Robert Toru Kiyosaki (born April 8, 1947) is an American investor, businessman, self-help
author, motivational author, motivational speaker, financial literacy activist, and financial and financial commentator. Kiyosaki commentator. Kiyosaki is well known for his Rich Dad Poor Dad series of motivational books and other material published under the Rich the Rich Dad brand. Dad brand. He has written over 15 books which have combined sales of over 26 million copies. Three of his books, Rich Dad Poor Dad , Rich Dad's CASHFLOW Quadrant , and Rich Dad's Guide to Investing , have been on number one on the top 10 best-seller lists simultaneously on The Wall Street Journal , USA Today and the New the New York Times. Times. Rich Kid Smart Kid was was published in 2001, with the intent to help parents teach their children financial concepts. He has created three "Cash flow" board and software games for adults and children and has a series of "Rich Dad" CDs and disks. A financial literacy advocate, advocate, Kiyosaki has been a proponent of entrepreneurship, business education, education, investing, and that comprehensive financial literacy concepts should be taught in schools around the world. Kiyosaki also operates his own blog and maintains a monthly column on Yahoo Finance writing about his latest thoughts on global economics, economics, investing, business, world financial world financial markets, and markets, and personal personal finance. Robert Toru Kiyosaki is an American investor, businessman, self-help author, motivational speaker, financial literacy activist, and financial commentator. Born: April Born: April 8, 1947 (age 66), Hilo, Hawaii, United States Nationality: American Nationality: American Education: United Education: United States Merchant Marine Academy Spouse: Kim Spouse: Kim Kiyosaki
Cashflow Quadrant by Robert Kiyosaki
Part 1 – 1 – The The Cashflow Quadrant
Chapter 1 - “Why don’t You Get a Job?”
Not all quadrants are equal. There are significant tax advantages to working in the B and I quadrants.
Chapter 2 – 2 – Different Different Quadrants… Different People
The differences between E’s, S’s, B’s, and I’s.
E’s
1. They desire security, and they seek out a lifestyle that will provide them with this. 2. They shy away from risk and subsequently they see no need to become educated in the tools of finance. 3. They seek out benefits with their jobs.
S’s
1. They do not like to have their income be dependant upon other people. 2. Lower sense of entitlement here. 3. They have a “Nobody does it better than me” mentality. 4. This group would include doctors, lawyers, and all others who are selfemployed. Independence is very important to this group of people. 5. This group often has a hard time finding good work because they have such a high standard. 6. Their income is directly tied to how much they are working, meaning they effectively own a job.
B’s
1. They hire competent talent and then delegate as much as possible. 2. They recognize their own inability to perform all tasks well, so they hone their ability of finding and cultivating talented people to work for them. 3. Individuals in this group know that if they left one of their businesses, that in a year they could come back and find it more profitable and better running than when they left. 4. Being a successful B requires ownership or control of systems and the ability to lead people.
I’s
1. These people are most adept at making money work for them. And if at all possible they are using other peoples money. 2. They receive huge tax advantages. 3. The wealth receive 70% of their income from investments and less than 30% from their wages.
Investment Advice
1. The goal of all entrepreneurs should be to grow your assets to the point where the cash flow from all of your assets would be greater than your living expenses. 2. Wealth - The number of days you can survive without physically working, and still maintain your standard of living. 3. Warren Buffet says that portfolio concentration is better than diversification. This allows for specialization. 4. Bearing risk is a necessary component of becoming wealthy, therefore it is something to understand and manage as opposed to flee from.
Chapter 3 – Why People Choose Security Over Freedom
1. On the left hand side of the CFQ you have security, on the right hand lies freedom.
2. Financial Intelligence is not so much how much money you make, but how much you keep, how hard that money works for you, and how many generations you keep it for.
3. The reason many people struggle financially is that the more money that they make, the more taxes and interest on debt they pay.
4. The rich know that the best way to avoid taxes is to generate income out of the B and I quadrants.
5. Most people focus on income instead of investments.
6. Looping between the B and I quadrants is the best way to make money, although there is a significant difference between the two. It should not be assumed that you can instantaneously jump from B to I.
7. Quote from Rich Dad “The only difference between a rich person and a poor person is what they do in their spare time.”
8. Investing is capital and knowledge intensive, don’t try it if you have none of either.
9. It is best to become a successful B before attempting to be a successful I.
Chapter 4 – Three kinds of Business Systems
There are three main types of businesses
1. Traditional C corps – where you develop your own system 2. Franchises – where you buy an existing system a. Franchises are for people who do not want/know how to build their own systems. b. By buying on a pre-existing and tightly controlled system you can focus on developing people rather than the system. 3. Network Marketing – where you buy into and become part of an existing system
Keys to effective leadership
1. Managers often see their people as inferiors, leaders must direct people who are often smarter. 2. To be successful you need to overcome the fear of being rejected and learn to lead people.
You may lose two or three companies before you build a successful one that lasts.
Banks don’t lend money to people without systems.
Chapter 5 – The 7 Levels Of Investors
The seven levels of investors:
1. Those with nothing to invest 2. Borrowers
a. Typical consumerist behavior, redline spending. 3. Savers a. Methodical and litigious in tracking their finances, but to risk averse to achieve a high ROI. b. Often waste time being tightwads while neglecting to brush up on financial intelligence. 4. Smart Investors a. 3-A – “I can’t be bothered” i.
This investor has convinced himself that he doesn’t
understand money and never will. ii.
They let their money sit and do a little in their
retirement plan or turn it over to a financial planner who recommends safe diversification. b. 3-B – “Cynic” i.
This person is always slamming various investments.
ii.
They speak with authority on investments even
thought they are largely ignorant. iii.
They are influenced by emotion and consequently
buy and sell at the worst times, although they keep their losses to themselves. c. 3 – C – “Gambler”
i.
They use “sophisticated” investments techniques such
as margins, puts, calls and options. ii.
They jump into the game without knowing the rules.
iii.
They are in reality lazy when it comes to investing.
5. Long term Investors a. They are aware of the need to invest and they have a clearly laid out long term strategy. b. They take advantage of periodic investing and, whenever possible, invest in a tax-advantaged way. c. They likely are not investing in real estate, businesses, and other higher yielding vehicles. d. They have control of their spending habits and minimize their debt and liabilities. 6. Sophisticated Investors a. They are mature, focused and diversified. b. They have learned from experience including mistakes. c. They are buy investments at wholesale rates and put their own deals together. d. They risk less than 20% of all their capital in speculative ventures. e. They study on a regular basis and actively participate in the management of their assets. f. Their main focus increasing their asset base, minimizing tax burden and creating long-term wealth.
g. They personally own little and nothing is found in their name, they use corporate shells, which they control, to transact their business. h. They spend a small fortune on professional advice. 7. Capitalists a. This person makes money by orchestrating other peoples money, talents and time. b. True capitalists create investments and sell them to the market. c. They know how to manage risk and make money without money.
Anyone seeking to become a 6 or a 7 must become a 5 first.
Chapter 6 – You cannot See Money With Your Eyes
It’s the things you can’t see that are the most important aspects of a deal. 1. Financial agreement 2. Market conditions 3. Management 4. Risk Factors 5. Cash Flow 6. Corporate Structuring 7. Tax laws
Important questions to ask when buying rental real estate: 1. What is the ROI 2. How does this investment fit into your long term investment strategy 3. What vacancy factors are you using 4. What is your cap rate? 5. What is the HOA’ history regarding rate of assessments? 6. What is the management cost? 7. What percentage will you use to compute the rate of repairs? 8. What is your burn rate?
Always negotiate.
If money is not first in your head, it will not stick in your hands.
Your advisors can only be as smart as you are. If you are well educated, competent advisors can give you sophisticated financial advice. If you are financially naïve, they must offer you only safe and secure financial strategies.
Assets put money into my pocket, a liability takes money out of my pocket.
1. Even if a house is paid off, its still a liability. a. People pay for repairs on their house and their car with after-tax dollars.
Tax-lien certificates – You purchase someone else’s mortgage debt.
In the banking industry, a seven-year average is used as the life expectancy for a mortgage.
The more people you are indebted to the poorer you are, they more people are indebted to you the richer you are.
If you take on debt and risk you should get paid for it. A good deal makes sound economic sense in good times and bad. You have to be able to discern fact from fiction, being able to read and interpret financial statements is one way to do this. If you can not read the numbers ultimately you are at the mercy of whoever is reading them for you.
Part 2 – Bringing Out the Best in You
Chapter 7 – Becoming Who You Are
1. When a person feels the need for money, a. E’s will look for a job b. S’s will often do something alone c. B’s will create or buy a system that produces money d. I’s will look for an opportunity to invest in an asset that produces more money.
2. People who are high-level investors are not concerned about the market going up or down because their knowledge will allow them to make money either way. a. If you cannot read the numbers, you have to take someone else’s opinion. b. Having financial vision lowers your risk. Being financially blind increases risk. c. People on the left pay to take risks and the people on the right side get paid to take risks
3. The bigger the project and the faster you want to succeed, the more you need to be accurate. If you want to get rich slowly, or just work all your life and let someone else manage your money, then you do not need to be accurate.
The faster you want to get rich, the more accurate with the numbers you must be.
Chapter 8 – How Do I Get Rich?
Be – Do – Have
1. To go from wage slave to wealthy, require changing your outlook not just your actions. Your thinking must change before your actions can fall inconformity with wealth building practices on a consistent basis.
2. The fear of losing money is a source of much financial struggle for most people. Their risk tolerance is shot because they have no stomach for taking a loss. One bad investment ad they feel totally burned as if that proves investing as a whole is a bad idea.
Difference between E and B, one wants more pay and the other wants more work.
Difference between B and I, one wants more money to operate with, the other wants more dividends.
To be successful as an investor or a business owner, you have to be emotionally neutral to winning and losing. Winning and losing are just part of the game.
1. Intelligence is also knowing when to quit. Too often people are stubborn about pressing on with projects that clearly need to be dumped. 2. The reason things look so risky on the right side of the Quadrant to people on the left side is because the emotion of fear is often affecting their thinking.
Chapter 9 – Be The Bank Not The Banker
The Tax Reform Act of 1986 took away many of the tax loopholes that, on the left side of the Quadrant depended on. On the flip side, while folks on the right side of the Quadrant were affected, many of their tax avoidance mechanisms were left intact.
Three things happened to the people on the left side of the Quadrant.
1. Panic was everywhere. 2. They lacked the technical skills required on the right side of the Quadrant 3. They lacked a cask machine.
The transfer of wealth from the left to the right side is constant, and unending.
Many people will look for some one to blame for their financial plight, usually this ends up being wealthy people.
If you want to be a leader on the right side of the quadrant, a historical view of economic history is important. Add to this studying the great leaders of capitalism such as Ford, Rockefeller, Morgan, etc.
Reasons Kiyosaki Invests in real estate in a depressed market:
1. Pricing- Mortgage payments may be lower than fair market rent for many properties. 2. Financing – The banks will loan on real estate but not on stocks or many other forms of investment. 3. Taxes – Profit from real estate transactions can be rolled tax free into your next real estate transaction. On top of that, the property can be depreciated for even greater tax advantages. 4. Rent – If rent prices maintain amidst the depressed home prices you will be ensured a steady cash flow stream.
Why Use Corporations?
1. Asset protection. 2. Income protection.
Most wage earners earn, get taxed and then spend. Whereas if you pass your income through a corporate entity first, you can earn, spend and then get taxed on the remainder.
Plan on meeting resistance when you try and structure deals custom to you needs. You will likely hear, “You can’t do that”, repeated often.
Always seek the best professional and financial advice you can find. Never do business or make an investment merely for the tax benefits.
Part 3 – How to be a Successful B and I
Chapter 10 – Take Baby Steps
A study was conducted on how people who born into poverty eventually became wealthy. Its findings revealed these common factors.
1. They maintained a long term vision and plan. 2. They believed in delayed gratification. 3. They used the power of compounding in their favor.
The study also found what took people from wealth to poverty.
1. They have short term vision. 2. They have a desire for instant gratification. 3. The abuse the power of compounding.
People with no assets are usually working from paycheck to paycheck.
Develop the thought pattern of thinking only in assets and income in the form of capital gains, dividends, rental income, residual income from business, and royalties.
Chapter 11 – It’s Time To Mind Your Own Business
Chapter 12 – Take Control Of Your Cash Flow
For every liability you have, you are somebody else’s asset.
Every time you owe somebody money, you become and employee of their money.
Good debt is debt that someone else pays for you, and bad debt is debt that you pay for with your own sweat and blood.
Chapter 13 – Know The Difference Between Risk and Risky
Part of Financial Intelligence is possessing the ability to convert cash or labor into assets that provide cash flow.
The direction of your cash flow is extremely important.
Chapter 14 – Decide What Kind of Investor You Want To Be
Type A investors look for problems where opportunity bounds via creating solutions. These people take on more risk but are more able to manage that risk.
Type B investors want to be told where invest their money, preferring to remain less educated and more dependant on others advice.
Take action steps to getting on the investment fast track.
1. Attend financial seminars and classes. 2. Do practice market research in the areas would where you would like to invest. 3. Subscribe to investment newsletters and study them. 4. Meet with several business brokers to see what existing businesses are for sale in your area. 5. Attend business opportunity conventions, or trade expos in your area to see what franchises or business systems are available.
Chapter 15 – Seek Mentors
Leverage the positive and negative experiences of your mentors as learning tools for yourself.
The people you spend your time with are indicative of your future position in life.
Your asset column must always be larger than your liability column.
Chapter 16 – Make Disappointment Your Strength
When people are lame they love to blame.
Be prepared to deal with disappointment in life and Have mentors standing by for when it happens.
Chapter 17 – The Power Of Faith
Self help fluff…
Chapter 18 – In Summary…
Self help fluff…
Summary: In Robert Kiyosaki's, The Cashflow Quadrant, the author states that there are four kind of workers: Employees, Self-Employed workers, Business Owners, and Investors. Kiyosaki also states that there are seven different kind of investors. Furthermore, Kiyosaki finally states the seven steps to financial prosperity. There are four kind of workers: Employees, Self-Employed workers, Business Owners, and Investors. Employees believe that "uncertainty does not make them happy."(Kiyosaki, Cashflow Quadrant pg. 21) As a result, employees have a huge trade off for their job security by "losing" their chance to become rich quickly. Employees are paid the least and taxed the most. A man working as a cashier at Vons, is an employee. He wakes up every morning and work long hours each day. The cashier is a hard worker. However, he is only making the owner rich. Self-Employed workers are people who have their own business. "Self-employed people are often hard-core 'perfectionists.'"(Kiyosaki, Cashflow Quadrant pg. 22) They are people who own small hair salons and hobby shops. It is true that selfemployed workers are their own boss. The only problem is that they have to manage their business, manage their taxes, work, and fight off building inspectors. As a result, most self-employed workers will quit in five years. Business owners are different from self-employed workers. While a self-employed business owner must be present, a business owner "likes to delegate"(Kiyosaki, Cashflow Quadrant pg. 23) In other words, the owner does not show up for work. Instead, he hires a manager to handle his business for him. When we go to Mc. Donald's, we hardly see the owner. When we have a complaint we only get to resolve a dispute with the manager. "Investors make money with money."(Kiyosaki, Cashflow Quadrant pg. 29) I have a friend who had withdrawn $20000 from his credit card. Instead of buying a new car, he have re-invested the same $20000 in high interest off-shore Certificate of Deposits. In one year, he payed back all his debts and currently earns $6000-$20000 in passive income every month. In
other words, he never works for money. My friend's money works for money, even though he plays golf and plays pool for hours. Kiyosaki suggests that everybody be satisfied with their own quadrants. He also suggests that employees and self employed workers are the worst position to be in. On the other hand, Kiyosaki suggests that business owners and investors are bound to have both the freedom of time and money. There are seven levels of investors:
Level 0: Those With Nothing To Invest-They are people who make money and blow it all out on
fancy
cars and toys.
Level 1:
The Borrowers-These people always say, "just charge it." They love to take "0 down/Easy
monthly payment" offers. In Las Vegas, the borrowers are wealthy man with no money. As a result, they borrow, borrow, borrow. Soon, they find themselves homeless.
Level 2:
Savers-While savers are better off than borrowers, they are not aware that their money is being
depreciated by inflation. Inflation usually averages at 4% per year. Unfortunately, most savings account only pay at 2% interest per year. The solution? Invest in CDs, stocks, bonds, or mutual funds.
Level 3:
"Smart" Investors-They are the middle class with 401(k), SEP, Superannuation, IRAs, and
pension plans. When they retire, the "smart" investors believe that the government will pay for their retirement. Today, it is not possible. As their expenses go down, health care costs for the elderly skyrockets. It is a good idea to have CDs, stocks, bonds, and mutual funds to back pension plans.
Level 4: Long-Term Investors-These people have a
plan to follow. They have laid some cash for CDs,
stocks, bonds, mutual funds, and real estates. Level 4 is a turning point for most people. At this point, people realize the difference of working for money and the difference of having money working for money. Reading books and listening to audio tapes on investing, is a major step of being a long-term investor.
Level 5: Sophisticated Investors-These investors are in the
"fast track." They are savvy and bold to take
on bigger risks. Sophisticated investors buy ancres of lands, houses, and apartments at "whole sale" prices. They then fix up the property and resell the same property at "retail" prices. Most real estate investors fit the criteria of a sophisticated investor.
Level 6:
Capitalists-These people are masters of being an investor and being a business owner. "These
are the Fords, Rockefellers, Paul Gettys, Ross Perots, and the Kennedys."(Kiyosaki, Cashflow Quadrant pg. 93) They are talented and strive to change the world by creating jobs and donating huge sums of money to charity. *This concept have been simplified from pg. 83 of Cashflow Quadrant If you want to be rich, ask yourself, "why am I poor?" Chances are that you will have to fight your urge to live in "first class" and educate yourself by reading more books on finance and investments. By starting small, you will decide if it is safe to invest more later on a particular CD, stock, or a mutual fund. Remember that education comes first before you invest. The seven steps to financial prosperity are:
1. Mind Your Own Business-Ignore people who say, "You can't do that!" "It is impossible!" or "You will fail!" The only way to fail is for you to accept and admit that you have failed. Only you know more about yourself than anyone in the world. The world is full of "limits." In truth, limits and failures are nothing but states of human emotion.
2. Take Control Of Your Cashflow-Take the time to sit down and write down how much you pay in mortgage, car payments, credit cards, and other expenses. Your job is to see where you are today. You are starting from point A, to get to point B.
3. Know What Is Safe And What Is Risky-I thought that stocks were initially risky. However, I played Kiyosaki's Cashflow 101 game and realized that stocks were actually profitable. WHen you see risk, you have two options: Reduce risks by educating yourself about the risk or stepping out.
4. Know Where You Want To Invest-Do you want to invest in stocks? CDs? Real Estates? Choose your investment wisely. If you do not know anything about electronics, do not buy electronic stocks. It's that simple.
5. Seek Mentors-You become who you hang with. Friends have the power to make you feel good or feel bad. Pick mentors with a proven track record of who he is. A lawyer is not a doctor and a real estate investor can not be your CPA.
6. Make Disappointment Your Strength-Always look for the good in every problems. Turn failures into
success. Whenever you have a problem, don't say, "I can't." Say, "how can I solve this problem?" For every problem comes every answers. Never give up!
7. The Power Of Faith-If you think you can, you can do it! If a problem is gargantuan(huge), do everything in your power to solve it! For me I feel comfortable to have God as my partner. Whenever I feel hopeless, I always put my problems on the hands of God's. I have faith in God to give me the strength while my duty is to execute my plan. *This concept have been simplified from pg. 199 from Cashflow Quadrant Know where you are today and imagine where you want to be. Prove others that you have the power to make your dreams, a reality. Never give up and have faith o n God and yourself. Continue to educate yourself on finance. Have the right mentor to encourage you to push yourself over the limits. Kiyosaki's Cashflow Quadrant is more in depth than his first book Rich Dad, Poor Dad. Employees and self-employed worker are taxed the most and earn the least. Business owners and investor are taxed the least and earn the most. Learn to invest before you begin to invest. Follow your dreams and let your actions speak louder than words.
