Robert Kiyosaki, his Top Ten Rules For Success.
The last thing I want to talk about, debt, is one of the best investments I’ve made because I started off with no money, like most people. My first investment, was a little $18,000 condo in Hawaii, and I made a whopping $25 a month. I didn’t make much money on that deal, but every time I did an investment, be it real estate or business, I got smarter because experience makes you smarter. I started with just a little $18,000 unit. I broke out my credit card. I paid the $2,000 down payment with my credit card, so it was 100% financed.
Now, most experts will tell you, “That’s stupid. You don’t do that”, but if you know what you’re doing, you can do it. A number of years ago, I bought a $7 million commercial building. I paid for it with zero down. Every month, after everything is paid for, it puts about $30,000 a month income in my pocket, or $360,000 a year for no money down. There is a price of having a good education or a bad education. A good education is knowing the good debt versus bad debt and how debtors can win, if you know what you’re doing.
I don’t know what the heck people think about money, but that’s what I get a lot of, is this, Well, money is not spiritual. I’m just saying it’s your attitudes, a person’s attitude towards money. I make a lot of money, but I give a lot. You know what I mean? Male Speaker: Through philanthropy. Robert Kiyosaki: It goes to biblical principle. The more you give, the more you receive. When I meet somebody who doesn’t have any money, it just means that they’re not giving something. Yes. Robert Kiyosaki: A lot of times, there are people who would like more, but they’re not giving anything. Male Speaker: Yes. Robert Kiyosaki: They’re like my poor dad. He belonged to the labor unions, and he wanted to work less and get paid more. That’s anti-religious to me. If you want to get paid more, work more, give more. That’s how I see it. The discipline I had to get into was I was paying myself first, even when I had no money, and when I have all these bill collectors calling me, I use them as inspiration.
You know what I mean? Oprah: Really? Robert Kiyosaki: When the government’s hounding you, the bill collectors are calling… because I’ve been broke, so I can understand what it feels like to be broke. When those guys are calling you, instead of shrinking, going into the shell and eating my pizza Oprah: Yes. Robert Kiyosaki: I use it as motivation to go out and make more money. I used my bill collectors as motivation, and that’s why I paid myself first, even though, sometimes, I wasn’t paying Oprah: What would you pay yourself? Robert Kiyosaki: I always bought assets. I’d buy a house, or I’d put money in the bank, this like this, but it was just a habit. It’s exactly what you’re talking about. It’s up here. Oprah: It’s about changing the way you think. That’s what the whole book is about. Robert Kiyosaki: That’s it because we are our biggest asset. We are also our biggest liability. The common wisdom, the old intelligence idea is to diversify.
What I believe in is something else; it’s increase your financial IQ, your financial intelligence and, instead, FOCUS. What FOCUS stands for is this; FOCUS is Follow One Course Until you’re Successful. That’s what I did in 1973. I signed up for my first real investment course, and I just did it and did it and did it. I bought this one little $18,000 place, and I did it, again. I did it, again, and I did it, again, until the point where I understood it. Then I went into becoming an entrepreneur. I did it, and I did it and did it. I’m still learning, and I’m still learning about real estate. In 1966, I got into oil, when I went to work for the Standard Oil Company. Today, I’m still focusing. I invest in oil and oil and oil, and I don’t diversify. It doesn’t mean I don’t lose.
Sometimes I lose. Sometimes I make mistakes and all this, but I just don’t buy good is with all the bad. If you’re going to be successful as an investor, diversification is good for the average investor. If that’s what you want to be, have a good life. What I’d rather do is be able to know the good ones from the bad ones, the good investments from the bad investments, the good advisors from the bad advisors, what’s good for me and what’s not good for you because what I do is not necessarily what’s going to work for you, and vice versa here. That’s why I really think, instead of diversification or diversify, the new rules of money say follow one course until you’re successful, and then keep doing it because once you find the way of being successful, you can do it again and again and again.
The thing is, you see, economies go up; economies go down. We might go into a depression, worldwide. Like I said, France is in very big trouble. Germany is okay. England is in big trouble. China is in trouble. If we go with that, we go into worldwide depression, and it might take 10 years to come out of it. During these times is the best time. I have made more money in the last three years than ever before in my life. I bought five golf courses last year on a bank Male Speaker: That’s impressive. Robert Kiyosaki: Yes. Well, the bank Male Speaker: Five golf courses. Robert Kiyosaki: Yes, and Donald bought 10. They’re giving them away. Male Speaker: [laughter] No one told me. Robert Kiyosaki: Yes, but you have to know how to operate them. Male Speaker: Yes. Robert Kiyosaki: You have to be an entrepreneur. Male Speaker: Yes.
Robert Kiyosaki: The banks just call you up, and they say… There was this one. It was five. It was five golf courses and one hotel. Male Speaker: In the states? Robert Kiyosaki: In Arizona, yes, golf mecca. Male Speaker: Yes. Robert Kiyosaki: This Japanese company had it, and they asked me if I wanted to buy it, about five years ago, for 260 million. I said, “It doesn’t make sense. It doesn’t make sense at 260 million.” They told me I didn’t know what I was doing, this and that. “Okay, bye.” Then, one year ago, the summer, Citibank called up and says, “You want those golf courses?” They gave me the money to buy them. Just to reiterate, in approximately 1975, I came out with this product. We’re extremely successful, but we kept running out of money. The more successful we got, the more we ran out of money. That’s when I went to my rich dad, and I tried to borrow $100,000. He chewed me out. He says, “Why would I invest in a dumb product when you have a bad business?” That’s when he began to teach me the next level of my entrepreneurial education.
It’s not about the product. It’s about how to design a business that doesn’t need me to keep raising the capital. In other words, how do you design a business that keeps raising money automatically? Today, The Rich Dad Company is cash rich. Cash keeps pouring in because the ability to raise money constantly was designed into the business. Once again, this is the diagram. This is the B-I Triangle. These are the eight pieces that make up a business. When a business is hurting, oftentimes, it’s because one of these eight pieces is missing. For example, many times, people say, “I have a great product,” but their legal is really bad. Or their communication systems are bad, or their internal order processing is bad. Or the manufacturing is bad, or the marketing is bad.
Or they have bad cash flow management. Another part of your financial IQ is to know there are three types of income. If you’re going to, say, work hard, most people are working hard for earned income, and that’s what these guys are working for. The trouble with earned income in America, your tax rate is approximately 50%. Or, as Warren Buffet says, it’s a shame that his secretary pays a higher percentage in taxes than he did, although he makes billions of dollars. When you say to a child, “Go to school and get a safe, secure job,” you’re telling them to work for earned income, the worst type of income. The second type of income is portfolio income, and today, as I speak, I’m going to try and change this.
It’s about 20%, and portfolio income is generally known as capital gain. If I buy a stock for $10 and I sell it for $50, the $40 is taxed 20%. Or if I buy a house for 100,000 and I sell it for 200,000, that’s a capital gains-type event, so you’d pay a lower tax for that. The third type of income, which is the best type of income, excuse me, I can’t spell, again, is passive income. This is income that just comes in on a regular basis. One of the reasons I am wealthy and was able to retire at a young age is because I worked hard for passive income, not earned income. I don’t flip real estate, generally.
Not portfolio income; I don’t flip stocks. I want passive income. Today, the new rules of money, it’s important to understand what are you going to school to become; E, S, entrepreneur or investor. What kind of income are you working hard for; earned, portfolio or passive? If you know what you’re doing, you can pay 0% taxes legally, and this be done all over the world. People are saying, “You can’t do it in my country.” Well, these people can’t do it in any country, but in most parts of the world, governments need these people. They’re always giving tax incentives for investors and business owners who are for passive income. Those are some of the new rules of money.
Our school system punishes you for making mistakes. That’s why my poor dad, an academic, was so unsuccessful. He was terrified of making mistakes. The key to raising money… This is Ken McElroy’s company. It’s called MC Companies. Ken McElroy’s business is in the business of acquiring assets. That’s why his company gets richer and richer and richer. Every year he adds, probably, 1,000 new apartment units to his inventory, so Ken’s company gets richer and richer because MC Company is designed to increase assets. Poorly-designed businesses never have any assets. They have huge liabilities. I trust that makes sense to you. Ken McElroy’s business gets stronger and stronger and stronger because, every year, he’s increasing in more assets.
The Rich Dad Company gets stronger and stronger and stronger because, every year, we add more assets. This year, we’re adding franchising to our mix. Also, Rich Brother Rich Sister, the book, has come out. We come out with The Real Book of Real Estate, et cetera, et cetera. Everyone, on those products, every year, continues to send money into our product. That’s an idea of a well-designed business, if you have a well-designed business. I don’t care if it’s for real estate or making cash flow board games; if it’s well-designed, investors will give money to you because “this is a well-designed business.” I think the big mistake is I hear so many people say it’s important to save.
That’s ridiculous, and the reason that’s ridiculous is because what happened in 1971 is crucial. In 1971, the U.S. dollar stopped being money. In 1971, the U.S. dollar became a currency. What that meant is Richard Nixon, in 1971, the president, took us off the gold standard. That’s like giving an alcoholic free reign to the bar, or it’s like giving somebody who can’t control their spending unlimited credit cards. What’s happening is all the savers, today, are losers. The problem with 1971 is that the federal government keeps printing money, so the value of your money keeps going down. These people, “I’m saving, saving, saving.” If you notice, as the value of the dollar goes down, prices go up. They call this inflation. You look at it.
In 1997, oil was about, I think, $10 a barrel. Ten years later, it’s about $135 a barrel. Let’s say it’s inflation, but really, what it is is the dollar’s value coming down. Savers are getting wiped out today. To keep saying to yourself and to your kids to save money, that is not the new rule. That’s an old rule. A very big problem for most people is stop using the word “save” and use the word “hedge.” You’ve got to hedge your money, hedge against losses. When I buy a stock, I put a hedge in. I put a stop-loss or a put inside of it, or a call. Whatever I’m doing, I want to stop it. Today, I won’t save money.
I’m hedging. In 1997, I started investing in oil, gold and silver, so as a dollar a drop, oil, gold and silver went up. I’m not betting so much on oil, gold and silver. I’m betting against the U.S. dollar. That’s why this idea that you’re going to tell people, “You need to save money,” that’s really, really an obsolete idea because the idea went obsolete in 1971. The U.S. dollar, in the last few years, has lost almost 80% of its purchasing power. The prediction is, because this has happened throughout history…
It happened thousands of years ago, with the Romans, with the Greeks, with the Germans, with the English, the Japanese and the Chinese. Every time they’ve made money into a currency, something you could print, unlimited, every time that has happened, the currency has gone to its true value, which is zero. I am afraid, as this economic volatility continues, the savers who are operating by the old rules of money are just going to get wiped out because the purchasing power of their dollar is going to go down. Even with the bank paying you 5% to 10% interest, you can’t keep up with the banks printing money. That’s the old rule of money, is saving money. The new rule is hedge. You’ve got to be able to see what’s coming up as something else is coming down.
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