“The path is the goal.”
Search your heart to find your place in life - not always easy to see.
Traditional education is not the place for a person who wants to be an entrepreneur (B and I quadrants), but is the place for people who want to be in the E (employee) or S (self-employed) quadrant.
Personal Development:
Starts with spiritual goals.
Emotional
Mental
Physical
“I mention emotional and spiritual development, because that is what it takes to make a permanent change in life.
A person may be highly educated mentally, but if they are not educated emotionally, their fear will often stop their body from doing what it must do.
Don’t get stuck in “analysis paralysis.”
This is caused by the educational system punishing students for making mistakes.
Making mistakes is human.
It took Edison 1,014 tries to create the light bulb.
The CashFlow Quadrant:
E - Employee
S - Self-Employed or Small Business
B - Big Business
I - Investor
E and S on the left side of the quadrant (motivated by security - not freedom).
Successful E’s need to become successful I’s to secure their retirement.
The left quadrant provides a more secure, but less free career.
E quadrant: Secure - used in response to fear.
An E works for the system.
S quadrant: People who want to be their own boss… working in their business, not on their business. Work hard for themselves.
S also stands for specialist - doctors, lawyers, dentists, etc.
Have a hard time hiring other people.
An S is the system.
B and I on the right side of the quadrant.
B and I help you reach your financial goals faster.
B and I quadrants have many tax advantages.
Provide more free time, the more successful you get.
The right quadrant is more risky, but provides more freedom.
B quadrant: Why do it yourself when you can hire someone else to do it better. Surround yourself with smart people who work for you.
Leadership is bringing out the best in people.
Systems run the business, not the person - like an “S” company.
A B creates, owns and controls the system.
I quadrant: Don’t have to work - money is working for them.
Can get rich quickly, because you can avoid paying taxes legally.
Debt and taxes stop most people from achieving financial freedom.
The path to security or freedom is found on the right side of the Quadrant.
Must go beyond job security to find financial freedom.
An I invests money into the system.
Poor Dad Advice - Go to schools so you can get a good job.
Rich Dad Advice - Go to school, graduate, build businesses and become a successful investor.
What does it take to become financially free?
A dream, a lot of determination, a willingness to learn quickly, and the ability to use your God-given assets properly.
Changing quadrants is often a change at the core of who you are.
Secrets to Great Wealth:
OPT - Other People’s Time
OPM - Other People’s Money
Being Rich vs Being Wealthy:
Being Rich - How much money you make.
Being Wealthy - How long you can survive without working.
Investing in the Stock Market:
1. Concentrate your efforts only in the best stocks - more risky.
2. Don’t only invest in blue chip stocks.
3. Don’t invest in mutual funds.
***Learn to manage risk.
People who take risks, change the world.
Many of us are conditioned from our earliest days to think about job security, rather than financial security and financial freedom.
Financial Intelligence determined, not so much how much money you make, but how much money you keep, how hard that money works for you, and how many generations you can keep it.
No matter how much money people make, they feel more secure if they operate in more than one quadrant.
Financial security is having a secure footing on both sides of the quadrant.
The game and rules are different in all of the quadrants. Having two quadrants gives you greater stability in the world of financial freedom.
True investors make their money in bad markets when the non-investors are panicking and selling, when they should be buying.
The only difference between a rich person and a poor person is what they do in their spare time.
What you do after work with your paycheck and your spare time will determine your future.
Invest in the B Quadrant before the I: Unless you have a ton of money and abundance of time.
B quadrant provides experience and education.
You’ll be better able to identify other good B’s.
A business up and successfully running should support the ups and downs of the I quadrant market cycles.
As a B, your goal is to own a system and have people work that system for you.
Three recommended business systems:
Traditional C Corporations - develop your own system
Franchises - buy and existing system
NO shame in buying franchises or selling the rights to your own system as a franchise.
Network Marketing - Where you buy into and become part of an existing system.
Success is a poor teacher, we learn the most about ourselves when we fail, so don’t be afraid of failing. Failing is part of the process of success. You can’t have success without failure.
Three Ways to make it to the B side Quickly:
1. Find a mentor:
Be careful of the advice you take. While you must keep your mind open, always be aware of which quadrant the advice is coming from.
Many people will give advice from the E or S quadrant.
Be a leader, not a manager of systems. Leaders must find people to work for them who are often smarter than them.
Creating your own system requires a lot of trial and error, up-front costs and paperwork.
2. Buy a Franchise:
Can focus on developing your people, because the systems are already in place.
Easy to get a loan for a franchise, much easier than a start-up loan.
3. Get Involved in Network Marketing (also called multi-level marketing or direct distribution systems).
Sales - pyramid scheme type business.
Helps you learn how to be rejected.
What you think of me is none of my business, what is most important is what I think about myself.
Can learn how to be a leader.
Too many people look at the product, instead of the business system.
Warren Buffett said, “Wall Street is the only place that people ride to in a Rolls Royce, to get advice from those who take the subway.” - about financial “experts.”
Why you shouldn’t put all of your money in a 401 K:
Long term capital gains… 401 K gains are taxed as earned income (35%) not capital gains (15%).
No asset class diversification - stock and bond market only.
Only amateurs park their money in long positions. Keep your money moving - velocity of money.
Five Different Levels of Investors:
Level 1: The Zero-Financial Intelligence Level
Over 50% of America is at the bottom of the I quadrant, investing nothing.
Makes bad investments in false assets.
Level 2: The Savers are Losers Level:
People who save money - money loses value. Money is no longer backed by the gold standard, now it suffers from inflation.
Four types of bonds:
US Treasury Bonds
Corporate Bonds
Municipal Bonds - IOUs issued by states, cities, hospitals, schools and other public institutions. Many are tax-free income, but bonds are not risk free.
Junk Bonds
Level 3: The I’m Too Busy Level:
Invest mostly in 401K and IRA.
Let other people manage their money - mutual funds.
Level 4: The I’m a Professional Level:
The do-it yourself investor from the S quadrant.
Buys and sells stocks. No formal financial education - learned themselves.
Can climb from level 4 to level 5 investors.
Level 5: The Capitalist Level:
A business owner from the B quadrant investing in the I quadrant.
Uses OPM (Other People’s Money) to invest - leverage, rather than your own money. IE: real estate investments.
Invests with a team of support.
Raising capital from other people for investments.. Real estate investment syndications.
Franchises… etc.
B owners can sell shares of their company to raise funds for additional investments.
Level 5 investors find level 2 and level 3 investors to pool money together for larger investments like apartment complexes.
Invest using numbers and logic, not based on emotions.
The value of your home is not considered an asset, because it does not generate cash flow.
Even when paid off, still not an asset, because you have maintenance costs.
The deal must make sense the day you make the deal, don’t hope and pray for appreciation or government assistance.
Research investing in tax lien certificates.
If homeowners don’t pay their property taxes, the gov. Charges them interest on taxes owed at rates from 10 - 50%.
Investing in tax lien certificates mean you pay the gov. The taxes for the defaulting homeowner and the homeowner must pay you back plus interest.
If the defaulting homeowner doesn’t pay you back fast enough, you get to take their house just for the money that was put up to pay the property taxes.
Great rates and backed by real estate - can’t go to zero like a stock.
The more people you’re indebted to, the poorer you are and the more people you have indebted to you, the wealthier you are. That’s the game.
If you take on risk and debt, make sure you get paid for it.
If you become addicted to money, it’s hard to break that addiction.
If you receive money as an employee, then you get accustomed to that way of acquiring it.
The struggle between who you no longer are and who you want to become is the problem.
The part of you that still seeks security is in a war with that part of you wants that freedom. Only you can decide which will win.
Security is a myth.
The irony is that life is actually more secure on the right side of the CASHFLOW Quadrant.
For example, if you have a secure system that produces more and more money with less and less work, then you really don’t need a job or need to worry about losing your job.
To make more money, simply expand the system and hire more people.
People who are high-level investors aren’t concerned about the market going up or down because their knowledge allows them to make money either way.
If there is a market crash and/or a depression in the next 30 years, many baby boomers will panic and lose much of the money they had set aside for retirement.
Professional investors are people who risk little of their own money and yet still make the highest returns.
Having financial visions lowers your risk. Numbers tell you the facts.
How to get rich - Play Monopoly.
When the real estate market was really bad, we bought as many small houses as we could with the limited money we had.
When the market improved, we traded in the four green houses and bough a large red hotel.
Or if you don’t like real estate, all you have to do is make hamburgers, build a business around that hamburger and franchise it.
If you want to be rich, you need to think independently rather than go along with the crowd.
Think differently than everyone else. If you do what everyone else does, you’ll wind up having what everyone else has - and for most people, what they have is years of hard work, unfair taxes, and a lifetime of debt.
Be, Do, Have:
Goals are the ‘have’ part.
You must be, before you do and do to have.
Strengthen your thoughts (being) so that you can take the action (doing) that will enable you to become financially free (having).
People who seek out the E quadrant greatly value security
People have a hard time moving from the S quadrant to the right side, because they have the do-it-yourself mentality.
The greatest cause of human financial struggle is the fear of losing money. Because of this fear, people often operate too safely, or with too much personal control, or they just give their money to someone they think is an expert and hope and pray that the money will be there when they need it.
People who take risks, make mistakes and recover often do better than people who learned not to make mistakes and are afraid of risk.
To be financially free, we need to learn how to make mistakes and manage risk.
If people spend their lives terrified of losing money, afraid of doing things differently from what the crowd does, then getting rich is almost impossible, even if it is as simple as buying four green houses and trading them in for one large red hotel.
When emotions are in high gear, they are 24 times stronger than the rational mind.
One way to know if you’re thinking emotionally instead of rationally is when you use the word “feel” in conversation.
Going from financial security to financial freedom is primarily a process of changing your thinking.
If you can keep your emotions in check and go for what you know to be logical, you have a good chance of making the journey. Ignore outside influences. The most important conversation is the one you are having with yourself.
Failure is part of the process of success.
You can always quit. So why quit now?
The main reason so many people struggle financially isn’t because they lack a good education or are not hardworking. It is because they are afraid of losing. If the fear of losing stops them, they’ve already lost.
Most people suffer financially because their emotions are in control of their thoughts.
The key to being a great investor is to be neutral to winning and losing. Then you don’t have emotionally driven thoughts, such as fear and greed, doing your thinking for you.
When emotions are high, people panic and financial intelligence disappears.
Financial markets are driven by two human emotions: Greed and fear.
How to Play the Bank:
1. When real estate prices are low - mortgage payments were far lower than the fair market rent for most properties.
2. Banks will give a loan on real estate, but not stocks.
3. Tax Advantages: Can 1031 profits and depreciate the assets.
Shelter Your Assets:
The rich don’t own anything in their own names, but hold assets in trusts and corporations.
Pass the income stream from assets through your own corporation to shelter from taxes.
Employees: Earn, tax, spend
Corporation Earn, spend, tax
It would take the average reader 23,000 years to read the entire IRS code.
Understanding the laws and market forces is vital for financial success.
BUT - never do business or investing for tax reasons only.
If you take on debt and risk, then you should be paid.
The process of going through a small deal is the same as going through a larger deal.
Once a person gains experience and a good reputation, it takes less and less money to create bigger and bigger investments.
Take Action - but begin with baby steps.
How people born into poverty eventually become wealthy:
1. They maintain a long-term vision and plan.
2. They believe in delayed gratification.
3. They use the power of compounding in their favor.
Rich Dad Formula:
Build a business and by real estate - make a lot of money via C corporations, and shelter the income through real estates.
Develop the thought pattern of thinking only in assets and income in the form of capital gains, dividends, rental income, and residual income from businesses and royalties.
Cash Flow Patterns:
Poor: Income ---> Expenses
Middle Class: Income ---> Liabilities ---> Expenses
Rich: Assets ---> Income
Seven Steps to Finding Your Financial Fast Track:
1. It’s time to mind your own business
Fill out your own personal financial statement.
Set financial goals.
One-year financial goals
Five-year financial goals (increase passive income)
2. Take Control of your Cash Flow
More money will not solve the problem if cash-flow management is the problem.
Every time you owe someone money, you become an employee of their money.
Good debt is debt someone else pays for you.
Rental properties: Bank gives you a loan, but the tenant pays for it.
Bad debt is debt that you paid with your own sweat and blood.
Pay yourself first and focus on reducing debt.
Do not incur long-term bad debt.
3. Know the Difference Between Risk and Risky
4. Decide What Kind of Investor You Want to Be
Three different types of investors:
1. Type A: Investors who seek problems. (experts)
2. Type B: Investors who seek answers. (know who to ask for help)
3. Type C: Investors who seek and “expert” to tell them what to do.
5. Seek Mentors
Choose your mentors wisely. Be careful from whom you take advice. If you want to go somewhere, it is best to find someone who has already taken the journey.
You are the average of the 5 people you spend the most time with. (could be co-workers, spouse, children, friends).
What quadrant do they operate out of?
If you strive to operate out of a different quadrant, need to find people with similar interests and identities.
What investor level are they?
6. Make Disappointment Your Strength
Only fools expect everything to go the way they want.
Expecting to be disappointed is a way of mentally and emotionally preparing yourself to be ready for surprises that you may not want.
By being emotionally prepared, you can be calms and dignified when things do not go your way.
When you are calm, you think better.
Business owners and investors may wait years to see cash flow from a business or investment, but they go into it with the knowledge that success may take time.
Many people will not head down the street until all the lights are green. That is why they don’t go anywhere..
The size of your success is measured by the strength of your desire, the size of your dream, and how you handles disappointment along the way.
7. The Power of Faith