How Fast is Your Money Moving ?

by Robert Kiyosaki

For years, I choked when I heard such a question. I choked because I was at a loss for words. I was at a loss for words because such a simple question does not have a simple answer.

So the answer I came up with was, "It depends."

I tried this answer for awhile and soon noticed that this answer was unsatisfactory not only to the person asking the question - but also to me…

Looking for a new answer, I came up with, "If you do not know what to do with your money, put it in a bank far away from you, with instructions not to let you touch it." I would add, "If you do not know what to do with your money, and you announce publicly that you are an idiot with money, many people will call and tell you what to do with your money…which is to give your money to them." This new answer was not a satisfactory answer, yet it was better than "It depends."

Today, I am happy to announce that I have a new answer to the same question and that answer is, "Read my latest book, Who Took My Money?" After years of frustration and unsatisfactory short answers, the answer to that simple question is now in a book and I am very proud of this book. I am proud of this book because it takes the time to answer the question, "What should I do with $10,000?"

The reason the answer to such a simple question is complex is because what a person should do with the money depends upon who the person is. For example, if the person has a limited financial IQ, then the person should definitely put it in a bank and keep the money secret and far away so no one; including that person, can touch it. If the person has a higher financial IQ, then he or she can invest, leverage, and speed up their money to achieve far higher returns than most people think possible.

In my new book, Who Took My Money, there are three different examples of investing $20,000. Using exactly the same parameters of 5% interest, and a 7-year period:

Choice #1: a mutual fund $28,142 5.8%
Choice #2: real estate $101,420 58.2%
Choice #3: real estate $273,198 180.9%

The difference between real estate in choice #2 and choice #3 is that financial velocity is added to choice 3. If you would like further clarification on the causes of the differences, you can find this example on page 118 of the book. 

The point of this article is that a higher financial IQ does definitely pay off and that variable is why I have had a difficult time answering such a simple question. If a person has a very low financial IQ then, obviously, they should put the $20,000 in the bank. At 1% interest, the $20,000 would have grown to approximately $22,000. While not great, it is better than losing the nest egg.

One of the purposes of The Rich Dad Company is to continually improve a person’s financial IQ and this is an example of the pay off of a higher IQ. So keep learning and soon you will find your wealth increasing - not because you are working harder but because your money is moving faster. 

Robert Kiyosaki
Robert Kiyosaki is an investor, businessman and best-selling author. His book, Rich Dad Poor Dad, reveals what the rich teach their kids about money that the poor and middle class do not.
Retiring at the age of 47, Robert continued with his love of investing. It was during his "retirement", he wrote Rich Dad Poor Dad, the #1 New York Times bestseller. Robert followed with Rich Dad’s CASHFLOW Quadrant and Rich Dad’s Guide to Investing - all 3 books have been on the top 10 best-seller lists simultaneously on The Wall Street Journal, USA Today and The New York Times. In January 2001 Robert Kiyosaki launched Rich Kid Smart Kid.

Investments That Pay Today -- and Tomorrow

by Robert Kiyosaki

Words have the power to make you rich -- or keep you poor. For example, you have to know the difference between an "asset" and a "liability." An asset is something that puts money in your pocket, and a liability takes money from it.

Take your house, for example.

"Our house is an asset," my poor dad would say.

But, my rich dad saw things differently. "Your house is not an asset, but a liability," he said.

You see, even though my poor dad thought of his house as an asset, the fact is that every month it took money from his pocket via mortgage payments, utilities, and upkeep.

Now my rich dad owned several houses. But instead of depleting his wallet, those homes were rented out. They generated enough income to cover his expenses -- with money left over. That's a true asset.

Now or Later?

In addition to "asset" and "liability," there are two other very important concepts you need to understand: "Cash flow" and "capital gains."

One of the reasons I was able to retire at age 47, and my wife, Kim, at 37, was simply because we had enough cash flow coming in (primarily from our real estate investments). It wasn't much -- about $10,000 a month -- but we only had about $3,000 in monthly expenses. That left us with $7,000 a month to do with as we pleased.

On the other hand, capital gains are when you buy a stock for a dollar, and it goes up to $10 so you make $9 a share. Or, you buy a house for $100,000, and it appreciates to $150,000. You sell it and make $50,000.

One of the reasons people do not become financially free is because most of them are focusing on capital gains rather than cash flow. Chasing capital gains alone is gambling -- not investing. Want proof? You don't have to go back very far to find it: Between 2000 and 2003, millions of investors lost trillions of dollars in the stock market.

"When you invest for cash flow," my rich dad said, "you're investing in a money-back guarantee. 

If you invest for capital gains, you invest in hope. The biggest thief of all is hope."

Most retirement plans are based on hope and promises stretched over many years. That makes very little sense to me, yet it seems to make a lot of sense to the millions of investors who are hoping the money they expect will be there at age 65.

There's nothing wrong with capital gains. I would like my properties and stocks to go up in value, but I don't play this game that much. My primary focus, like that of most successful investors, is cash flow -- not capital gains.

Powerful Combo
The key to financial intelligence is how to use both cash flow and capital gains to grow wealthy. So many people are not successful, because they're generally focusing on only one of the two. The majority is focusing on capital gains.

In my opinion, one of the primary reasons people invest in tomorrow, rather than today, is simply because they think they cannot find or afford an investment that pays them today. As a result, they often become believers in tomorrow. These are the people who often fall prey to financial predators selling dreams of the future.

As my rich dad said, "An investment needs to make money today and tomorrow."

Educate Yourself into Riches

Many of Wall Street's elite firms were being required to pay tens of millions of dollars in fines to investors, according to media reports. The penalties are for alleged bad investment advice, courtesy of New York State Attorney General Eliot Spitzer.
 

This brings me to one of my favorite quotes from famed investor Warren Buffett goes: "Wall Street is the only place that people ride to work in a Rolls Royce to get advice from those who take the subway."

I have been highly critical of the standard financial planning advice -- "work hard, save money, get out of debt, invest for the long term, and diversify" -- for a long time. Such guidance is often more a financial advisor's (subway rider's) sales pitch than a solid investment guide.

But while I think it's courageous that Spitzer slaps millions in fines on a few Wall Street firms for their bad investment guidance, I believe the investors who accepted that unsound advice have some responsibility, too. Isn't knowing the difference between good and bad advice part of knowing what you're doing?

The Difference Between Investing and Shopping

The problem is, most investors don't know how bad the standard investment advice is. This mantra of "work hard, save money, get out of debt, invest for the long term, and diversify" is followed by millions of investors -- who lost $7 trillion to $9 trillion between 2000 and 2004. Many are still following this bad advice today.

Not only did millions of investors lose trillions of dollars, many also missed the boom in real estate, oil, gas, and previous metals. Furthermore, despite investors' huge losses, Wall Street paid out some of its biggest bonuses in history.

However, investors should realize it's "buyer beware." Investing is different from shopping. If I go to Sears and don't like the tool or shirt I purchased, I can generally get my money back. When we go shopping, we expect value for our money. But when we invest, we do so in the hopes of making more money -- and knowing that we risk making losses. What would happen to the financial industry if brokers were sued every time a client lost money? The wheels of world commerce would grind to a halt.

My point is: The world is filled with honest people handing out bad advice. An example of honest bad investment advice is the standard one of "work hard, save money, get out of debt, invest for the long term, and diversify".

The world is also filled with biased advice, which is why people say, "Never ask an insurance broker if you need insurance, or a mutual-fund sales person if they recommend mutual funds." Furthermore, there are many crooks and con artists as well, who intentionally promote dishonest ventures.

Spotting the Difference

So while it's imperative that we have the Securities and Exchange Commission and a brave Attorney General such as Spitzer to enforce the rules, we, as individual investors, still need to be vigilant and personally responsible for the advice we receive and what we do with our money.

In my opinion, that means each of us needs to be responsible for our own financial education so we can tell the difference between good advice, biased advice, and crooked advice. If you can educate yourself to know the differences between those three types of advice, getting rich is easy.

Or, if you take investing advice from a subway rider, don't be surprised if you wind up on the subway.