INVESTING FOR BEGINNERS UK - Rich Dad Poor Dad (How to invest) Robert Kiyosaki.
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In this video we review the popular book: Rich Dad’s guide to investing, by Robert Kiyosaki
Robert Kiyosaki is an American businessman and author.
Robert Kiyosaki’s original bestselling book ‘Rich Dad Poor Dad’ is about himself and his two dads, his real father (poor dad) and the father of his best friend (rich dad)—and the ways in which both men shaped his thoughts about money and investing.
This book provides the teachings from Robert’s Rich Dad.
In this review we will learn that the rich don’t invest in the same things as the poor and middle classes do.
why it’s better to invest your pre-tax earnings than save your taxed income; and why “get an education, work hard, save money” can be bad advice.
Robert Kiyosaki says;
“The philosophy of the rich and the poor is this: the rich invest their money and spend what is left. The poor spend their money and invest what is left.”
He also says;
“The wealthy buy luxuries last, while the poor and middle-class tend to buy luxuries first.
Maybe you've heard of the 80-20 rule, which states that 80 percent of our success comes from 20 percent of our efforts. But for money, the rule is 90-10, meaning 10 percent of people have 90 percent of the money.
The rule applies in many walks of life. Think about Hollywood stars, 10 percent of actors earn 90 percent of the money, whilst the remaining actors also have other jobs to get by. The same goes for athletes, musicians and, of course, investors.
So how can you break into that top 10 percent? Throughout the video, we'll find out what it takes to think like a rich investor.
“Get an education, work hard, save money. Then you’ll be fine.”
This sentence sums up the standard middle-class approach to financial security and its likely you were probably told something similar by your parents.
Robert Kiyosaki says;
“If you’re still doing what mommy and daddy said for you to do (go to school, get a job, and save money), you’re losing.”
This can be very limiting advice especially to children who may apply this throughout their lives, it will never make you rich. Rather, it will keep you in the 90 percent that only has 10 percent of the money.
So how do the rich become rich?
In most cases they don’t slave away at one job until retirement.
The rich, often purchase businesses and make investments.
Employees generally have less money to invest; that’s the way the modern-day tax system is set up.
For example, let’s say you want to save £1,000 from your salary. First you have to pay tax, so in order to save that £1,000, you’ll have to earn approximately £1,300.
After saving this £1000, let’s assume you put it somewhere safe and the average inflation rate is 2.5%.
In this example, Inflation would reduce the £1000 value every year, and after 20 years it would only have the purchasing power of £600.
Lets repeat that….. you earn £1300, you keep £1000 after tax, and then this money is only worth £600 in 20 years. Not a recipe to make you rich.
This example shows an employee who invests the same £1000, but instead of placing in a safe place, it generates a 10% return in the stock market. The result, after considering a 2.5% inflation rate, is that the £1000 now has the purchasing power of around £4000 after 20 years.
That’s a 660% difference.
Unfortunately, before taxes, which again lessens the likelihood of making you rich following this path alone.
In summary, it’s hard for an employee to become rich because they give so much money to the government.
Robert Kiyosaki suggests that people shy away from investing because the terminology sounds like a foreign language. But he believes that to get into the elusive 10 percent, you must invest in your financial education.
First off, Robert says it’s important to understand the difference between assets and liabilities.
The rich tend to hold assets
And the poor tend to hold liabilities.
Let’s take a common example. You’ve probably heard someone say, “My home is a great asset.” But throughout the Rich Dad literature the suggestion is made that something is only an asset when it generates positive cash flow.
Let’s assume your house is worth £200,000 with a £150,000 mortgage. Where
The house will likely appreciate over time, but during this process it’s taking money from your account each month and is therefore classed as a liability, according to Robert Kiyosaki.
Robert says;
“The more money you make the more money you spend; that’s why more money doesn’t make you rich – assets make you rich.”
Understanding assets and liabilities is only the first step. To successfully make the investments of the rich, like developing real estate
or buying into a business – you need to have a good understanding of financial terminology says Robert Kiyosaki.
If you want to buy shares in a growing business, you will need to understand whether it’s a good deal. To do this you need to understand value, be able to calculate and analyse measures like the debt-to-equity ratio, return on equity, cash-on-cash return and financial leverage.
Robert says;
“Intelligence solves problems and produces money. Money without financial intelligence is money soon gone.”
spend time developing your financial education – it may be the best investment you ever make.
Robert Kiyosaki says, If you aren’t yet rich, become an inside investor; starting a business is an achievable route to wealth.
Many people think, “I could never start my own business.” But just 120 years ago, 85 percent of people were independent farmers or small shopkeepers. In other words, most people were business owners.
Robert suggests that anyone can start a business and become rich. Starting a business only requires a bit of creativity.
The author is a case in point. As a child, he created his first business from nothing. He saw that a local store was discarding old comic books and persuaded them to let him take the discards. He then opened a profitable comic library, charging school friends a 10-cent membership fee. From nothing but a good idea, he built an asset.
One reason many people hold back is time and money. There is no doubt a whole host of other excuses.
Robert Kiyosaki says;
“Excuses cost a dime and that’s why the poor can afford a lot of it.”
But it’s entirely possible to start a business part-time, and some of the world’s finest business leaders did just that.
Michael Dell started Dell Computers by working part-time in his university dorm room, and eventually got so rich that he decided to drop out.
Jeff Bezos started Amazon part-time, working out of a garage, imagine if he hadn’t had the courage to start things up in his spare time.
Testament to his small beginnings, he said;
“It’s hard to remember for you guys, but for me it’s like yesterday I was driving the packages to the post office myself and hoping one day we could afford a forklift.”
Robert Kiyosaki alludes that once you have a business, you have options, and it can be a road to riches that you’ll never experience as an employee.
What does it take to build a successful business?
let’s take a look.
Bill Gates didn’t invent the software that made him the world’s richest man. He merely bought it from a group of programmers. He built a great business, not a great product – and that was the key to his success.
Success in business is a matter of mastering three things.
Creating a mission, building a team and becoming a leader.
Henry Ford embodied this. His mission wasn’t to make money, Ford’s mission was to bring the car to the masses and “democratize the automobile.” He pursued his mission relentlessly and the rest is history.
Maybe you’re an accountant, an insurer or a lawyer. But you are unlikely to be all three says Kiyosaki, and all are important if you want a successful business.
A common factor among rich business leaders is the knowledge that money spent on their team is an investment – one that will almost certainly make them richer.
Kiyosaki served in the military, and he notes that troops won’t follow a poor leader. Leadership is a skill unto itself. It’s not simply about being the best; rather, it’s about bringing out the best in other people.
Bill Gates says:
“As we look ahead into the next century, leaders will be those who empower others.”
The book emphasises the importance of communication and selling.
Robert Kiyosaki says;
“The ability to sell is the number one skill in business. If you cannot sell, don’t bother thinking about becoming a business owner.”
Raising capital, advertising, negotiating, motivating your team and making sales are all crucial for success, and all require excellent communication and sales skills.
Master these two qualities and you will likely be a powerful communicator. This trait will shine through, not just when you’re selling your product or service, but when you deal with an investor, or negotiate better terms.
Appearance is also important. Studies of public speakers show that 55 percent of their impact comes from body language, 35 percent from how they speak and just 10 percent from their words.
A banking friend of Robert Kiyosaki once told him that his bank had brought in a new CEO mainly because of his appearance. The board would run the bank, but the CEO’s outward appearance would generate new customers.
Kiyosaki says, learning to communicate and look the part is highly important. Just like improving your financial literacy, it’s an investment worth making.
At this point Kiyosaki suggests that it’s time to use the income and the experience you’ve accumulated and take things to the next level. It’s time to become a sophisticated investor.
Whatever you want to invest in, as a sophisticated investor, you will need to know how to make your money work for you.
Kiyosaki says;
“The best thing about money is that it works for you 24 hours a day and can work for generations.”
An average person’s plan for retirement might consist of putting away £15,000 a year into a pension and hoping for an 8-percent return.
The sophisticated investor is far more likely to invest in real estate, individual stocks and maybe a business, ensuring that their money is working as hard as it can for them.
With the experience brought by building a business, investing in financial literacy and education, the sophisticated investor can make the investment decisions of the rich.
Finally, Robert Kiyosaki discusses risk vs reward, and suggests that to become a successful investor, you must learn to evaluate risk and reward.
He provides a brief example in terms of a business proposition;
Let’s assume you had a nephew with an idea for a burger stand, and he needed £25,000, would that be a good investment?”
The immediate thought from most people, armed with this limited information would be, no.
However, when provided with further detail some may come to a different conclusion.
What if the nephew had 15 years’ experience in the burger industry, has been a vice-president of every important aspect in the business, is ready to go out on his own and build a worldwide burger chain, and has immediate customers to limit any cashflow concerns.
Kiyosaki says;
“Everyone can tell you the risk. An entrepreneur can see the reward.”
If you want to move from being an employee to business owner, from business owner to sophisticated investor, first invest in your financial education. Start small, learn from your mistakes, and keep going.
The key message in this book is;
If you want to be rich, you must think and act like a rich investor. That means focusing on building a business.
investing in assets.
And not focusing on employment and savings.
In doing so, you can build and control an investment portfolio that generates income and grows your wealth.
That concludes our review of the rich dads guide to investing, we hope you enjoyed it.
We give a rating of 3 stars and recommend the book for aspiring investors.