Wednesday, April 19, 2017

Make Money Grow on Trees

When it comes to getting rich, so-called experts are full of advice on how to save your way there. There’s no shortage of articles about couples who saved their way to $1 million or “expert” tips on how to save more money.

And these articles are true. You can save more money following their advice. But you have to consider the cost. Because the saver mindset is a very different and dangerous mindset about money than how the rich think about money.

All you need is a million?

Take for instance the couple, Carl and Mindy, who saved $1 million on four years. Their instincts were right.
“I was having this horrific day at work,” 42-year-old computer programmer Carl told Farnoosh Torabi on an episode of her podcast. “I was 38 at the time, and I'm like, 'There's no way I can do this until I'mr 62 or 65 or whatever age people normally retire at.”

Many people feel trapped in their jobs but do nothing about it. Congrats to them for taking action. But in the end, it is still the action of a poor-person mindset about money.

The couple started by analyzing their spending habits. 

“My wife and I wrote all of our expenses in a book,” Carl explains on their blog. “Every time we returned from shopping or paid a bill, we logged it.”

Based on their logs, they determined they could live on $24,000 a year. To be safe, they added a $6,000 cushion and bumped that estimate up to $30,000 a year.

To get there, they decided they needed $1 million saved up to retire by age 42. To achieve this, they did the standard saver playbook: they downsized and cut expenses, while working side jobs and investing in their personal residence and the stock market.

Not a future proof-retirement

While it is great for Carl and Mindy to retire today—and having $1 million in the bank is certainly better than most—their retirement plan is not future proof in my mind.

They use what is called the 4% rule, assuming if they take out 4% of their retirement money per year, they won’t run out.

Perhaps this makes sense for them now in their 40s while they are relatively young. But what will happen when they get older and require more medical attention? Or what if their property taxes go up significantly over the next twenty years? Or what if inflation continues to grow over the next forty to fifty years at 2% a year? Or what if they get tired of living so frugally after all?

Without significant income, they won’t be able to stay afloat. They may enjoy life at $30,000 a year right now, but it will not be sustainable for their entire retirement.

The conventional advice is all about saving

This is not Carl or Mindy’s fault. They were raised in a world that teaches them that saving is the best way to be rich.

Take for instance Mic’s “30 easy money hacks to get a little richer every single day this month”. They include things like:
-    Shop generic
-    Check for Health Savings Account eligibility
-    Review your 401(k) fees
-    Grow your own herbs
-    Transfer $10 a week to an IRA
-    Buy a slow cooker (on sale no less)
-    Use cloth napkins

Of the entire list of 30 ideas to get rich, only one has to do with generating income. The rest are all ways to do exactly what Carl and Mindy did: downsize and cut expenses.

Your mindset about money 

As a kid, my poor dad, my natural father, had this same mindset. Whenever we wanted something in life, he would say, “We can’t afford that.” Perhaps your parents said something similar like, “Money doesn’t grow on trees!”

My rich dad, my best friend’s father, asked a very different question. He would ask, “How can I afford that?”

The difference between my poor dad and my rich dad’s mindset about money was fundamentally one of saving versus earning.

My poor dad always looked to be saving money and cutting expenses. My rich dad always looked to be making money and investing in both his wealth and his quality of life.

Now, which person do you think lived a happier, fuller life? Unfortunately, it was my rich dad. I say unfortunately because it was very hard to watch my poor dad later in life when he had no money, struggled financially, and was very bitter. He worked hard his whole life, but his mindset about money did not serve him well in the end.

Savers are losers; spenders are winners

All of this goes to show that the Rich Dad mantra of “savers are losers” is a vital thing to understand if you want to be truly rich. After all in world where Brexit can happen and global currency markets can wipe out $380,000 of a tennis star’s prize money in a day or two, or where the President can say the dollar is too strong and push it’s worth down half a percent in a day, putting your faith in how many greenbacks you have saved versus how many you can make…makes no sense.

In today’s financial world, spenders are winners and savers are still losers. Of course, by spenders, I mean those who use their money to build their business or invest in cash flowing assets. And to spend wisely this way, you need financial intelligence that goes beyond just downsizing and cutting expenses. You need to understand how to create wealth, and in your own way, actually make money grow on trees.

Monday, April 17, 2017

The secret ways the "Rich" stay rich is buying using Tax Laws for their benefit

Your financial adviser will tell you that debt is bad and taxes are inevitable. But the rich understand that both debt and taxes can be used to create immense wealth.

When it comes to debt, there are two kinds—bad and good. When your financial adviser tells you to stay out of debt, she means stay out of bad debt.

Bad debt comes in the form of borrowing money for liabilities such as using credit cards to buy TVs and take vacations, borrowing a line of credit on your personal home, and more.
Better ways to buy a car than buying a brand new car with a high interest loan 

Staying out of bad debt is good advice, but the problem is that your financial adviser won’t tell you about good debt.

Good debt is debt used to purchase assets like rental property.

When you use the bank’s money to purchase cash-flowing real estate, you use less of your own money to secure an asset by paying only a down payment instead of full price, and your tenant’s rent pays off your debt while you own the asset and pocket the profit.

When it comes to taxes, the rich understand that governments write tax codes to encourage specific types of behavior. If governments want you to build affordable housing, they give you a tax cut. If they want to encourage oil exploration, they give you a tax cut. If they want to see higher employment, they give you a tax cut.

The secret is that most tax benefits are made to help entrepreneurs and investors. With the right financial education, you too can utilize the tax code to not only get richer, but also pay nothing in taxes.

Utilizing good debt and getting richer through taxes takes a high level of financial intelligence. But everyone can learn and put these principles into practices.

Friday, April 14, 2017

Knowledge is power and with power comes confidence

When you’re not confident about your knowledge of money, you let others make your financial decisions for you.

You let your broker decide how your money should be invested. You let your bank tell you what interest rate is worthy of your money. You follow whatever investing trend is popular in the news.

The rich don’t follow the crowds. They set the trends and are gone by the time the trends become mainstream. What’s their secret? They think for themselves about money and make their own financial decisions because they have a high financial intelligence.

The key to building great wealth is having great knowledge to act on and great wisdom to know which course of action is the best.


Robert Kiyosaki is a Japanese American investor and author of the popular book 'Rich Dad Poor Dad' where he wrote of his two dads. His rich dad taught him to think differently, inspired and helped him get rich on his own.

Thursday, April 13, 2017

The Rich invest differently from the Poor

Warren Buffett has done exceptionally well with investing

Investing for capital gains is like gambling. You invest your money and hope the price goes up. For instance, many people buy a house hoping they’ll be able to sell it for more money later. In the meantime, they have to pay their mortgage and home expenses. Money goes out of their pocket. It becomes a liability.

The problem is that when you invest for capital gains you have no control over whether the price goes up or down, and the bigger issue is, if you do make a profit, you pay the highest rate in taxes.

Conversely, the rich invest for cash flow. So, for instance, they buy investment real estate with other people’s money, find tenants to pay the expenses, and collect rent each month. It becomes an asset. And if there’s capital gains, that’s a bonus.

By investing for cash flow instead of capital gains, the rich have control over their income and pay the lowest rate in taxes—and sometimes nothing in taxes.


Robert Kiyosaki is a Japanese American investor and author of the popular book 'Rich Dad Poor Dad' where he wrote of his two dads. His rich dad taught him to think differently, inspired and helped him get rich on his own.

Wednesday, April 12, 2017

Your house may be a liability


Many people think they know what an asset is. For instance, you probably think your house is an asset—but it’s not. The truth is that just as there are two definitions of an asset.

Accountants use one definition that requires lots of financial calisthenics to make people and companies feel richer than they really are. This keeps them employed and their clients blissfully ignorant.

The rich use another definition grounded in simplicity and reality. An asset is anything that puts money in your pocket and a liability is anything that takes money out of your pocket.

Your house is not an asset because it takes money out of your pocket each month. Even if you own your house outright, you still have to pay for the taxes, maintenance and more out of your own pocket.

Spending on expensive vacations can be a liability
But if you own a rental property, that can be an asset—if it puts money in your pocket each month in the form of cash flow. When your tenant pays rent, they cover your mortgage, maintenance, taxes, and more.


Tuesday, April 11, 2017

Follow the new rules of money or get screwed

Even Bernie Sanders recognizes what a problem the growing gap in incomes represents: "The issue of wealth and income inequality is the great moral issue of our time, it is the great economic issue of our time, and it is the great political issue of our time.”

But much like I don’t agree with Bernie on how to fix the problem, much of what is labeled out there as financial education leaves a lot to be desired. From my experience, it centers on concepts like saving, investing in a 401(k), getting a college degree, paying down debt, and home ownership. In short, it centers on the old ideas about money.

I’ve said it before, when you follow the old rules of money, you’re screwed financially.


Robert Kiyosaki is a Japanese American investor and author of the popular book 'Rich Dad Poor Dad' where he wrote of his two dads. His rich dad taught him to think differently, inspired and helped him get rich on his own.

Monday, April 3, 2017

Three reasons for market euphoria

What causes people to spend way too much on stocks? It’s an interesting question, especially given the recent euphoria over the IPO of Snap. Most investors today think that the fun will continue. They firmly believe as New Zealand Herald, Mike Taylor writes that “they are in a new paradigm.” Taylor gives three reasons for this mindset:

Anchoring: This is a trait where an investor will "anchor" to a price that is important to them, but may have no relevance at all to the market they are investing in. For example, being focused on doubling your money, and only selling an asset if or when the price reaches this point.

Loss aversion: Recognising a loss is uncomfortable for most people and investors will try to avoid it where possible. That means that if an asset is below the price the investor paid for it, they are prepared to wait in the hope they will get back to break-even. This can prove disastrous if the asset is in terminal decline. At best, it means your capital is stuck in a poorly performing asset when it could be reallocated elsewhere.

Herd behaviour: From a young age, we learn to succumb to peer pressure as the path of least resistance. When it comes to investing, we take comfort if everyone else is doing the same thing. For example, if everyone is buying over-priced internet shares, even if your rational brain tells you this is madness, you justify your decision because, "all my friends are doing it and they are making money, so it must be OK".


Surely, Buffett understands how to avoid the three behaviors Taylor lists. As one of the richest men in the world, he doesn’t get sucked into the euphoria of the markets. He only profits from them. How?

The important caveat from Buffett is that his determination that stocks look cheap based on the current environment of low interest rates. "If interest rates were seven or eight percent, these (stock) prices would look exceptionally high," he said. And of course, by all appearances, interest rates will continue to rise.
Why financial education is a must-have to survive

Unfortunately, the average investor doesn’t understand the fundamentals of the markets, let alone how interest rates impact the value of stocks. They just buy because the market is going up…and everyone else is doing it.

And this brings up an interesting question. What’s the antidote to anchoring, loss aversion, and herd behavior? 

The answer is found in financial education.


By understanding how money and markets work, you are better equipped to see the trends happening…and profit from them. Buffett has built his fortune doing just that. And so have I.