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Final Thoughts

I would like to share a final thought with you. The main reason I wrote this book was to share insights into how increased financial intelligence can be used to solve many of life’s common problems. Without financial training, we all too often use the standard formulas to get through life, such as to work hard, save, borrow and pay excessive taxes. Today we need better information.

I use the following story as a final example of a financial problem that confronts many young families today. How do you afford a good education for your children and provide for your own retirement? It is an example of using financial intelligence instead of hard work to achieve the same goal.

A friend of mine was griping one day about how hard it was to save money for his four children’s college education. He was putting $300 away in a mutual fund each month and had so far accumulated about $12,000. He had 12 years to save for it, since his oldest child was then 6 years of age.

At the time, and the real estate market in Phoenix was terrible. People were giving houses away. I suggested to my classmate that he buy a house with some of the money in his mutual fund. The idea intrigued him and we began to discuss the possibility. His primary concern was that he did not have the credit with the bank to buy another house, since he was so over-extended. I assured him that there were other ways to finance a property other than through the bank.

We looked for a house for two weeks, a house that would fit all the criteria we were looking for. There were a lot to choose from, so the shopping was kind of fun. Finally, we found a 3 bedroom 2 bath home in a prime neighborhood. The owner had been downsized and needed to sell that day because he and his family were moving to California where another job waited.

The owner wanted $102,000, but we offered only $79,000. He took it immediately and agreed to carry back the load with %10 down payment. All my friend had to come up with was $7900. As soon as the owner moved, my friend put the house up for rent. After all expenses were paid, including the mortgage, he put about $125 in his pocket each month.

His plan was to keep the house for 12 years and let the mortgage get paid down faster, by applying the extra $125 to the principle each month. We figured that in 12 years, a large portion of the mortgage would be paid off and he could possibly be clearing $800 a month by the time his first child went to college. He could also sell the house if it had appreciated in value.

Later, the real estate market suddenly changed in Phoenix and he was offered $156,000 for the same house by the tenant who lived in it and loved it. Again, he asked me what I thought, and I naturally said sell, on a 1031 tax-deferred exchange.

Suddenly, he had nearly $80,000 to operate with. I called another friend in Austin, Texas who then moved this tax deferred money into a mini-storage facility. Within three months, he began receiving checks for a little less than a $1,000 a month in income which he then poured back into the college mutual fund that was now building much faster. A couple of years later, the mini-warehouse sold and he received a check for nearly $330,000 as proceeds from the sale which was again rolled into a new project that would now throw off over $3,000 a month in income, again, going into the college mutual fund. He is now very confident that his goal of $400,000 will be met easily, and it only took $7,000 to start and a little financial intelligence. His children will be able to afford the education that they want and he will then use the underlying asset, wrapped in his C Corporation, to pay for his retirement. As a result of this successful investment strategy he will be able to retire early.

Thank you for reading this book. I hope it has provided some insights into utilizing the power of money to work for you. Today, we need greater financial intelligence to simply survive. The idea that it takes money to make money is the thinking of financially unsophisticated people. It does not mean that they’re not intelligent. They have simply not learned the science of making money.

Money is only an idea. If you want more money simply change your thinking. Every self-made person started small with an idea, then turned it into something big. The same applies with investing. It takes only a few dollars to start and grow it into something big. I meet so many people who spend their lives chasing the big deal, or trying to mass a lot of money to get into a big deal, but to me that is foolish. Too often I have seen unsophisticated investors put their large nest egg into one deal and lose most of it rapidly. They may have been good workers but they were not good investors.

Education and wisdom about money are important. Start early. Buy a book. Go to a seminar. Practice. Start small. I turned $5,000 cash into a $1 million dollar asset producing $5,000 a month cash flow in less than six years. But I started learning as a kid. I encourage you to learn because it’s not that hard. In fact, it’s kind of easy once you get the hang of it.

I think I have made my message clear. It’s what is in your head that determines what is in your hands. Money is only an idea. There is a great book called Think and Grow Rich. The title is not Work Hard and Grow Rich. Learn to have money work hard for you and your life will be easier and happier. Today, don’t play it safe, play it smart.

The three incomes

In the world of accounting, there are three different types of income.

1-Ordinary earned

2-Portfolio

3-Passive

When my poor dad said to me, “go to school, get good grades and find a safe, secure job”, he was recommending I work for earned income. When my rich dad said, “the rich don’t work for money; they have their money work for them”, he was talking about passive income and portfolio income.

Passive income, in most cases is income derived from real estate investments. Portfolio income is income derived from paper assets such as stocks and bonds. Portfolio income is the income that makes Bill Gates the richest man in the world not earned income.

Rich dad used to say, the key to becoming wealthy is the ability to convert earned income into passive income or portfolio income as quickly as possible. He would say taxes are highest on earned income. The least taxed income is passive income. That is another reason why you want your money working hard for you. The government taxes the income you work hard for more than the income your money works hard for.

In my second book Rich dad’s cash flow quadrant, I explained the four different types of people who make up the world of business. They are E employee, S self employed, B business owner and I investor. Most people go to school to learn to be an E or an S. The cash flow quadrant is written about the core differences of these four types and how people can change their quadrant. In fact, most of our products are created for people in the B and I quadrants. In Rich dad’s guide to investing, book number three in the rich dad series, I go into more detail on the importance of converting earned income into passive and portfolio income.

Rich dad used to say, all the real investor does is convert earned income into passive and portfolio income. If you know what you’re doing. Investing is not risky. It’s just common sense.

The key to financial freedom

The key to financial freedom and great wealth is a person’s ability to convert earned income into passive and or portfolio income. My rich dad spent a lot of time teaching Mike and me this skill. Having this ability is the reason my wife Kim and I are financially free. Never needing to work again. We continue to work because we choose to. Today we own real estate investment company for passive income and participate in private placements and initial public offerings of stock for portfolio income. We also went back to work to build a financial education company so that we can continue to create and publish books and games.

All of our educational products are created to teach the same skills my rich dad taught me, the skills of converting earned income into passive and portfolio income. The games we create are important because they teach what books cannot teach. For example, you would never learn to ride a bicycle by only reading a book. Our cash flow games for adults and cash flow for kids game are designed to teach players the basic investment skills of converting earned income into passive and portfolio income. They also teach the principles of accounting and financial literacy. These games are the only educational products in the world that teach people all of these skills simultaneously.

Cash flow 202 is the advanced version of cash flow 101 and requires the gameboard from 101, as well as a full understanding of 101 before they can be played. Cash flow 101 and cash flow for kids, teach the principles of fundamental investing. Cash flow 202 teaches the principles of technical investing. Technical investing involves advanced trading techniques such as short selling, call options, put options and straddles. A person who understands these advanced techniques is able to make money when the market goes up as well as when the market comes down. As my rich dad would say, a real investor makes money in an upmarket and a down market. That is why they make so much money.

One of the reasons they make more money is simply because they have more self-confidence. Rich dad would say they have more self-confidence because they are less afraid of losing. In other words, the average investor does not make as much money because they are so afraid of losing money. The average investor does not know how to protect themselves from losses and that is what cash flow 202 teaches. Average investors think investing is risky because they have not been formally trained to be professional investors. As Warren Buffett, America’s richest investor says risk comes from not knowing what you’re doing. My boardgames teach the simple basics of fundamental investing and technical investing while people are having fun. I occasionally hear someone say your educational games are expensive, which poses the question of ROI, the return on investment or the value returned for the price paid. I nod my head in reply. Yes, they may be expensive, especially when compared to entertainment boardgames but my games are not as expensive as a college education, working hard all your life earned income, paying excessive taxes and then living in terror of losing all of your money in the investment markets.

When someone walks away mumbling about the price I can hear my rich dad saying if you want to be rich you must know what kind of income to work hard for, how to keep it and how to protect it from loss. That is the key to great wealth. Rich dad would also say, if you do not understand the differences in those three incomes and do not learn the skills on how to acquire and protect those incomes, you will probably spend your life earning less than you could and working harder than you should.

My poor dad thought a good education, a good job and years of hard work were all you needed to be successful. My rich dad also thought a good education was important, but to him it was also important that Mike and I know the differences in the three incomes and what kind of income to work hard for. To him that was basic financial education. Knowing the differences in the three incomes and learning the investment skills of how to acquire the different incomes is basic education for anyone who strives to acquire great wealth and achieve financial freedom. A special kind of freedom that only a few will ever know.

As rich dad states in lesson number one, the rich do not work for money, they know how to have money work hard for them. Rich dad said earned income is money you work for an passive and portfolio income is money working for you. Knowing that little difference has been significant in my life. Or as Robert Frost ends his poem, and that has made all the difference.

Take Action!

Many of you were given two great gifts: your mind and your time. It is up to you to do what you please with both. With each dollar bill that enters your hand, you and only you have the power to determine your destiny. Spend it foolishly, you choose to be poor. Spend it on liabilities, you join the middle class. Invest it in your mind and learn how to acquire assets and you will be choosing wealth as your goal and your future. The choice is yours and only yours. Every day with every dollar, you decide to be rich, poor or middle class.

Choose to share this knowledge with your children, and you choose to prepare them for the world that awaits. No one else will.

You and your children’s future will be determined by choices you make today, not tomorrow.

We wish you great wealth and much happiness with this fabulous gift called life.

Robert Kiyosaki, Sharon Lechter