Monday, January 9, 2017

I wanted to be rich since I was 5 years old

[Watch the video above or click here]

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, January 4, 2017

New Years Resolution for 2017

Here we are in 2017. I hope you and yours had a good New Years celebration. As you know, this is the time of year when everyone does some looking within. If you're like most people, you've either made or are thinking through some resolutions for the New Year.

Did you know that most resolutions revolve around three things?
-    Health
-    Money
-    Experiences

Think through the resolutions you've made in the past, and most likely they will fall into one of those three categories. And these are also the most commonly broken resolutions as well. You can probably relate.

Personally, I don't do resolutions. I think it is much better to have a mindset that is always growing and evolving. I don't need a new year to make change in my life. I need to continually be examining where I am and where I want to go, all through out the year.

To do this, I build habits into my life that help me grow personally and financially each and every day. Here are five of them that you can put into practice starting today.

1) Keep up with the news
There is no substitute for knowing what is happening in the world and the markets. Each morning I get up and read a number of financial papers, blogs, newsletters and more. I also watch the news throughout the day.

As I've written before, knowledge is the new money, and if you want to be wealthy, you need to constantly be filling your knowledge bucket.

What you'll find is that the more you read, the more you'll start to understand. You'll then begin to notice patterns, and sooner than you think, you'll know what moves to make with your money well before most other people.

2) Read one book a month, at least
News is important to keep up on, but some ideas require much deeper exploration. Throughout my career, my success has come because I've chosen to read books that educate me about history, business, and money. While most people are content to watch TV or play video games, the person who commits to reading books will be light years ahead in the game of life.

Personally, I read multiple books each month. If you're just starting out, however, commit yourself to at least one book a month. That's much more than the average reader, and the knowledge you gain will be priceless. Don't know where to start? Here are two books I recently recommended.

3) Play more games
Head knowledge is important, but studies have shown that the best way to learn is to do. Games-or simulations-are proven to be great ways to learn by doing. Not only are they fun, but the applied knowledge also helps you retain more and understand how money and investing work in real life.

We stated Rich Dad as a game company focused on teaching financial truths through games. Thousands of people around the world get together to play CASHFLOW, our board game that teaches you how to get out of the rat race. You can either purchase a copy of the game for yourself, or you can play online for free.

4) Get fit
It's cliché to say you're going to hit the gym in the New Year, but it underlies a fundamental truth-when you are in shape you feel better, and as a result, things in your life are better.

Rather than preach a certain method or way to get in shape, I simply like to encourage people to find something they enjoy and do it until they don't enjoy it any longer. That could be the stair machine at your local gym, but it could also be something as simple as taking a nightly walk after dinner with your partner.

If you focus on your physical health, your mental health will be sharper, you'll have more energy, and you will be more successful.

5) Give back
Kim and I have shared our 10/10/10 plan before. In short, you invest 10 percent of your income, save 10 percent of your income for emergencies and special opportunities, and give 10 percent of your income to charity or your church.

Most people do well at saving their money, though probably not 10 percent of it. Some people do well at investing their money, though again probably not at 10 percent. But very few people do well at giving their money away.

Kim and I believe that in order to receive you must give. You cannot have a healthy and wealthy mindset if you are stingy and greedy. We also believe that what goes around also comes around. Call it karma or whatever you want, but if you are generous with the world, the world will be generous with you.

Monday, January 2, 2017

Dont rest on your laurels

We live in interesting times. A while back, I wrote about the possibility of the Fed raising rates... At the time, many people disagreed that the Fed would raise rates. They were wrong. 

I also wrote about how the average investor always gets hurt in times like these because they do not know how to read the signs of the times. The rich, on the other hand, know how to read them and move their money accordingly. As Jakab predicted back in August, the bond market is getting wasted after the Fed announcement.

As Min Zeng and Christopher Whittall write for "Morningstar," "Between the election day and this past Wednesday, the global bond selloff has wiped out $1.45 trillion in market value from the Bloomberg Barclays Global Treasury index, which tracks government bonds in both developed and developing countries…The Fed announced Wednesday afternoon it is raising short-term interest rates for the second time since 2006. While the decision is widely expected, what spooked bond investors is that the Fed had previously projected three rate increases for 2017, compared with two from its September policy meeting. Higher interest rates from the central bank tend to shrink the value of outstanding bonds."

Translation: a lot of average investors are getting decimated.

It's a good time to write a reminder on something that can change the way you look at the world of money.

Money is no longer money

Most people think of dollars as money, but the reality is that it is not. An amusing way of looking at this is to realize you can buy $10,000 in cash from The US Bureau of Engraving and Printing for only $45. The catch is that they're shredded.

More seriously, since Nixon took the dollar off the gold standard in 1971, it is no longer money. Before 1971, there was a relationship between a dollar and how much gold was backing that dollar in the US treasury. After 1971, that dollar was not backed by anything other than the full faith and credit of the United States government.

Dollars as currencies

Today, the dollar is a currency. It can go up and down in value depending on how other currencies are performing and based on many economic conditions. It is tied to nothing and can move in either direction very quickly. And right now, the dollar is rising and expected to continue doing so.

So, what does it mean that the dollar is a currency? I find it helpful to talk about electrical currencies. An electric currency carries electricity from one place to another. In order to survive, a currency must be moving. Once it stops, it dies.

Similarly, the dollar as a currency is simply a vehicle to move wealth from one area to another. For instance, smart investors who saw the rout in the bond marketing coming most likely moved their wealth from bonds to another sector that stood to benefit from higher interest rates and a rising dollar.

The secret to building wealth

And that is the secret the rich know about building wealth. You can never get comfortable and you can never park your wealth and forget about it. You must always be learning and always be moving your wealth to where it will grow. Once you see that area is in danger of falling, you look at the trends, determine the next area of growth in the economy, and move your money there.

An example of this is Ken McElroy and I investing in apartment buildings during the high point of the great recession. Though it was difficult to get people to move their wealth into these investments (the fear made them want to sit on their cash), the smart people saw a ripe opportunity to pick up cash-flowing properties at rock-bottom prices. Seven years later, we're selling those investments at multiples of what we paid for them, and all the while we enjoyed positive cash flow from their operations.
Increase your financial intelligence, continually

Of course, this takes a high level of financial intelligence. It means reading about money, how it works, and what is happening to it in the global economy-on a daily basis.

As an investor and entrepreneur, I never rest on my laurels. Like an athlete, I'm always in training. In fact, if I don't keep training, when it comes time to take the playing field, I stand a significant chance of getting injured or getting beat.

Tuesday, December 27, 2016

Real Estate returns can beat Stock market investing

You'll often here people say that they don't like real estate because if you look at the long term returns of the stock market, it seems to have a better return over the long term.

Of course, when they say this, they are leaving a few key things out.

First, when people say the stock market, what they really mean is something like the S&P 500 or the Dow Jones Industrial Average. These are not the stock market. Rather, they are indexes filled with some of the leading companies in the US. You'll often hear that the stock marketing returns anywhere from 7%-10% annually. This is really based on index returns rather than the market itself.

Second, while 7%-10% is a good return annually for the average person, it is not a good return for a professional investor. And when people stack up the returns from real estate against the stock market, they often only factor in one profit center in real estate, appreciation.

The reality is that there are four ways you can make money with real estate that, when added up together, make for considerably higher returns than the stock market. These profit centers are the reason that real estate is one of my favorite investment vehicles.

A word of clarification: as you read about these profit centers, realize that I'm talking about investment real estate-that is property bough specifically to be run like a business-rather than your personal residence. As I've said before, your house is not an asset. It takes money out of your pocket. But your investment real estate is, if you invest properly, because it puts money in your pocket.

Now, here are the four profit centers of real estate.

Cash flow on operations

If you're holding real estate as an investment, you will have tenants. Each month they will pay you rent. Let's say that you own a rental house and get $1,000 per month in rent. Over a year, that is $12,000 in income.

Now, you subtract out your expenses, which include things like your taxes, insurance, your property management, vacancies, turnover expense, allowances for repairs, etc. (This doesn't include your debt-more on that later).

For purposes of this example, let's assume that your monthly average expenses are $100 a month. Your cash flow on operations then would be $900 per month. That is what is referred to as your Net Operating Income (NOI).

Out of your NOI you pay your debt service. Let's assume for this example that you have a $200,000 property with an $180,000 loan at today's rate of 3.7%. That's a debt payment of about $830 a month.

So, that would be rental income of $1,000 minus $100 in operating expenses minus $830 in debt service, equaling $70 in cash flow. That times 12 equals $840 in cash flow per year. That $840 divided by your $20,000 equity stake would equal a 4.2% cash-on-cash return.

But that's not the end of your return story. Let's move on to the next profit center, Amortization.


Amortization is the concept of paying down your debt service. Each month, when you make your debt payment (or rather your tenant makes your debt payment) out of your NOI, a portion of that goes towards paying down your principle on the loan. When you hear somebody talk about a 30-year fixed fully amortized loan, it means that when you make all 360 of those monthly payments at the end, the loan is 100% paid off.

Because your tenant is paying rent, and that rent is covering the debt payment, the principle pay down included in that debt payment is actually profit for you. Let's take a look at how this plays out with our $180,000 loan from above.

In the first year of the loan, you'd be paying $6,604 in interest and $3,338 in principle. As the loan matures, the interest amount goes down each month and the principle amount goes up. But we'll use these numbers for now.

That $3,338 is profit to you. It's true equity in your property.

If we add this $3,338 to the $840 in operating income, we now have $4,178 in income for the year, a 20% return on our $20,000 invested into the property. Plus, your interest payment is often tax deductible, so added bonus, but check with your tax advisor to be sure for your specific case.

Already, you're crushing average stock market returns and there are still two more profit centers to look at.


This is often referred to as a phantom return. The basic concept of depreciation is that your investment property is made up of tow parts, the land and the improvements on the land, i.e., your house.

Appraisers will assign percentage values to your property based on these two parts. For this example, 20% of the value is the land and 80% of the value is the improvement. Over time, the house will deteriorate, so the government in the US (check with your tax advisor to make sure you qualify), let's you write down that 80% value over a certain number of years depending on the type of real estate. For residential homes it's 27.5 years.

So, your $200,000 property has $160,000 that can be depreciated over 27.5 years, which equals $5,818 per year. This amount is listed as a loss of income, even though no money is coming out of your pocket. Now let's see why this is called phantom income.

Let's assume you are in a 30% tax bracket. That means that, applying 30% to your depreciation of $5,818, nets you $1,745 in annual tax savings.

Adding that $1,745 to our existing income of $4,178, we now have $5,923, a 29.6% return on your cash of $20,000.

Let's take a look at the last profit center, appreciation.


This is the frosting on your cake. I don't invest in real estate for appreciation. I'm a cash flow investor. But I do appreciate my appreciation.

Let's assume you have a conservative appreciation rate of 3% a year on average for you $200,000 property. That equals $6,000 per year in value added to your house.

Add that to your $5,923 and you have $11,923. That's a 59% return on your $20,000 capital investment in your $200,000 property. And that blows investing in the stock market for the long term out of the water.
Increase your real estate IQ

These types of returns are achievable by anyone, as long as they understand how to find the right deal and run the numbers correctly. And it takes a high financial IQ.

Thursday, December 22, 2016

How spending money can make you a winner

A mantra of my rich dad was, "Savers are losers." By that he didn't mean it as a personal insult to people who save their money. Rather, he meant it very literally. If you bet on saving money as a path to financial security, you will lose.

As I wrote back in July, "In an economy where almost everything is built to take your money, saving it is of little value. From inflation to taxes to hidden fees in your 401(k), the system is stacked against you."

Why, "Money is not backed by anything. It is a currency, which like a current of electricity, is always moving. Today, money flows from one sector to another. If it stops moving, like a current it dies. If your money isn't moving, it is dying, slowly, losing value day by day."

In the new economy, it is spenders who are winners. Not those who spend on liabilities that take money out of their pocket each month, but rather those who spend money on assets that put money in their pockets each month.

Again, as I mentioned earlier in this post, you should be stuffing extra money into an account meant specifically for investing in assets. This could be construed as savings, but it is a very different way to save. It is saving to spend. The aim should be to move that money as quickly as possible into assets that generate money rather than to let it sit and die.

Tuesday, December 20, 2016

Make this money move instead of adding to your 401K

At Rich Dad,we've made no secret about why we despise 401(k)s. Take for instance one reason from the horse's mouth, John Bogle, the head of Vanguard: 
"…The financial system put up zero percent of the capital and took zero percent of the risk and got almost 80 percent of the return, and you, the investor in this long time period, an investment lifetime, put up 100 percent of the capital, took 100 percent of the risk, and got only a little bit over 20 percent of the return."

Rich Dad's advice: invest in cash-flowing assets

If you want to be rich, the last thing you should be doing is increasing your contribution to your 401(k). Instead, you should use any raise you get or extra money you can squeeze out to increase an account you can use to invest in cash-flowing assets of which you have control over and of which you can keep all or the majority of profits. And if you want the tax benefits of a 401(k) to do this, you can use a vehicle like a self-directed IRA.

The best part of this strategy is that the more cash-flowing assets you acquire, the more money you make each month from those assets that you could redirect into even more cash-flowing assets. This compounding of assets, not just money, creates true wealth.

Thursday, December 15, 2016

Your house is not an asset

Last week we kicked off the first in a monthly series called, "Ask Robert". It was fun to see all the questions asked, and hard to choose which one to answer. We'll be doing "Ask Robert" once a month, so start thinking now about your questions for the next installment. In the end, I answered Martin's question on whether to put his savings into paying off his personal residence or to invest in a rental property.

My response to Martin was that it's always preferable to invest your money into a cash flowing investment instead of paying down a mortgage on your home—especially in a market that is declining. 

Interestingly, I came across an article in The New York Times this week on real estate entitled, "Real Estate's Gold Rush Seems Gone For Good". The article highlights what I've been saying for over a decade since the publishing of my book Rich Dad Poor Dad: Your house is not an asset!

Here are some interesting statistics from the article:

-    It could take up to 20 years to recoup the $6 trillion loss in housing values since 2005
-    Housing values have dropped over 30 percent since the bubble popped
-    Sales figures for July are expected to show a drop of 20 percent over last year
-    The supply of housing might rise to 12 months—more than twice what's considered normal and healthy (Not only did it rise to 12 months but it surpassed it. Yesterday's report stated an inventory of 12.5 months)
-    When surveyed, people feel that housing will rise by as much as 10 percent a year over the next decade

That last statistic is frightening to me. Financial ignorance is so high in our country that we still believe that a house is an asset and a sure way to build wealth. It's not.