.” But then I realized that if I continued with that thought process, not
only would I never have more than Mike, I would never have much of anything.
“I was comparing
myself with Mike and trying to compete with him, rather than use him as inspiration
and as a mentor”. So that night I decided to dream big and start
small.
“Many people start
small and stay small, simply because they have small dreams. In my opinion, big
dreams are important because they possess ingredients vital for success hope,
desire, passion, energy, vitality, faith, drive, inspiration and creativity.
These ingredients make life worth living”.
So dare to dream big. Dream of
all the wonderful things this world and life have to offer. Write your plan on
how you can have all your dreams come true and look at the plan every day. “Talk to people about your dreams, even those who criticize
them”. Then use their criticism to make your desire even stronger.
Step Eight: Before
You Expand You Must Contract
In 1975, I knew that if I was
to achieve great wealth quickly, I first needed to tighten up before I could
expand. I was hurting financially because I had been sloppy with my money
during the past 10 years.
In college, I’d spent a lot of
money just having fun. In Vietnam, I’d developed the attitude of living life to
the fullest because tomorrow I could be dead. If I was going to get ahead, I
first needed to pull back a little. Instead of playing golf, rugby and tennis,
I focused only on rugby.
Instead of spending every night
in the clubs or watching television, I needed to get back to studying. Instead
of trying to be everywhere and do everything, I decided to focus. I began doing
more — of fewer things.
So, regardless of what you did
yesterday, if you want to do better financially tomorrow, you may need to
forgive your past, tighten up your activities today, so you can have a bright
and prosperous tomorrow. To expand, you must first contract.
Step Nine: Get Bigger
Faster
The problem with a small
business or small investments such as one single family rental is that you have
to do all the work. You do all the work because there is not enough money to
support paid management. So you own it and manage it.
Very often, a person begins to
buy real estate and soon quits because the work is hard and the pay is low.
They started with a small plan and stayed small.
For business or investing to
work for you, in most cases you must get big. Instead of buying only two rental
properties, plan on acquiring at least 20 properties as soon as possible. (But
make sure you know what you’re doing first.) With 20 properties you can afford
professional management, if the cash flow is strong, or you can trade the 20
units into one larger apartment house or office building.
The same goes with businesses,
especially franchises etc. If you have only one franchise, you are the chief
cook, bottle washer, owner and manager. If you have 20 of them, you have a
chance of finding freedom faster.
“The people who dream
small, think small, and work small, work the hardest and are paid the least”. So
that night in 1975, I vowed to focus, acquire education, gain experience, start
small and get big as quickly as possible.
I always remind myself of my
rich dad’s words “The bigger the asset you build, the less you work and the more
money you make.”
Step Ten: The More
You Share, the Richer You Become
In 1975, I knew that if I wanted to acquire
great wealth quickly, I had to be a person who shared. I had to be generous. If
I was greedy, stingy or tight, it would take me longer to act . Being a generous
person open different ways of opportunities in the midst of challenges.
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