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Posted on: 11/06/2008 Posted by: Matt Miller - Content Director Blog Points: 2945 View all blogs >> |
Rich Dad, Poor Dad
more than $3 per share since he had first given me the tip. And the price of gas will continue to go up
if what my friend says is true.
Instead of analyzing, their little chicken closes their mind. If most people understood how a "stop"
worked in stock-market investing, there would be more people -investing to win instead of investing
not to lose. A "stop" is simply a computer command that sells your stock automatically if the price
begins to drop, helping to minimize your losses and maximize some gains. It's a great tool for those
who are terrified of losing.
So whenever I hear people focusing on their "I don't wants," rather than what they do want, I know
the "noise" in their head must be loud. Chicken Little has taken over their brain and is yelling, "The
sky is falling and toilets are breaking." So they avoid their "don't wants," but they pay a huge price.
They may never get what they want in life.
Rich dad gave me a way of looking at Chicken Little. "Just do what Colonel Sanders did." At the age
of 66, he lost his business and began to live on his Social Security check. It wasn't enough. He went
around, the country selling his recipe for fried chicken. He was turned down 1,009 times before
someone said "yes." And he went on to become a
multimillionaire at an age when most people are quitting. "He was a brave and tenacious man," rich
dad said of Harlan Sanders.
So when you're in doubt and feeling a little afraid, just do what Col. Sanders did to his little chicken.
He fried it.
Reason No. 3. Laziness. Busy people are often the most lazy. We have all heard stories of a
businessman who works hard to earn money. He works hard to be a good provider for his wife and
children. He spends long hours at the office and brings work home on weekends. One day he comes
home to an empty house. His wife has left with the kids. He knew he and his wife had problems, but
rather than work to make the relationship strong, he stayed busy at work. Dismayed, his
performance at work slips and he loses his job.
Today, I often meet people who are too busy to take care of their wealth. And there are people too
busy to take care of their health. The cause is the same. They're busy, and they stay busy as a way of
avoiding something they do not want to face. Nobody has to tell them. Deep down they know. In
fact, if you remind them, they often respond with anger or irritation.
If they aren't busy at work or with the kids, they're often busy watching TV, fishing, playing golf or
shopping. Yet, deep down they know they are avoiding something important. That's the most
common form of laziness. Laziness by staying busy.
So what is the cure for laziness? The answer is a little greed.
For many of us, we were raised thinking of greed or desire as bad. "Greedy people are bad people,"
my mom use to say. Yet, we all have inside of us this yearning to have nice things, new things or
exciting things. So to keep that emotion of desire under control, often parents found ways of
suppressing that desire with guilt.
"You only think about yourself. Don't you know you have brothers and sisters?" was one of my
mom's favorites. Or "You want me to buy you what?" was a favorite of my dad. "Do you think
we're made of money? Do you think money grows on trees? We're not rich people, you know."
It wasn't so much the words but the angry guilt-trip that went with the words that got to me.
Or the reverse guilt-trip was the "I'm sacrificing my life to buy this for you. I'm buying this for you
because I never had this advantage when I was a kid." I have a neighbor who is stone broke, but
can't park his car in his garage. The garage is filled with toys for his kids. Those spoiled brats get
everything they ask for. "I don't want them to know the feeling of want" are his everyday words. He
has nothing set aside for their college or his retirement, but his kids have every toy ever made. He
recently got a new credit card in the mail and took his kids to visit Las Vegas. "I'm doing it for the
kids," he said with great sacrifice.
Rich dad forbade the words "I can't afford it."
In my real home, that's all I heard. Instead, rich dad required his children to say, "How can I afford
it?" His reasoning, the words "I can't afford it" shut down your brain. It didn't have to think
anymore. "How can I afford it'" opened up the brain. Forced it to think and search for answers.
But most importantly, he felt the words "I can't afford it" were a lie. And the human spirit knew it.
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Rich Dad, Poor Dad
"The human spirit is very, very, powerful," he would say. "It knows it can do anything." By having a
lazy mind that says, "I can't afford it," a war breaks out inside you. Your spirit is angry, and your lazy
mind must defend its lie. The spirit is screaming, "Come on. Let's go to the gym and work out." And
the lazy mind says, "But I'm tired. I worked really hard today." Or the human spirit says, "I'm sick
and tired of being poor. Let's get out there and get rich." To which the lazy mind says, "Rich people
are greedy. Besides it's too much bother.
It's not safe. I might lose money. I'm working hard enough as it is. I've got too much to do at work
anyway. Look at what I have to do tonight. My boss wants it finished by the morning."
"I can't afford it" also brings up sadness. A helplessness that leads to ' despondency and often
depression. "Apathy" is another word. "How can I afford it?" opens up possibilities, excitement and
dreams. So rich dad , was not so concerned about what you wanted to buy, but that "How can 'f j I
afford it?" created a stronger mind and a dynamic spirit.
Thus, he rarely gave Mike or me anything. Instead he would ask, "How can you afford it?" and that
included college, which we paid for ourselves. It was not the goal but the process of attaining the
goal we desired that he wanted us to learn. The problem I sense today is that there are millions of
people who feel guilty about their greed. It's an old conditioning from their childhood. Their desire to
have the finer things that life offers. Most have been conditioned subconsciously to say, "You can't
have that," or ;
"You'll never afford that."
When I decided to exit the rat race, it was simply a question. "How can I afford to never work
again?" And my mind began to kick out answers and solutions. The hardest part was fighting my real
parents' dogma of "We can't afford that." Or "Stop thinking only about yourself." Or "Why don't
you think about others?" and other such words designed to instill guilt to suppress my greed.
So how do you beat laziness? The answer is a little greed. It's that radio station WII-FM, which
stands for "What's In It-For Me?" A person needs to sit down and ask, "What's in it for me if I'm
healthy, sexy and good looking?" Or "What would my life be like if I never had to work again?" Or
"What would I do if I had all the money I needed?" Without that little greed, the desire to have
something better, progress is not made. Our world progresses because we all desire a better life.
New inventions are made because we desire something better. We go to school and study hard
because we want something better. So whenever you find yourself avoiding something you know
you should be doing, then the only thing to ask yourself is "What's in it for me?" Be a little greedy.
It's the best cure for laziness.
Too much greed, however, as anything in excess can be, is not good. But just remember what
Michael Douglas said in the movie Wall Street. "Greed is good." Rich dad said it differently: "Guilt
is worse than greed.
For guilt robs the body of its soul." And to me, Eleanor Roosevelt said it best: "Do what you feel in
your heart to be right-for you'll be criticized anyway. You'll be damned if you do, and damned if you
don't."
Reason No. 4. Habits. Our lives are a reflection of our habits more than our education. After seeing
the movie Conan, starring Arnold Schwarzenegger, a friend said, "I'd love to have a body like
Schwarzenegger." Most of the guys nodded in agreement.
"I even heard he was really puny and skinny at one time," another friend added.
"Yeah, I heard that too," another one added. "I heard he has a habit of working out almost every
day in the gym."
"Yeah, I'll bet he has to."
"Nah," said the group cynic. "I'll bet he was born that way. Besides, let's stop talking about Arnold
and get some beers."
This is an example of habits controlling behavior. I remember asking my rich dad about the habits of
the rich. Instead of answering me outright, he wanted me to learn through example, as usual.
"When does your dad pay his bills?" rich dad asked.
"The first of the month," I said.
"Does he have anything left over?" he asked.
"Very little," I said.
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Rich Dad, Poor Dad
"That's the main reason he struggles," said rich dad. "He has bad habits."
"Your dad pays everyone else first. He pays himself last, but only if he has anything left over."
"Which he usually doesn't," I said. "But he has to pay his bills, doesn't he? You're saying he shouldn't
pay his bills?"
"Of course not," said rich dad. "I firmly believe in paying my bills on time. I just pay myself first.
Before I pay even the government."
"But what happens if you don't have enough money?" I asked. "What do you do then?"
"The same," said rich dad. "I still pay myself first. Even if I'm short of money. My asset column is
far more important to me than the government."
"But," I said. "Don't they come after you?"
"Yes, if you don't pay," said rich dad. "Look, I did not say not to pay. I just said I pay myself first,
even if I'm short of money."
"But," I replied. "How do you do that'"
"It's not how. The question is 'Why,'" rich dad said.
"OK, why?"
"Motivation," said rich dad "Who do you think will complain louder if I don't pay them-me or my
creditors?"
"Your creditors will definitely scream louder than you," I said, responding to the obvious. "You
wouldn't say anything if you didn't pay yourself."
"So you see, after paying myself, the pressure to pay my taxes and the other creditors is so great that
it forces me to seek other forms of income. The pressure to pay becomes my motivation. I've worked
extra jobs, started other companies, traded in the stock market, anything just to make sure those guys
don't start yelling at me. That pressure made me work harder, forced me to think, and all in all made
me smarter and more active when it comes to money. If I had paid myself last, I would have felt no
pressure, but I'd be broke."
"So it is the fear of the government or other people you owe money I to that motivates you?"
"That's right," said rich dad. "You see, government bill collectors are big bullies. So are bill
collectors in general. Most people give into these bullies. They pay them and never pay themselves.
You know the story of the 96-pound weakling who gets sand kicked in his face?"
I nodded. "I see that ad for weightlifting and bodybuilding lessons in the comic books all the time."
"Well, most people let the bullies kick sand in their faces. I decided to use the fear of the bully to
make me stronger. Others get weaker. Forcing myself to think about how to make extra money is
like going to the gym and working out with weights. The more I work my mental money muscles out,
the stronger I get. Now, I'm not afraid of those bullies.
I liked what rich dad was saying. "So if I pay myself first, I get financially stronger, mentally and
fiscally."
Rich dad nodded.
"And if I pay myself last, or not at all, I get weaker. So people like bosses, managers, tax collectors,
bill collectors and landlords push me around all my life. Just because I don't have good money
habits."
Rich dad nodded. "Just like the 96-pound weakling."
Reason No. 5. Arrogance. Arrogance is ego plus ignorance. I "What I know makes me money.
What I don't know loses me money. Every time I have been arrogant, I have lost money. Because
when I'm arrogant, I truly believe that what I don't know is not important," rich dad would often tell
me.
I have found that many people use arrogance to try to hide their own ignorance. It often happens
when I am discussing financial statements with accountants or even other investors.
They try to bluster their way through the discussion. It is clear to me that they don't know what
they're talking about. They're not lying, but they are not telling the truth.
There are many people in the world of money, finances and investments who have absolutely no idea
what they're talking about. Most people in the money industry are just spouting off sales pitches like
used-car salesmen.
When you know you are ignorant in a subject, start educating yourself by finding an expert in the
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Rich Dad, Poor Dad
field or find a book on the subject.
CHAPTER NINE
Getting Started
I wish I could say acquiring wealth was easy for me, but it wasn't.
So in response to the question "How do I start?" I offer the thought process I go through on a
day-by-day basis. It really is easy to find great deals. I promise you that. It's just like riding a bike.
After a little wobbling, it's a piece of cake. But when it comes to money, it's the determination to get
through the wobbling that's a personal thing.
To find million-dollar "deals of a lifetime" requires us to call on our financial genius. I believe that
each of us has a financial genius within us. The problem is, our financial genius lies asleep, waiting to
be called upon. It lies asleep because our culture has educated us into believing that the love of
money is the root of all evil. It has encouraged us to learn a profession so we can work for money,
but failed to teach us how to have money work for us. It taught us not to worry about our financial
future, our company or the government would take care of us when our working days are over.
However, it is our children, educated in the same school system, who will end up paying for it. The
message is still to work hard, earn money and spend it, and when we run short, we can always
borrow more.
Unfortunately, 90 percent of the Western world subscribes to the above dogma, simply because it's
easier to find a job and work for money. If you are not one of the masses, I offer you the following
ten steps to awaken your financial genius. I simply offer you the steps I have personally followed. If
you want to follow some of them, great. If you don't, make up your own. Your financial genius is
smart enough to develop its own list.
While in Peru, with a gold miner of 45 years, I asked him how he was so confident about finding a
gold mine. He replied, "There is gold everywhere. Most people are not trained to see it."
And I would say that is true. In real estate, I can go out and in a day come up with four or five great
potential deals, while the average person will go out and find nothing. Even looking in the same
neighborhood. The reason is they have not taken the time to develop their financial genius.
I offer you the following ten steps as a process to develop your God-given powers. Powers only you
have control over.
1. I NEED A REASON GREATER THAN REALITY: The power of spirit. If you ask most
people if they would like to be rich or financially free, they would say "yes." But then reality sets in.
The road seems too long with too many hills to climb. It's easier to just work for money and hand
the excess over to your broker. I once met a young woman who had dreams of swimming for the U.S
Olympic team. The reality was, she had to get up every morning at 4 a.m. to swim for three hours
before going to school. She did not party with her friends on Saturday night. She had to study and
keep her grades up, just like everyone else.
When I asked her what compelled her with such super-human ambition and sacrifice, she simply
said, "I do it for myself and the people I love. It's love that gets me over the hurdles and sacrifices."
A reason or a purpose is a combination of "wants" and "don't wants." When people ask me what my
reason for wanting to be rich is, it is a combination of deep emotional "wants" and "don't wants."
I will list a few. First the "don't wants," for they create the "wants." I don't want to work all my life.
I don't want what my parents aspired for, which was job security and a house in the suburbs. I don't
like being an employee. I hated that my dad always missed my football games because he was so
busy working on his career. I hated it when my dad worked hard all his life and the government took
most of what he worked for at his death. He could not even pass on what he worked so hard for
when he died. The rich don't do that. They work hard and pass it on to their children.
Now the wants. I want to be free to travel the world and live in the lifestyle I love. I want to be
young when I do this. I want to simply be free. I want control over my time and my life. I want
money to work for me.
Those are my deep-seated, emotional reasons. What are yours? If they are not strong enough, then
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Rich Dad, Poor Dad
the reality of the road ahead may be greater than your reasons. I have lost money and been set back
many times, but it was the deep emotional reasons that kept me standing up and going forward. I
wanted to be free by age 40, but it took me until I was 4? with many learning experiences along the
way.
As I said, I wish I could say it was easy. It wasn't, but it wasn't hard either. But without a strong
reason or purpose, anything in life is hard.
IF YOU DO NOT HAVE A STRONG REASON, THERE IS NO SENSE READING
FURTHER. IT WILL SOUND LIKE TOO MUCH WORK.
2. I CHOOSE DAILY: The power of choice. That is the main reason people want to live in a free
country. We want the power to choose.
Financially, with every dollar we get in our hands, we hold the power to choose our future to be rich,
poor or middle class. Our spending habits reflect who we are. Poor people simply have poor
spending habits.
The benefit I had as a boy was that I loved playing Monopoly constantly. Nobody told me Monopoly
was only for kids, so I just kept playing the game as an adult. I also had a rich dad who pointed out
to me the difference between an asset and a liability. So a long time ago, as a little boy, I chose to be
rich, and I knew that all I had to do was learn to acquire assets, real assets. My best friend, Mike, had
an asset column handed to him, but he still had to choose to learn to keep it. Many rich families lose
their assets in the next generation simply because there was no one trained to be a good steward over
their assets.
Most people choose not to be rich. For 90 percent of the population, being rich is "too much of a
hassle." So they invent sayings that go, "I'm not interested in money." Or "I'll never be rich." Or "I
don't have to worry, I'm still young." Or "When I make some money, then I'll think about my
future." Or "My husband/wife handles the finances." The problem with those statements is they rob
the person who chooses to
think such thoughts of two things: one is time, which is your most precious asset, and two is
learning. Just because you have no money, should not be an excuse to not learn. But that is a choice
we all make daily, the choice of what we do with our time, our money and what we put in our heads.
That is the power of choice. All of us have choice. I just choose to be rich, and I make that choice
every day.
INVEST FIRST IN EDUCATION: In reality, the only real asset you have is your mind, the most
powerful tool we have dominion over. Just as I said about the power of choice, each of us has the
choice of what we put in our brain once we're old enough. You can watch MTV all day, or read golf
magazines, or go to ceramics class or a class on financial planning. You choose. Most people simply
buy investments rather than
first invest in learning about investing.
A friend of mine, who is a rich woman, recently had her apartment burglarized. The thieves took her
TV and VCR and left all the books she reads. And we all have that choice. Again, 90 percent of the
population buys TV sets and only about 10 percent buy books on business or tapes on investments.
So what do I do? I go to seminars. I like it when they are at least two days long because I like to
immerse myself in a subject. In 1973, I was watching TV and this guy came on advertising a
three-day seminar on how to buy real estate for nothing down. I spent $385 and that course has made
me at least $2 million, if not more. But more importantly, it bought me life. I don't have to work for
the rest of my life because of that one course. I go to at least two such courses every year.
I love audio tapes. The reason: I can rewind quickly. I was listening to a tape by Peter Lynch, and he
said something I completely disagreed with. Instead of becoming arrogant and critical, I simply
pushed "rewind" and I listened to that five-minute stretch of tape at least twenty times. Possibly
more. But suddenly, by keeping my mind open, I understood why he said what he said. It was like
magic. I felt like I had a window into the mind of one of the greatest investors of our time. I gained
tremendous depth and insight into the vast resources of his education and experience.
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Rich Dad, Poor Dad
The net result: I still have the old way I used to think, and I have Peter's way of looking at the same
problem or situation. I have two thoughts instead of one. One more way to analyze a problem or
trend, and that is priceless. Today, I often say, "How would Peter Lynch do this, or Donald Trump
or Warren Buffett or George Soros?" The only way I can access their vast mental power is to be
humble enough to read or listen to what they have to say. Arrogant or critical people are often people
with low self-esteem who are afraid of taking risks. You see, if you learn something new, you are
then required to make mistakes in order to fully understand what you have learned.
If you have read this far, arrogance is not one of your problems. Arrogant people rarely read or buy
tapes. Why should they? They are the center of the universe.
There are so many "intelligent" people who argue or defend when a new idea clashes with the way
they think. In this case, their so-called "intelligence" combined with "arrogance" equals "ignorance".
Each of us knows people who are highly educated, or believe they are smart, but their balance sheet
paints a different picture. A truly intelligent person welcomes new ideas, for new ideas can add to the
synergy of other accumulated ideas. Listening is more important than talking. If that was not true,
God would not have given us two ears and only one mouth. Too many people think with their mouth
instead of listening to absorb new ideas and possibilities. They argue instead of asking questions.
I take a long view on my wealth. I do not subscribe to the "Get rich quick" mentality most lottery
players or casino gamblers have. I may go in and out of stocks, but I am long on education. If you
want to fly an airplane, I advise taking lessons first. I am always shocked at people who buy stocks or
real estate, but never invest in their greatest asset, their mind. Just because you bought a house or
two does not make you an expert at real estate.
3. CHOOSE FRIENDS CAREFULLY: The power of association. First of all, I do not choose my
friends by their financial statements. I have friends who have actually taken the vow of poverty as
well as friends who earn millions every year. The point is I learn from all of them, and I consciously
make the effort to learn from them.
Now I will admit that there are people I have actually sought out because they had money. But I was
not after their money; I was seeking their knowledge. In some cases, these people who had money
have become dear friends, but not all.
But there is one distinction that I would like to point out. I've noticed that my friends with money
talk about money. And I do not mean brag. They're interested in the subject. So I learn from them,
and they learn from me. My friends, whom I know are in dire straits financially, do not like talking
about money, business or investing. They often think it rude or unintellectual. So I also learn from
my friends who struggle financially. I find out what not to do.
I have several friends who have generated over a billion dollars in their short lifetimes. The three of
them report the same phenomenon: Their friends who have no money have never come to them to
ask them how they did it. But they do come asking for one of two things, or both: 1. a loan, or 2. a
job.
A WARNING: Don't listen to poor or frightened people. I have such friends, and I love them dearly,
but they are the "Chicken Littles" of life. When it comes to money, especially investments, "The sky
is always falling." They can always tell you why something won't work. The problem is, people listen
to them, but people who blindly accept doom-and-gloom information are also "Chicken Littles." As
that old saying goes, "Chickens of a feather agree together."
If you watch CNBC, which is a goldmine of investment information, they often have a panel of
so-called "experts." One expert will say the market is going to crash, and the other will say it's going
to boom. If you're smart, you listen to both. Keep your mind open because both have valid points.
Unfortunately, most poor people listen to "Chicken Little."
I have had more close friends try to talk me out of a deal or an investment. A few years ago, a friend
told me he was excited because he found a 6 percent certificate of deposit. I told him I earn 16
percent from the state government. The next day he sent me an article about why my investment was
dangerous. I have received 16 percent for years now, and he still receives 6 percent.
I would say that one of the hardest things about wealth building is to be true to yourself and be
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Rich Dad, Poor Dad
willing to not go along with the crowd. For in the market, it is usually the crowd that shows up late
and is slaughtered. If a great deal is on the front page, it's too late in most instances. Look for a new
deal. As we used to say as surfers: "There is always another wave." People who hurry and catch a
wave late usually are the ones who wipe out.
Smart investors don't time markets. If they miss a wave, they search
for the next one and get themselves in position. Why this is hard for most investors is because buying
what is not popular is frightening to them. Timid investors are like sheep going along with the crowd.
Or their greed gets them in when wise investors have already taken their profits and moved on. Wise
investors buy an investment when it's not popular. They know their profits are made when they buy,
not when they sell. They wait patiently. As I said, they do not time the market. Just like a surfer, they
get in position for the next big swell.
It's all "insider trading." There are forms of insider trading that are illegal, and there are forms of
insider trading that are legal. But either way, it's insider trading. The only distinction is how far away
from the inside are you? The reason you want to have rich friends who are close to the inside is
because that is where the money is made. It's made on information. You want to hear about the next
boom, get in and get out before the next bust. I'm not saying do it illegally, but the sooner you know,
the better your chances are for profits with minimal risk. That is what friends are for. And that is
financial intelligence.
4. MASTER A FORMULA AND THEN LEARN A NEW ONE: The power of learning quickly. In
order to make bread, every baker follows a recipe, even if it's only held in their head. The same is
true for making money. That's why money is often called "dough."
Most of us have heard the saying "You are what you eat." I have a different slant on the same saying.
I say, "You become what you study." In other words, be careful what you study and learn, because
your mind is so powerful that you become what you put in your head. For example, if you study
cooking, you then tend to cook. You become a cook. If you don't want to be a cook anymore, then
you need to study something else. Let's say, a schoolteacher. After studying teaching, you often
become a teacher. And so on. Choose what you study carefully.
When it comes to money, the masses generally have one basic formula they learned in school. And
that is, work for money. The formula I see that is predominant in the world is that every day millions
of people get up and go to work, earn money, pay bills, balance checkbooks, buy some mutual funds
and go back to work. That is the basic formula, or recipe.
If you're tired of what you're doing, or you're not making enough, it's simply a case of changing the
formula via which you make money.
Years ago, when I was 26,1 took a weekend class called "How to Buy Real Estate Foreclosures." I
learned a formula. The next trick was to have the discipline to actually put into action what I had
learned. That is where most people stop. For three years, while working for Xerox, I spent my spare
time learning to master the art of buying foreclosures. I've made several million dollars using that
formula, but today, it's too slow and too many other people are doing it.
So after I mastered that formula, I went in search of other formulas. For many of the classes, I did
not use the information I learned directly, 'i| but I always learned something new.
I have attended classes designed for only derivative traders, also a class for commodity option traders
and a class for Chaologists. I was way out of my league, being in a room full of people with
doctorates in nuclear physics and space science. Yet, I learned a lot that made my stock and real
estate investing more meaningful and lucrative. Most junior colleges and community colleges have
classes on financial planning and buying of traditional investments. They are great places to start.
So I always search for a faster formula. That is why, on a fairly regular basis, I make more in a day
than many people will make in their lifetime.
Another side note. In today's fast-changing world, it's not so much what you know anymore that
counts, because often what you know is old. It is how fast you learn. That skill is priceless. It's
priceless in finding faster formulas-recipes, if you will, for making dough. Working hard for money is
an old formula born in the day of cave men.
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Rich Dad, Poor Dad
5. PAY YOURSELF FIRST: The power of self-discipline. If you cannot get control of yourself, do
not try to get rich. You might first want to join the Marine Corps or some religious order so you can
get control of yourself. It makes no sense to invest, make money and blow it. It is the lack of
self-discipline that causes most lottery winners to go broke soon after winning millions. It is the lack
of self-discipline that causes people who get a raise to immediately go out and buy a new car or take
a cruise.
It is difficult to say which of the ten steps is the most important. But of all the steps, this step is
probably the most difficult to master if it is not already a part of your makeup. I would venture to say
that it is the lack of personal self-discipline that is the No. 1 delineating factor between the rich, the
poor and the middle class.
Simply put, people who have low self-esteem and low tolerance for financial pressure can never, and
I mean never, be rich. As I have said, a lesson learned from my rich dad was that "the world will
push you around." The world pushes people around not because other people are bullies, but
because the individual lacks internal control and discipline. People who lack internal fortitude often
become victims of those who have self-discipline.
In the entrepreneur classes I teach, I constantly remind people to not focus on their product, service
or widget, but to focus on developing management skills. The three most important management
skills necessary to start your own business are:
1. Management of cash flow.
2. Management of people.
3. Management of personal time.
I would say, the skills to manage these three apply to anything, not just entrepreneurs. The three
matter in the way you live your life as an individual, or as part of a family, a business, a charitable
organization, a city or a nation.
Each of these skills is enhanced by the mastery of self discipline. I do not take the saying "pay
yourself first" lightly.
The Richest Man in Babylon, by George Classen, is where the statement "pay yourself first" comes
from. Millions of copies have been sold. But while millions of people freely repeat that powerful
statement, few follow the advice. As I said, financial literacy allows one to read numbers, and
numbers tell the story. By looking at a person's income statement and balance sheet, I can readily
see if people who spout the words "pay yourself first" actually practice what they preach.
A picture is worth a thousand words. So let's again compare the financial statements of people who
pay themselves first against someone who doesn't.
People who pay themselves first
+------------------------+
Job--------------->|Income |----
^ |------------------------- |
| | Expense | |
\ +------------------------+ |
\ +--------------------------------------<
----\-----|------------------------+
| Assets | Liabilities |
| | |
|_________|____________|
Someone who pays everyone else first- Often there is nothing left
+------------------------+
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Rich Dad, Poor Dad
Job--------------->|Income |
|-------------------------
| Expense | ----> Nothing left!
+------------------------+
-----------------------------------+
| Assets | Liabilities |
| | |
|_________|____________|
Study the diagrams and notice if you can pick up some distinctions. Again, it has to do with
understanding cash flow, which tells the story. Most people look at the numbers and miss the story.
If you can truly begin to understand the power of cash flow, you will soon realize what is wrong with
the picture on the next page, or why 90 percent of most people work hard all their lives and need
government support like Social Security when they are no longer able to work.
Do you see it? The diagram above reflects the actions of an individual who chooses to pay himself
first. Each month, they allocate money to their asset column before they pay their monthly expenses.
Although millions of people have read Classen's book and understand the words "pay yourself first,"
in reality they pay themselves last.
Now I can hear the howls from those of you who sincerely believe in paying your bills first. And I
can hear all the "responsible" people who pay their bills on time. I am not saying be irresponsible and
not pay your bills. All I am saying is do what the book says, which is "pay yourself first." And the
diagram above is the correct accounting picture of that action. Not the one that follows.
My wife and I have had many bookkeepers and accountants and bankers who have had a major
problem with this way of looking at "pay yourself first." The reason is that these financial
professionals actually do what the masses do, which is pay themselves last. They pay everyone else
first.
There have been months in my life, when for whatever reason, cash flow was far less than my bills. I
still paid myself first. My accountant and bookkeeper screamed in panic. "They're going to come
after you. The IRS is going to put you in jail." "You're going to ruin your credit rating." "They'll cut
off the electricity." I still paid myself first.
"Why?" you ask. Because that's what the story The Richest Man In Babylon was all about. The
power of self-discipline and the power of internal fortitude. "Guts," in less elegant terms. As my rich
dad taught me the first month I worked for him, most people allow the world to push them around.
A bill collector calls and you "pay or else." So you pay and not pay yourself. A sales clerk says, "Oh,
just put it on your charge card." Your real estate agent tells you to "go ahead-the government allows
you a tax deduction on your home." That is what the book is really about. Having the guts to go
against the tide and get rich. You may not be weak, but when it comes to money, many people get
wimpy.
I am not saying be irresponsible. The reason I don't have high credit card debt, and doodad debt, is
because I want to pay myself first. The reason I minimize my income is because I don't want to pay it
to the government. That is why, for those of you who have watched the video The Secrets of the
Rich, my income comes from my asset column, through a Nevada corporation. If I work for money,
the government takes it.
Although I pay my bills last, I am financially astute enough to not get into a tough financial situation.
I don't like consumer debt. I actually have liabilities that are higher than 99 percent of the
population, but I don't pay for them; other people pay for my liabilities. They're called tenants. So
rule No. 1 in paying yourself first is don't get into debt in the first place. Although I pay my bills last,
I set it up to have only small unimportant bills, that I will have to pay.
Secondly, when I occasionally come up short, I still pay myself first. I let the creditors and even the
government scream. I like it when they get tough. Why? Because those guys do me a favor. They
inspire me to i go out and create more money. So I pay myself first, invest the money, and let the
creditors yell. I generally pay them right away anyway. My wife and I have excellent credit. We just
don't cave into the pressure and spend our savings or liquidate stocks to pay for consumer debt. That
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Rich Dad, Poor Dad
is not too financially intelligent.
So the answer is:
1. Don't get into large debt positions that you have to pay for. Keep your expenses low. Build up
assets first. Then, buy the big house or nice car. Being stuck in the rat race is not intelligent.
2. When you come up short, let the pressure build and don't dip into your savings or investments.
Use the pressure to inspire your financial genius to come up with new ways of making more money
and then pay your bills. You will have increased your ability to make more money as well as your
financial intelligence. ; : So many times I have gotten into financial hot water, and used my brain to
create more income, while staunchly defending the assets in my asset column. My bookkeeper has
screamed and dived for cover, but I was like a good trooper defending the fort, Fort Assets.
Poor people have poor habits. A common bad habit is innocently called "Dipping into savings." The
rich know that savings are only used to create more money, not to pay bills.
I know that sounds tough, but as I said, if you're not tough inside, the world will always push you
around anyway.
If you do not like financial pressure, then find a formula that works for you. A good one is to cut
expenses, put your money in the bank, pay more than your fair share of income tax, buy safe mutual
funds and take the vow of the average. But this violates the "pay yourself first" rule.
The rule does not encourage self-sacrifice or financial abstinence. It doesn't mean pay yourself first
and starve. Life was meant to be enjoyed. If you call on your financial genius, you can have all the
goodies of life, get rich and pay bills, without sacrificing the good life. And that is financial
intelligence.
6. PAY YOUR BROKERS WELL: The power of good advice. I often see people posting a sign in
front of their house that says, "For Sale by Owner." Or I see on TV today many people claiming to
be "Discount Brokers."
My rich dad taught me to take the opposite tack. He believed in paying professionals well, and I have
adopted that policy also. Today, I have expensive attorneys, accountants, real estate brokers and
stockbrokers. Why? Because if, and I do mean if, the people are professionals, their services should
make you money. And the more money they make, the more money I make.
We live in the Information Age. Information is priceless. A good broker should provide you with
information as well as take the time to educate you. I have several brokers who are willing to do that
for me. Some taught me when I had little or no money, and I am still with them today.
What I pay a broker is tiny in comparison with what kind of money I can make because of the
information they provide. I love it when my real estate broker or stockbroker makes a lot of money.
Because it usually means I made a lot of money.
A good broker saves me time in addition to making me money-as when I bought the piece of vacant
land for $9,000 and sold it immediately for over $25,000, so I could buy my Porsche quicker.
A broker is your eyes and ears to the market. They're there every day so I do not have to be. I'd
rather play golf.
Also, people who sell their house on their own must not
