Archive for the ‘Financial Education’ Category

Is passive income through positive cash flowing investments important to your retirement strategy?

Check out our video below where we compare an annuity savings plan vs. an investing strategy requiring life-long financial education. For simplicity, hypothetically both in this example will have the same rate of return. Are the results the same? If not, what are the differences? We look forward to your comments!

Music courtesy of Jason Shaw @ audionautix.com

Are you doing pretty well right now in your business, but frustrated that you are not networking with the people that you know you need to be working with to take the next step? Ever asked yourself why?

One thing that comes to mind that I have heard Robert Kiyosaki say is there is something a person doesn’t know that they don’t know!  Rich Dad Company offers a membership site called “Insiders” where Robert and his team offer completely transparent weekly meetings available for viewing to members. In a recent meeting, Robert and his team discussed being cautious about thinking too small.

One example was where if a person is “handling” everything, then maybe that is not the best thing! Huh!?! Then it made sense. If I one is able to just do everything for one’s self, then development of leadership skills are optional. If a person is in over their head, and needs help, then one sinks or swims by their leadership skills.

In Robert’s CASHFLOW Quadrant, “S” represents self-employed and taking on most tasks individually.  An “S” would say, “If you want it done right, do it yourself!”  However, a “B” stands for big business, and MUST involve team work, which MUST include – leadership skills!  A “B” must have the ability to leverage OPT (Other People’s Time.)  Maybe the reason that those connections have not been made with those necessary contacts is that leadership skills need further development?  For more information regarding the CASHFLOW Quadrant, please feel free to click here for a more detailed post on this site.

What is your ultimate goal?  Do you see yourself doing it all on your own with the ability to handle everything?  Or, do you see yourself as part of a bigger picture, maybe with a large team?

Please comment and share your perspectives and insights!

Robert answers the following pertinent questions in this interview as below:

1. If you did not have the rich dad in your life, what would you be doing today?

2. What made you write your book, Conspiracy of the Rich?  He also discusses the four areas that make people poor, and why you don’t have to follow the same track.

3. Talking about money at the dinner table?

4. When you and your wife were living out of your car, how did you remain confident that you would retire rich, and young?  He follows up by talking about the importance of training and discipline.

5. Is it possible for a person with few resources to still make a fortune, and if so, how?  Be ready, Robert gives very simple (but powerful!) advice, and pulls no punches here!

Enjoy!

John, a truck driver and his wife Sandra who is a part-time nurse have 2 young children.  Between the mortgage, car payments, daycare since they both work, credit card debt, and other miscellaneous costs, monthly expenses are about $3500.  They had been able to keep up with the payments, and had $5000 in savings.

After 15 years of working for the company, John was then notified that they were downsizing, and he had 2 weeks notice.  He was devastated because of the state of the economy, jobs being so scarce, and that he was the main wage earner for the family.  He had been investing in his 401(k), but in following the popular advice of keeping all of his money in the account even when the mutual funds were plummeting, he lost everything.

Two months went by, and still could not find work.  Even with unemployment checks coming in, savings were almost gone.  Their home equity line of credit was maxed out, and his bank would not lend any more.  He was looking at having to sell the house or face foreclosure.  But, nobody was buying real estate, because the banks just were not lending with the state of the economy.  How did everything that seemed like it was going so well, get so bad?  What went wrong?

How would this situation have been different if they had passive income coming in every month from positive cash flowing rental property, or a side business?

Can anyone learn to invest?  Will you invest differently at 47 than at 18 years old?  If you invest primarily for cash flow rather than capital gains (buy low and sell high), the strategy will be the same for both age groups.  The only difference will be the one that starts at 18 years old will have the advantage of time.

When investing for cash flow, money comes in every month from acquired assets.  Remember, from the previous post, assets put money in your pocket.  Liabilities take money from your pocket.

There are many ways to get started in acquiring and creating assets.  Information products sold on the internet are extremely cost-effective to create, and can provide passive income.  For example, if you write an eBook, it costs nothing but your time, and can bring infinite returns if a proper marketing strategy is used.

Other examples of assets you can create utilizing the internet are becoming an affiliate marketer (where you sell other people’s products for commission), writing a song, patents, trademarks, membership websites, recurring commissions from products, and drop-ship e-commerce.

Another business with low start-up cost is network marketing.  The main strategy is to get a strong down-line that are selling for you, and you are providing good up-line support.

Real estate investing can be an excellent choice as well, though proper training is recommended.  As you saw from the last post, one major advantage is that passive income from real estate, if done strategically, can be taxed at 0 %, legally!

The investment plan is this.  Whatever money you invest in your assets, including further return on the investment, you re-invest, no exceptions.  This is where time becomes your friend rather than your enemy.  The more money you make from assets, the more there is to re-invest in new assets.

At 58, 18, or any age, there is no reason not to start.  With discipline and dedication, one can begin the path of attaining passive income within a short amount of time.

What is the effect of having one’s monthly passive income exceed their monthly expenses?

The question to a child seems innocent enough, right?  Firefighter, policeman, airline pilot, doctor, lawyer are all answers that could come up.  Investor, business owner – maybe not so common!

Where the problem lies is in the expectation of the answer.  So often, the answer involves only being an employee.  It is very commendable to be an employee and part of a team.  The question is whether that is the only choice, and the early imprinting regarding the child’s influence.

“The CASHFLOW Quadrant”, by Robert Kiyosaki offers further distinction in how one earns revenue, and also suggests that these distinctions can be combined.

Robert defines these areas into four quadrants, and also how each pays tax expenses.  The left side of the Quadrant, he describes as E (Employee) and S (Self-employed); and, the right side as B (Big Business) and I (Investor).

On the left side, the E and S will end up paying about 50% or more in taxes when all is said and done.  E’s are the hard-working folks working for companies or the state.  S’s are specialists like doctors, lawyers, and, solo businesses.

On the right side of the quadrant are B’s which are bigger businesses owners utilizing teams, and I’s which are investors.  Typically, B’s leverage other people’s time; and, I’s leverage other people’s money.  The tax for portfolio income like stocks, and capital gains is about 20%.  The tax for an investor including real estate is 0%, no tax if done strategically (and legally!)

In their purest form, each quadrant can be characterized by certain ways of thinking.  E’s are often looking for a safe, secure job with benefits.  S’s are often solo types that might include the dialog, “If you want it done right, do it yourself.”  S’s are also often required to be the smartest in the room.  This is the basis for which they are often contracted for work.

B’s are looking for people that are smarter than they are in various areas to include in a team.  Again, they are seeking to leverage other people’s talents and time spent.  I’s will put their money to work by investing in businesses and real estate, so that they don’t have to spend time working for money.

What we suggest in playing the CASHFLOW GAME is that the quadrants can be combined, as well as the reasons for inclusion in each quadrant.  For example, I can start investing and seeking passive income while I am an employee, say as a fireman, and am interested in rental properties.  Let’s say I am just starting and I have one rental property where the mortgage is $1000 for a 2 bedroom / 1 bath.  I charge $1400 for the rental property, hire a property manager, and still have money left over every month.  The money after expenses is cash flowing in every month whether I work or not at my job.  I can then take out another mortgage from that property, and re-invest that money into another rental property on a 1031 Exchange within the tax deadline required and continue this cycle so that I never pay any taxes – legally.

After I receive enough passive income to meet my monthly expenses, I can choose to work or not for my own reasons.  I believe in the cause of saving lives as a fireman, so I continue to work because I love my work.  But, I am not dependant on the income to meet expenses.

Below are four videos where Robert Kiyosaki explains further the points described above, as well as other related definitions.

In the first video below, he defines the CASHFLOW Quadrant.

In this video, Robert explains tax expense in relation to each quadrant.

In this next video, Robert very clearly defines what he considers the difference between an asset and a liability. This distinction is absolutely imperative to understanding Robert’s approach and path to financial freedom.

This last video explains the difference between what Robert calls “Good Debt” and “Bad Debt.” Good debt is debt that makes you richer, and bad debt makes your poor.

An example of good debt is where you have a positive cash flowing rental property as described above. Bad debt examples include things like credit card debt paying off items that do not produce positive cash flow like big screen televisions and stereos, or car payments. Buying some of these toys described as bad debt can be ok, but one might consider being sure that there is enough positive cash flow (passive income) to cover those expenses.

What answers will you encourage a child to answer when asked what they want to be when they grow up?

Remember back in school when you were asked a question out loud in front of the class?  What was your feeling?  I hope I give the right answer, and am not humiliated by making a mistake – if you had a school experience like many of us!

One of the most important guidelines of an official CASHFLOW Club is that we encourage experimentation and mistakes during the CASHFLOW game.  We feel that it is important that the member learn through experience, and other members not spoon-feed the answers.

The word education comes from the Latin word, educare, which means to draw out.  So often, at school we crammed information into our heads for a test, then forgot the information soon after.  We feel that information gained through experience – both successes and mistakes, will be retained to a much greater degree.  Would you rather make a mistake playing the CASHFLOW game with play money, or when real money is on the line? Robert explains in the video below, the importance of learning involving more participation and the result of increased retention, in contrast with only reading or a more passive approach.

Another important characteristic of an official CASHFLOW Club is that Rich Dad Company requests that we do not allow selling at the game, or it must be very clear that a product will be promoted in advance.  We feel that this clear boundary allows for unhindered learning and participation, in a supportive environment progressing toward further financial freedom. Feel free to watch the video below for further explanation from Robert and Kim Kiyosaki.

The two guidelines described above are integral parts of the training that official club leaders receive, and that members can expect when attending official CASHFLOW Club games.

Looking forward to playing together soon!

Have you begun your study of how to get out of the rat race, but are feeling overwhelmed at all the areas that need to be addressed?  What is the first action step?

Rich Dad Company offers a free web site offering step by step information with tremendous written content, and video training.  Robert is able to take complex subjects as accounting and investing, and present them in a way that is easy to understand.  Feel free to click on the link below for specific information regarding the Rich Dad PowerPack.

www.richdadworld.com

Two action steps that I would recommend if you are considering attending a Rich Dad CASHFLOW Club are to get the Rich Dad PowerPack described above, and to start playing the Cashflow The Web Game online for free.

Congratulations for taking action in your journey of financial freedom!

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