Wednesday, September 28, 2016

How the rich get ahead by spending

What does it mean to be rich? Most people would say that being rich means having a high paying job and lots of nice things like cars, houses, and designer clothes.

But it’s not how much money you make that makes you rich. Take, for instance, the lottery winner who has lots of money but burns through it on all sorts of knick knacks. There are plenty stories of broke lotto winners. In fact, nearly one-third of all winners declare bankruptcy.

The same can go for young athletes who make it to the pros. One day they are broke, eating ramen for lunch and dinner, and the next day they are millionaires. Many of them simply don’t know how to manage their money.

But it’s not just lotto winners and athletes that don’t know what to do with money once they have it. Take a look at the findings of a recent survey of 7,000 people on their saving habits:
    "Of those whose incomes were less than $25,000, 38% had $0 saved, and 35% had less than $1,000. People who earned more fared better, but still reported low amounts of savings in savings accounts. Of those with incomes of $100,000 to $149,999, 18% had $0 saved in a savings account, and 26% had less than $1,000. And for earners of $150,000 annually or more, those numbers dropped slightly to 6% and 23%, respectively."

It may surprise you to see that those who are considered “rich”, those making over $100,000 a year in salary, save nearly as little as those who make $25,000. It does not surprise me.

Welcome to the rat race

When I created my board game CASHFLOW, I did so to help people escape the rat race. The rat race is the cycle of poor financial habits that most people make in order to keep up with the Jonses. Most people, no matter how much money they make, can’t escape the rat race. Instead, they increase their lifestyle spending to match their new income.

There isn’t a problem with increasing lifestyle spending. I like nice things as much as the next person. Rather the problem is how that increase in spending is financed—mainly through a salary.

As an employee, most “rich” people are one bad economic downturn or disastrous decision by a company CEO from their own economic ruin. One exercise I like to ask people to do is to list out every expense they have in one column and then their income in another. Then I ask them to cover the income column. “How long,” I ask, “Would you survive without your salary?” For most people this is a moment of truth…and panic. It’s their first insight into their rat race.

The reason most people don’t save, including the so-called rich, is that they don’t understand how to make money work for them. They are poor when it comes to financial intelligence.

Cut expenses?

Unfortunately, most people’s initial reaction to the rat race is to cut their expenses. This can work for a time, but the reality is that you can never cut all your expenses. And let’s face it, cutting the fun things out of your budget is a miserable thing to have to do.

Cutting expenses is what the poor do. The rich do not cut expenses. Rather, they ask, like my rich dad taught me to ask, “How can I afford it?”

The rich, instead of cutting expenses, increase them. The key is that they increase a certain type of expense that will later make them richer.

The power of paying yourself first

If you understand the power of cash flow, you will understand ...why 90 percent of people work hard all their lives and need government support like Social Security when they are no longer able to work. The reason is they pay themselves last.

In order to be rich, you must have the self-discipline to pay yourself first. By this, I simply mean using your income to invest in cash-flowing assets before you pay your bills or buy anything fun. This in turn will create more income that you can use to invest in more, cash-flowing assets. Do that and you'll have more money than you know what to do with.

Paying yourself first is not easy. In fact, it can be scary, especially when the bills are piling up. But you must develop the self-discipline to do it.

Saving is not paying yourself first

It’s important to note that saving does not equal paying yourself first. I’ve written a lot about why savers are losers. If you simply save money each month, you will never get ahead financially.

Rather, you must save with a purpose. Both Kim and I have some savings set aside in the form of liquid assets like cash, gold, and silver, which we can use in an emergency. But the majority of our money goes into saving for investing into cash-flowing assets. It is these cash-flowing assets that then put money into our pockets each month. And it is cash-flowing assets—i.e., money working for you—that gets you out of the rat race.

When you have passive income coming in each month from your investments, you don’t need a job and you don’t need a salary. You are financially free, and only then are you truly rich.

Monday, September 26, 2016

Dont chase the buck or a paycheck

Lesson No. 1 in ‘Rich Dad Poor Dad’ is the rich do not work for money. That opens your brain up, well, what the heck do they work for then? If you act like a mule, chasing the carrot -- the buck, the bonus, the paycheck, the commission, whatever you guys chase, you’re never going to ask the question: what are the rich working for? I work for assets.

Thursday, September 22, 2016

I avoid investing in Hawaii, California, New York due to high taxes

Real estate is a long-term hold. It’s not liquid. I don’t care if the market is up or down. What I’m looking for is a bargain. I make most of my money when the markets crash. I made most of my money in 2007. I made even more money in the subprime crash. I don’t care about the overall economy or the markets. I’m looking for an opportunity that no one else sees. I like residential real estate. I don’t invest in REITs or anything paper.

I do not invest in Hawaii, California and New York because of the taxes. Real estate is really not about real estate. It’s about debt, taxes and laws. I go to the areas that are favorable to investors, to capitalists. I stay out of areas that are more socialist-inclined, like California.

Monday, September 19, 2016

Learn about numbers and accounting to get good financial education

I flunked out of school three times, because I can’t write, and I couldn’t type. 

I flunked out of accounting. What do I write all day about? And type all day about? Accounting. Accounting is the subject. If you’re going to do anything, start with a bookkeeping course. You’ve got to know your numbers. Numbers tell you a story. After you get through a basic bookkeeping course…then you can take basic business accounting. 

That’s how you learn, it’s in the numbers. If you can’t read the numbers, you don’t know what’s going on. It’s not that hard to get ahead quickly because most people highly educated, with good grades, have no financial education.

Wednesday, September 14, 2016

You can learn things from others even if you are very smart

Choose your teachers wisely. In Sunday school, in the story of Christ, there are the Three Wise Men. They went in search of a teacher. That is the key to life. No matter how wise you are, you can always learn from someone else.

Robert Kiyosaki is a Japanese American investor and author of 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, September 12, 2016

What job should young people go for

Don’t just look for money and a high-paying job. That’s selling yourself like a whore. The question I ask young people is, ‘What would you do for free? If you could do anything, what problems do you want to solve?’ Go find a way to solve it.

Everybody is born an entrepreneur. I never met a child not interested in money, but the system beats it out of you. Take a job for what you want to learn.

What life skills do I want to accomplish? How am I going to get those life skills? If you’re going to be dangled by a paycheck, you’re a whore. That’s really what you are.

There are fewer jobs today. We need more entrepreneurs to create jobs. Our schools create employees. That’s the crisis right now.”

Wednesday, September 7, 2016

The Fed is stuck

The Fed is in a precarious position. They've propped up the economy for so long with artificially low interest rates that they have to time the increase of those rates nearly perfectly or risk an economic crash.

As San Francisco Federal Reserve Bank President John Williams said, "If we wait until we see the whites of inflation's eyes, we don't just risk having to slam on the monetary policy brakes, we risk having to throw the economy into reverse to undo the damage of overshooting the mark."

What could this damage look like?

Spencer Jakab, blogging for The Wall Street Journal provides one example. Jakab points out that years of "ultra-low interest rates" led to lots of average Joes and Janes investing in "into funds owning stocks or bonds offering at least a little bit of yield."

Jakab writes, "…a recent paper co-authored by a Fed economist warned of the possibility of 'run-like behavior' in such funds when rates eventually rise."

If you know anything about bubbles, the term "run-like behavior" should raise your eyebrows.

For years, the Fed has pushed people into investments through low interest rates that will start to underperform at best or crash at worst once those rates are raised.

The average investor always gets hurt

For the professional investor who knows how to read the signs of the times, and for big banks on Wall Street who get a heads up well ahead of the time, this is not an issue. But as Jakab rightly points out, the average investor is usually left in the dust.

This is the problem with investing in funds. They are designed for those with low intelligence-those who don't actively manage their investments. When markets drastically change, however, these passive investors lose-often big.

Increase your paper asset IQ

Personally, I'm not a big fan of investing in paper assets like stocks, bonds, and mutual funds. I prefer real estate, commodities, and my business. But paper is a legitimate asset class where your can do well-provided you know how to play the game.

Today might be a good time to take a look at your portfolio, and to take back control of your investing. If you don't know how to invest like a pro, it might be time to start your education.

Monday, September 5, 2016

Neither Donald Trump or Hillary Clinton can fix our economy

I hate to say this but I don’t think it makes a difference who wins the election. It’s the bankers, the Fed, that control the whole world economy, not a president. Donald Trump is my friend. I’m going to vote for him. I think he is a great man. But unfortunately I don’t think it makes any difference at this time. The problem is too big.”

Sunday, September 4, 2016

I am a Gold Bug

I love gold, I was buying gold at 70 bucks an ounce. I’m a gold bug. On the other side, there’s this guy named Harry Dent, a very smart guy, who says gold is going to drop to $250/ounce. Another very smart guy James Rickards, the author of ‘Currency Wars,’ says gold is going to go to $10,000/ounce. So somewhere in between is your reality.

All coins have three sides: head, tails, or hedge. Your job is to stand on the edge of the coin and listen to both sides. I love gold but I don’t use gold as an investment, I use gold as an insurance policy, a hedge. Because I suspect the U.S. dollar is going to be toast in a few years. Now, if it doesn’t, I still have gold. I’m hedging my positions all the time.

Thursday, September 1, 2016

How the middle class gets screwed over in USA

In a Wall Street Journal article entitled, "Burden of Health-Care Costs Moves to the Middle Class," Harvard healthcare economist David Cutler talks about "a story of three Americas."

These three groups are:
-    The rich who can easily afford healthcare
-    The poor who can access public programs to cover healthcare costs
-    And the middle class who are screwed

As the article states: "A June Brookings Institution study found middle-income households now devote the largest share of their spending to health care, 8.9%, a rise of more than three percentage points from 1984 to 2014. Brookings defined 'middle income' as those households with incomes between the 40th and 60th percentile of the income distribution."

Everything is great, right?

Of course it's rising costs like these that are eroding the middle class in the first place. While the powers that be are trying to paint a rosy picture of the economy, and saying things like, "…the president's optimism about the economy is shared pretty broadly by the American people," real people dealing with real big financial problems are suffering. The middle class is spending an insane amount of it's income on health care costs.

As I wrote in May, "The Real Reason You Feel (and Are) Poorer," the middle class not only feels poorer but also actually is poorer. The economic recovery, if we can call it that, has not helped average folks.

People are not spending less on basic needs to be frugal. They're spending less because they have less.

The great moral crisis of our time

This is why though I don't agree with Bernie Sanders about much of anything, I do agree with his statement that, "The issue of wealth and income inequality is the great moral issue of our time…".

This is also why anti-establishment politicians like Bernie Sanders and Donald Trump have gained so much prominence. They understand that the status quo is not working and they appeal to large groups of people who don't share the optimism about the economy.

What can you do?

Last week when I was live on Facebook with MarketWatch, the first question I received was about why I wrote Rich Dad, Poor Dad. I answered that it was because I saw the financial crisis of today coming and I wanted to help as many people as possible to get out of the rat race. Bernie Sanders and I agree that inequality is a crisis, but we greatly disagree on how to fix it.

I also was asked what the economy will look like after the election. I mentioned my friend Donald Trump, saying that even though I have great respect for Donald, I don't think it matters who is in the White House. It is the banks and Wall Street that control our money.

Now, more than ever, it is imperative to stop playing by the old rules of money. The middle class is dying, and the government won't save it. The rules have changed and the cards are stacked.

If you want to not only survive but also thrive financially, it's time to take matters into your own hands, to educate yourself financially, and to play by the new rules of money.