Saturday, August 21, 2010

Guide to Investing...

The book of the week was Guide to Investing by Robert Kiyosaki. It's the third book in the Rich Dad series and I think all the books from the series are great. None of the books are a step by step plan, they are more of a broad focus on investing and how to get into the right mindset to escape the rat race and be more financially independent.

This book is by far the longest one that I have read within the series. It's about 400 pages, but Kiyosaki writes in a very clear way so it makes for an easy read. This book does talk about some more complicated businesses that the rich investor uses to invest. I say businesses because that is what really separates the rich investors from the average investors. The difference between owning a company and having a savings account. And the last thing you want to be when it comes to your financial arsenal is average... Why?... Because the average person's financial arsenals is being $4,000 in credit card debt, carrying 1.5% of their yearly income in credit card debt, only 40% have a monthly budget, and one-third don't even know what percent their credit cards are charging. Shocking, I know! Let's not be like them...

The first step to not being average is to have a basic understanding of personal finances. There are very few things about personal finance you learn in school. That is why there are so many people with the problems they have with finances. The most basic thing that you can lean about is assets, liabilities, income and expenses. People use these terms on a daily basis to explain their finances, but I have serious doubts whether many of them understand what they really are and how to use them to make additional cash flow streams.

There are three types of income: earned income, passive income, and portfolio income. Most people only have earned income (money that comes from their job) and that money is used to just pay off expenses. Meaning that their personal income statement looks like this...
Some of the expenses might be a personal home mortgage, credit card bill, student loans, food, entertainment and then after paying off all those expenses they have nothing left. Most people have no or very few assets... these would be rental properties, stocks, index funds, gold, silver, etc. However, most people do have liabilities... these would be home mortgages, and any outstanding loans- school, credit card, cars etc.

The rich use that job and pay off expenses and then find money to be able to acquire assets. These assets then produce portfolio income (interest and dividends) and passive income (rental income). The idea is to continually grow your wealth with this simple method of increasing income streams. Earlier I said the rich have businesses... those businesses each have their own financial statements like the one shown above. It may be a property management company, a real estate holding company, a retail outfit, a farm... or all of the above. Each of these would provide income. Then your financial statement looks something like this:

There was a great metaphor in the book. Robert told a story about him talking to his Rich Dad. He said "Everyone says that investing is risky, is that true?" His Rich Dad said "Investing is like driving. Sure, driving is risky, but it is even more risky if you drive without your hands on the wheel. Most people investing today are investing with their hands off the wheel." It really true... investing is all numbers. If the numbers make sense and you talk about it with your team and everything checks out then you are making a good decision. Don't hesitate, just go for it!

I encourage you all to write up your personal financial statement and see where you stand financially. Then go out and research a couple assets to acquire. Run the numbers, find the start-up money (if the business makes sense and the numbers are there, someone will want to invest), and don't be average. This is a very good book... the more you know about different areas of the financial world the more areas you'll have to invest in. As always, if you have any questions on the book don't hesitate to ask. I would be more than happy to help anyone that wants it. 


  1. A guide to investing will also give you advice regarding the length of time your money should be tied up for. You must think carefully about why you want to invest.