Tuesday, December 18, 2012

Robert Kiyosaki: Retire Young Retire Rich

Robert Kiyosaki's book, 'Retire Young Retire Rich' makes a brash statement that it can teach you "How to get rich quickly and stay rich forever!" 

This book is all about leveraging. The power of leveraging. Your mind is one of the most powerful form of leverage in the world and what you think and believe will influence how you make your decisions and take action. Laws of attraction.

How to leverage your mind, how to leverage your plans, how to leverage your actions and the leverage from taking that first step.

The three main assets that you can employ to enable you to retire young and retire rich are:
1. Real estate
2. Paper assets/stocks/shares
3. Businesses

Most of his books have repetitious sections and again, constantly spruik his own cash flow game and various other products. For the sake of this book analysis, I read everything.

Leveraging your mind

* Learn investment terminologies and words. The more financial words you learn, the greater your ability to invest and take advantage of various investments

* How did Kiyosaki get wealthy and successful? He writes that it was by increasing his:
a) Business skills
b) Money management skills
c) Investment skills

* Words that will work against you:
a) "But we don't have any money."
b) "I can't do that."
c) "I'll think about it next year, or once Kim and I get settled."
d) "You don't understand our situation."
e) "I need more time."
f) "Maybe someday when I have the money I'll begin to invest."
g) "Do you know how busy I am? I don't have the time to to learn to invest."

If you haven't got any funds to invest, then you can invest in your financial knowledge by taking the time to learn about investing in property, stocks and businesses. It costs nothing to acquire financial knowledge now that you can use the internet and you can always go the old school way and borrow books from the library. It's free to attend auctions, free to ask questions, free to attend open houses and free to analyse investment deals even if you haven't got the funds to invest. By the time you DO have some funds to invest, you will already be an investment pro to some extent because of the time that you've spent investing in your financial knowledge.

* "...the middle class and the poor fall behind the rich is because they use the financial power of bad debt to fall behind in life. The rich use the financial power of good debt to propel them ahead."

* Kiyosaki believes that his wealth resulted from the three asset classes mentioned (real estate, paper assets and business) and these were magnified by leveraging OPM (other people's money) and OPT (other people's time).

* Kiyosaki doesn't believe in someone being lucky simply by being at the right place at the right time. Luck happens only when you're "educated, experienced, ready and prepared to take advantage of the opportunity when the opportunity presented itself"

* The million dollar question that you can ask yourself. If you can answer this question, then you can create your own leverage into wealth: "How can I do what I do for more people with less work and for a better price?"

* "A person who thinks investing is risky will often find all the reality they want to substantiate that reality." Change your reality and your views in life by choosing to say, "How can I afford that piece of beachfront property?" instead of saying,"I can't afford it."

* Three form of income is mentioned:
a) Earned income - from your personal labour, your pay cheque, when you get pay rises, bonuses, overtime and commissions etc
b) Portfolio income - from your stock portfolio such as stocks, bonds, mutual/managed funds
c) Passive income- from real estate, royalties, patents and intellectual properties

* Earned income is disliked by Kiyosaki's 'rich dad' due to various reasons:
1. Highest taxed income with the fewest control over how much tax you pay and when you pay your taxes
2. You have to personally work for it using your valuable time
3. There's very little leverage in earned income and the primary way to increase earned income is by working harder
4. There is often no residual value for your work. If you don't work, you don't get paid.

* Again, Kiyosaki repeats himself from previous books:
a) Employee -> Earns, taxed, spends what is left
b) Business owner -> Earns, spends, pays tax on what is left

I'll use a simple example to illustrate this concept for you:
a) Employee with 30% tax -> Earns $100, is taxed $30, spends $20, is left with $50 in the pocket
b) Business with 30% tax-> Earns $100, spends $20, is taxed 30% on $80, is left with $56 in the pocket

* "The idea of working all your life, saving , and putting money into a retirement account is a very slow plan. It is a good and sensible plan for 90 percent of the people. But it is not a plan for someone who wants to retire young and retire rich. If you want to retire young and retire rich, you need to have a plan that is far faster than the plans of most people."

* "...you need to invest in what is going to happen, rather than what has already happened...If you want to see the future, you need to see it through younger eyes."

* "Over the years, we have attended many investment seminars, seminars on marketing, sales, systems development, handling employees and of course investing...I meet authors who did well in school as writers but their books do not sell as many as mine do. When I suggest to them that they attend direct marketing courses, or sales training courses, or copy writing classes, many get very indignant. As I said in Rich Dad Poor Dad, I am a best-selling author not a best-writing author."

* Calculate your wealth ratio. The goal is to have your passive and portfolio income exceed your total expenses so that even if you quit your 'earned income' job, you can still maintain your lifestyle. Once the ratio is 1 or higher, it's a choice whether you wish to quite the 'rat race' or not:

Wealth Ratio =    Passive income + Portfolio income
                                         Total expenses

Example: $600 passive + $200 portfolio  = 0.2 wealth ratio
                      $4000 total expenses

* "When I think of the millions of people who are betting their financial future and their financial security on a stock market I cringe. Millions of people are worried about their financial future as the number of layoffs increase and the market continues to fluctuate....there are stories of how retirees have lost most of their retirement savings to investment advisers and insurance salespeople they trusted..."

* "Your life will change forever once you know the difference between saving money and making money."

* "The most life destroying word of all is the word tomorrow...the poor, the unsuccessful, the unhappy and the unhealthy are the ones who use the word tomorrow the most. These people will often say, 'I'll start investing tomorrow,' or 'I'll start my diet and exercise tomorrow.'"

* If you see an opportunity arise but were unable to take advantage of it, then "you are at the boundaries of your context, what you think is possible for yourself, and your content, which is the accumulated knowledge via which you handle problems and challenges..."

* Kiyosaki spends pages and pages writing about your reality, how people don't realise that their reality is only limited by their mind. If you don't expand your reality then you will never see the answers to your problems because you are trying to solve your current problems with your existing knowledge and experience: "Most people try and solve their financial problems with what they know, rather than expand what they know so they can solve a bigger problem. Rather than taking on bigger financial challenges, most people wrestle all their lives with financial problems they feel comfortable with."

* In the book, 'Who took my money', you read about the E and S side of the quadrant and the B and I side of the quadrant. The goal is to move to the B-I side of the quadrant because income on the E-S side is limited whereas the earning potential from the B-I side is unlimited: "The trouble with selling your labour is that there is only so much you can do. If you learn to acquire or build assets to generate money, you can slowly but surely increase your income...your labour has no long term residual value. If you buy a rental property and you profitably rent it out, the labour you used to acquire that rental property can be rewarded over and over again, for years."

* "If you work slowly acquiring assets your income potential is infinite and that income can be passed on for generations to come. Your job or profession is not something you can pass on in your will to your children."

* "It is not your boss's job to make you rich. Your boss's job is to pay you for what you do, and it is your job to make yourself rich at home and in your spare time."

* "The moment you sincerely build a business or invest to increase your service to more people, you have forever increased your chances of becoming extremely wealthy and retiring young and retiring rich."

Leverage of habits that will make you rich

1. Hire a bookkeeper - having a bookkeeper keep your income, expenses, assets and liabilities in line so that you can keep professional records, have an unemotionally attached third party review your financial challenges so that you can make corrections via a monthly review of your financial situation
2. Create a winning team- the B+I quadrants are 'team sports' requiring team members such as your banker, accountant, attorney, stockbroker, real estate broker, insurance broker etc
3. Constantly expand your context and your content
4. Keep growing up- doing things differently as we grow older instead of doing the same old thing day in day out.
5. Be willing to fail more- by being willing to try new things and make mistakes
6. Listen to yourself- pay attention to what you are saying to yourself and focus on what you want from life and in your life

* "Kim(his wife) and I did not keep our money in a retirement account in order to retire young. We knew that we had to keep our money working, working hard to acquire more and more assets. Once our money acquired an asset, that money was soon reemployed to go out and get us another asset. The strategy we used to keep our money moving and acquiring more and more assets is a strategy that almost everyone can use."

* Comparing the stock market to the real estate market:
a) The stock market is simply buy or sell
b) The real estate market is negotiable- terms are negotiable, can lower or raise the price, can reduce expenses, can improve the value of the property by renovating such as painting, adding extra bedrooms, selling off extra land etc

* It does not take money to make money - Kiyosaki recommends people engage in option trading. I don't think I fully agree with his recommendation here because although you can write naked call and put options for a minor fee, if the naked options are being exercised by the holders of your put and call options, then you better HAVE the money to be able to buy the stocks off the put option holders or have the funds to buy the shares so that your call option holders can buy the stocks off you. So unless you wish to get into financial difficulty, it DOES take money to make money if you wish to pursue this particular strategy that Kiyosaki is proposing. Anyone trying to pursue this options trading strategy needs to ensure that they have backup funds that can be used to buy stocks off naked put option holders trying to exercise the put option that you sold them and similarly, have the funds to buy stocks that can be resold if holders of naked call options exercise their options.

I have to agree with Kiyosaki with respect to the statement that it doesn't take money to make money. You DON'T have to have money to make money. You can create money in so many ways even if you have zilch. If you are creative or have a great idea, you can sell your ideas. You have talent. You just need to capitalise on your talents, knowledge and abilities. You can create an intellectual property, you can create a blog (like this) from scratch for free and generate advertisement income from Google Adwords and from advertisers wishing to advertise with your blog/website. I created this site from scratch and it didn't cost me a single cent and it's been generating income for me. That's just one example. Obviously the more money you have, the easier it is to buy and create investments and the faster you make more money.

But work with what you've got. If you've got nothing, you can create something from nothing. The sky really is your limit. There is over 6 billion people on this planet and what is stopping you from generating a chunk of revenue from that population?

What would you do if there was no risk and it required no money to become rich?

Kiyosaki challenges us to think about what we would do if there was no risk and no money required to become rich. What type of business or investment or hobby would you start? What trade would you be in? Would you retire? Do you think that type of world exists? If you think that world is non existent, do you think you are destroying yourself by limiting your creativity?

In closing, Kiyosaki writes that "Leverage is power. Leverage is found inside of us, all around us, and invented by us. With each new invention, inventions such as the automobile, airplane, telephone, television, world wide web, a new form of leverage is invented. With each new form of leverage, new millionaires and billionaires are created because they used the leverage, not ruined or abused the new leverage. So always remember that the power of leverage can be used, abused or feared. How you choose to use the power of leverage is up to you and only you."


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