Change Your Mind, Change Your Life
“All of us have the power
of choice. I choose to be rich,
and I make that choice every day.”
You’re about to embark on this work/study program because you want to change your life. But before you change your life, you need to change your mind. Your thoughts and beliefs are deeply ingrained, so deeply ingrained that you may not even be aware of how much they’ve shaped your financial woes. If you harbor the hope of financial freedom, self-awareness is critical. In this chapter you’ll be taking an inventory of your attitudes. You’ll learn which ones are helping you and which ones are holding you back. And under Rich Dad’s guiding influence, you’ll encounter a wealth of new ideas that have the power to steer you in a different direction, down the path to financial freedom. Whether or not you travel this path is up to you.
Rich Dad Tip
“Money is just an idea.”
When you look in a mirror, what do you whisper? Do you berate yourself with comments like “I’m overweight” and “I’m getting old”? Or do you stand tall and say “I look great!” A mirror reflects much more than what your eyes see. A mirror reflects your inner thoughts and your beliefs—your soul. Listen to the thoughts that come from your soul. Are they negative? You’ll never embark on the road to riches if you let such thoughts constrain you.
Rich Dad Tip
“There is nothing more powerful than an idea whose time has come, and there is nothing more vulnerable than someone who is still thinking old ideas.”
The Nattering Nabobs of Negativism
A well-known figure in the political world once coined the phrase “nattering nabobs of negativism” to refer to habitual naysayers. People will conjure up any number of excuses not to choose wealth, excuses that say more about their inner thoughts than about the difficulty of achieving wealth. Are you a nattering nabob of negativism? Take a look at these excuses, and see if any sound familiar:
“I can’t give up a regular paycheck.”
“Invest? You want me to lose all my money, don’t you?”
“I don’t have any money to invest.”
“I tried that before. It’ll never work.”
“I don’t need to know how to read financial statements. I can get by.”
“I’m not smart enough.”
“My husband would never go for it.”
“My wife would never understand.”
“What would my friends say?”
“I’m young. I’ve still got time.”
“It’s too late for me.
“You can’t do that.”
Talk Back
If you’re harboring negative thoughts, you need to understand what they really mean. For example, if you tell yourself “I can’t stop working and start my own business—I have a mortgage and a family to think about,” you might really be saying “I don’t have time, and I’m too tired to learn anything new.”
It’s time to dig deep down and unearth your personal truths. Jot down the negative statements you whisper to yourself and, after some honest soul searching, record the personal truth that lies beneath each:
Sometimes we let negative statements play over and over in our minds like endless mantras. Once you know the truth beneath your negative statements, talk back to them. Start an argument with yourself! Think of ways to counter each one.
If you’re having trouble identifying what’s holding you back, keep a daily journal. Once your negative ways of thinking become clear, then repeat this exercise. Don’t let buried thoughts sap your energy and motivation. Unearth them, and free yourself to move forward.
Nurture Your Better Self
Now that you’ve removed the mines blocking your path, consider the positive traits that will propel you forward on your quest for financial freedom. Here are some strengths that are common to people who succeed in business and investing:
Vision—the ability to see what others do not see
Courage—the ability to act despite fear
Creativity—the ability to think outside the box
Self-confidence—the ability to withstand criticism
Self-control—the ability to delay gratification
Look at people around you who demonstrate these strengths. Try to emulate them. And don’t forget to look within. Are there areas in your life where you’ve exhibited such traits? Nurture them and allow them to spread into your financial life.
Prepare for Opportunity
So far, you’ve been focusing on internal things that you have the power to change. What happens when your internal self meets the external world over which you have so little control? In truth, you have more control over that world than you think. It has been said that luck is what happens when opportunity meets preparedness.
Imagine two men walking down the street on a windy day. A piece of paper blows along the sidewalk in front of one man, then the other. The first man ignores the litter, keeping his eyes on the block up ahead; the second man peers at the scrap, realizes it’s a twenty dollar bill, and picks it up. Is that person luckier? No. The same opportunity crossed the path of both men, but only one of them was prepared to take action.
When it comes to financial matters, it’s important to keep your eyes and ears open—and to know where you are. Only then will you spot opportunity when it crosses your path.
In a broader sense, it’s important to know where you are in history and in the world at large. Christopher Columbus’s voyage of 1492 eventually led to the start of the industrial age, a momentous historical shift. At the height of the industrial age it was people like Henry Ford and Thomas Edison who became millionaires. I believe that the fall of the Berlin Wall in 1989, some 500 years after Columbus set sail, marked the end of that great age and the beginning of another equally dynamic one: the information age. Generations from now, people will look back and remark what a thrilling, tumultuous era this must have been. Computer-industry figures such as Bill Gates and Michael Dell are the magnates who typify this new age. It took Henry Ford twenty-three years to become a billionaire during the industrial age; it only took Michael Dell three years to become a billionaire during the information age—and he started his business part-time.
These are heady times, and frightening for some. The economy’s speedy adaptation to the demands of the information age has threatened the financial security of millions of people whose jobs have become obsolete or moved elsewhere. Take a look at the difference, for example, between an industrial age pension plan and an information age retirement plan. In the industrial age, companies would employ people for life and give them pensions once their working days were over. Today companies aren’t giving out pension plans the way they used to; less-generous contributions to retirement plans are more common now. And people are retiring earlier and living longer lives. The rules have changed. Retirees need more financial security and thus more-sophisticated ways of building assets than were offered by the pension plans of the industrial age. Unfortunately, most people—those who can least afford to keep their heads stuck in the sand—are acting as if the rules haven’t changed.
Take Note
Today retirees need more financial resources at retirement and more-sophisticated ways of building assets than were offered by the pension plans of the industrial age.
The 90/10 Rule
Throughout history, 90 percent of the money has been made by 10 percent of the people. For instance, 10 percent of the athletes make 90 percent of the money made by all athletes. This is one of the rules of money that Rich Dad taught me. One reason the 90/10 rule has applied is that 90 percent of the people choose comfort and security over being rich. Most of these people do not realize they could choose to be rich.
While the 90/10 rule still holds, it’s being challenged by the changing circumstances that the information age introduced. Thanks to the electronic revolution, it is now possible for more and more people to gain access to the world of wealth, for wealth now resides in information that flies over the airwaves and through television and computer networks. Information is not restricted to the few, as land and resources were in past ages.
The Internet epitomizes this new avenue toward wealth, for it enables the masses to gather information and interact with one another in almost complete freedom. Today it’s possible for people to take their ideas and, with the help of this new-age medium, build products or services around them. Network marketing, the selling of consumer goods, investing, publishing—these are only a handful of the thousands of on-line activities that have been launched by aspiring entrepreneurs and savvy investors.
We’ve only just begun to see what kind of world is possible in this new age of information, but I’ll wager that in the near future, the pressure of the information age is going to shatter the old 90/10 rule. It has never been easier to choose to be rich.
Take Note
The times are rapidly changing, and if you want to be rich, your approach to money and investing has to change too.
When I was a boy, Rich Dad used to say, “If you want to get rich, you need financial literacy. You have to learn to be an investor.” My educated dad disagreed. “I don’t need to learn how to invest,” he’d say. “I have a guaranteed government pension plan, a pension from the Teachers Union, and Social Security benefits. Why take risks with my money?” That’s head-in-the-sand thinking. If you think your financial security is the responsibility of a company or the government, you’re going to be sorely disappointed in the coming years. You need to switch from industrial age to information age thinking:
Industrial age thinking
Information age thinking
• Study hard and find a safe, secure job.
• Study hard but also become financially literate.
• Get a job and save money.
• Create assets on your own.
• Your pension and Social Security will protect you in retirement.
• Your pension and Social Security will not support you in retirement.
• Your income will go down when you retire.
• Your income should increase as you age.
• Diversify your investments.
• Concentrate your investments.
• Blue chip stocks and mutual funds are safe investments.
• Blue chip stocks and mutual funds will not protect you if there is a stock market crash.
• Put your investments in the hands of someone else.
• Watch your investments but seek competent advisors.
People get old or obsolete because they cling to old ideas. Rich Dad used to say, “You can’t help but get older physically. That doesn’t mean you have to get older mentally.” If you want to stay young longer, adopt younger ideas.
It would be great if everyone had a Rich Dad and grew up learning financial literacy. Most of you didn’t have such an advantage. Don’t let that discourage you. Regardless of what did or didn’t happen in the past, when you’re ready to make big changes, amazing things can happen in a short time. Many great fortunes have been built by determined people who started out later in life, even people who were in considerable debt. Look at Colonel Sanders-he was sixty-six and broke when he started Kentucky Fried Chicken.
In my years of teaching, I’ve had the good fortune to meet and hear from many wonderful students who have taken Rich Dad’s advice and turned their lives around. No matter what stage of life a person is in, if the desire to change is there, change is possible. The following are comments from real people who have chosen the path to financial freedom:
David and Liz
“The Rich Dad philosophy taught us that money is just an idea. Rich Dad’s approach is simple but very profound: You can take what’s in your head and turn it into cash flow. This approach is empowering because you know that when you see that little trickle begin, eventually it’ll become a tidal wave.
“One of the biggest impacts Rich Dad’s advice has had in our life is on our children. Our son used to think it wasn’t a good thing to have a lot of money. Now he sees that when you have money, you can give to other people. He and my daughter have also learned that you can do whatever you set your mind to do. That’s one of the most valuable lessons in life. Thanks to Rich Dad, we’re leaving our children not just a legacy of money, but a legacy of mind.”
“Rich Dad’s approach is simple but very profound: You can take what’s in your head and turn it into cash flow.”
—David and Liz
Michael
“I had my own real estate office and was working crazy hours, manning the phone twenty-four hours a day. I thought because I was working for myself that I was a business owner, even though I wasn’t achieving the sort of success I wanted. Then I started reading the Rich Dad books and it hit me—I didn’t own a business, I owned a job.
“That revelation made all the difference in the world. Up till then, I’d been doing everything on my own. Rich Dad taught me to draw on the talents of other people to help me reach my financial goals. That turned me from a self-employed person into a true business owner. Now I’ve got ten agents working for me, and I’m reaping the benefits of their efforts as well as my own.”
“I thought because I was working for myself that I was a business owner.... Then I started reading the Rich Dad books and it hit me—I didn’t own a business,
I owned a job.”
—Michael
Darrell
“I was brought up with the idea of going to school, working hard, and accepting the limits that come with being an employee. I dropped out of college twice and started working for an insurance agency without much success. When I first saw Rich Dad’s ideas in print, it had a huge impact on me. They made so much sense that I internalized them quickly, and I realized that for my whole life I’d been trying to fit into a mold that other people cast for me. I didn’t want to be in that mold—I wanted to be a business owner and investor.
“Rich Dad has helped me focus my sights not on what others think is good for me,
but on what I want—wealth.”
—Darrell
“Now I have a real estate company that buys a lot of properties. Thanks to the Rich Dad philosophy, we avoid buying property for the wrong reasons. We only buy properties that will put money in our pockets and not suck us dry. His concepts have kept me from going bankrupt several times in this year alone. Rich Dad has helped me focus my sights not on what others think is good for me, but on what I want—wealth.”
Jonathan
“I grew up with the saying, Love of money is the root of all evil. That’s hard to overcome. When I came across the Rich Dad approach, I saw that I was missing out in life because of my false ideas about money.
“I’m self-employed and although I’m making pretty good money, I know that the deck is stacked against my making more this way. The Rich Dad approach has motivated me to take a serious look at building a real business and making investments. One of the big challenges for me is learning the financial end of things. That’s what is so phenomenal about Rich Dad: His information is so easy to digest and apply. Rich Dad has provided a nice stepping-stone for me as I re-direct my efforts away from self-employment toward business and investing.”
“When I came across the Rich Dad approach, I saw
that I was missing out in life because of my false
ideas about money.”
—Jonathan
Christine
“I was a sole proprietor of an accounting business when I came into contact with the Rich Dad way of doing things. That changed my way of thinking forever. I didn’t have a lot of money so I said, ‘Okay, I’ve got to take action,’ and I approached someone with money who became my business partner in a real estate venture. He’s the money side of it; I’m the one who finds the properties and manages them. We’ve put a great team of people together and the business has really taken off. In a year and a half, I’ve built up half a million dollars in assets.
“It’s amazing. Rich Dad made me realize that I had the ability to do this—the confidence and the desire. After that, it was a matter of gaining knowledge and building my team. So far, I’ve been doing a series of small real estate deals. As Rich Dad would say, I’ve mastered one formula and now it’s time to master a new one. Now that I’ve got the money, I’m preparing myself to do a big deal as soon as the opportunity presents itself.”
“Rich Dad made me realize that I had the ability to do this—the confidence and the desire.”
—Christine
Most of us grew up thinking that mistakes are bad and should be avoided at all cost. We tend to correlate mistakes with low intelligence: The more mistakes you make, the dumber you are. In Rich Dad’s mind, however, mistakes were opportunities to learn something new. “There’s a bit of magic hidden in every mistake,” he told me. “That magic is called learning.” Instead of telling me how to avoid mistakes, Rich Dad taught me the art of turning a mistake into an opportunity to gain wisdom.
Rich Dad’s Tip
“There’s a bit of magic hidden in every mistake. That magic is called learning.”
It’s not easy to learn from our mistakes and setbacks. How we react to them tells us who we are. Here is a cast of characters that Rich Dad drew up to describe different reactions to financial setbacks. Which character are you?
After recognizing that you’ve made a mistake, it’s difficult not to let one of these characters take over. So go ahead, bang your head against the wall. Lie. Whine. Complain. If you’re ever going to get your financial house in order, however, eventually you need to let another character, the Responsible You, take control of your thinking. The Responsible You asks, “What priceless lesson can I learn from this mistake?”
Think back on three financial mistakes you’ve made. What lessons can you learn from those mistakes? Take a few moments to record your thoughts.
Managing Risk
One of the valuable lessons I learned from my own mistakes was how to manage risk. Like it or not, risk is a part of investing, whether you invest in paper securities, the real estate market, or a business of your own. Everyone who has built a fortune from scratch has felt on the edge of a cliff at one time or another. If you’re going to get rich, at some time you’ll have get close to the edge of the cliff, too. But that doesn’t mean you have to jump. It’s quite possible to make investments that receive high returns with low risk, and you can learn how.
Rich Dad’s Tip
“Some of the biggest failures I know are people who have never failed.”
As I’ve said, too many people rely on big government or a big company to eliminate the financial risk in their lives. They play it safe in their jobs, buy houses and cars and, if they don’t have pensions, put a little money aside monthly for retirement plans. This was the path of Poor Dad.
What’s wrong with this scenario? Plenty. Today, more and more people are graduating with good grades and advanced degrees, but there are fewer and fewer secure jobs with benefits. Rich Dad taught me differently. He said that working for someone else just created the illusion of security—that it was much riskier than investing or starting your own business. To Poor Dad, investing was risky; to Rich Dad, not investing was risky.
As you move forward in this work/study program, you’re going to learn that true investing is not a gambling game of hunches, but rather a plan. Once you become financially literate and begin enacting your own plan, whether through investing, building businesses, or both, it’s likely that your ideas about what is risky and what is not will have changed.
FEAR:
I’m putting my money in a savings account. Investing is for high rollers.
FACT:
Investing isn’t a gamble, it’s a plan. Once you become financially literate, your ideas about what is risky—and about how to invest your money—will have changed.
FREEDOM:
Enact a sound plan, and you can turn risk into riches.
Rich Dad’s Tip
“Investing isn’t risky; not investing is risky.”
A Risk Self-Assessment
Before you reach that point, it’s helpful to get a sense of your overall risk tolerance. No matter what you do in your financial life, there is always the possibility of losing some money. How comfortable are you with this possibility? The following questions are meant to get you thinking about your general attitude toward risk:
Do you get bored easily? Are you usually looking for a new challenge, or do you like to stick with what you know?
Do you feel confident that you can handle whatever comes your way, or do you tend to worry?
When you lose something valuable, do you get anxious and obsess about it, or are you able to accept the loss and move on?
How easily can you turn important matters over to others? Do you trust experts to act on your behalf, or do you prefer to handle everything yourself?
In Sections 2 and 3, you’ll learn more about financial risk and how to handle it. The more financially educated you are, the less risk you’ll face. By the time you complete the Rich Dad program, you’ll know the truth of this statement: On the road to riches some risk is inevitable, but if you keep a cool head and improve your financial literacy, you can manage it.
Knowing how to manage risk is one of the prerequisites of financial literacy. Once you’ve fulfilled all the prerequisites and become fully literate, does financial freedom follow? Not necessarily. Certain personal obstacles can prevent even the most financially literate from developing abundant wealth. Despite all their knowledge, they’ll continue working full time just to pay the bills instead of living the life they dream. By learning to recognize these personal obstacles, you can overcome them. What are they?
Fear
Cynicism
Laziness
Bad habits
Arrogance
Disappointment
Obstacle 1: Fear
Fear of losing money is the main reason 90 percent of the American public struggles financially. But fear isn’t the real problem. It’s how people handle fear that matters. Rich Dad used to tell me that the primary difference between rich people and poor people is how they handle the fear of losing money. Some people, when hit with a financial loss, give up. Others transform the loss into a win. As John D. Rockefeller said, “I always tried to turn every disaster into an opportunity.” Losers are defeated by failure. Winners are inspired by it.
Rich Dad’s Tip
“The primary difference between rich people and poor people is how they handle fear.”
Rich Dad often commented that the real reason for lack of financial success was that people played it too safe. “People are so afraid of losing money that they do lose it,” he would say. If they have some cash, they buy big houses and big cars rather than big investments. Or they invest all of their money in balanced portfolios—in CDs and low-yield bonds and mutual funds and a few individual stocks. These are people, driven by fear, playing not to lose. Of course, a balanced portfolio is a lot better than no portfolio. It seeks safety through diversity. Having a financial plan for security and comfort first are important. But if you have any desire to become rich, you must focus, not diversify. You must put a lot of eggs in a few baskets rather than putting a few eggs in many.
FEAR:
I’ll lose all my money if I invest in anything riskier than CDs, bonds, and mutual funds.
FACT:
If you lose some money, you can learn from the failure. Once you become an educated investor you’ll be positioned to reap potentially huge rewards.
FREEDOM:
Financial failure can be transformed into financial gain.
If the prospect of failure frightens you, then play it safe. Keep your daytime job until you have enough cash to buy bonds and mutual funds and consult with a financial planner. But if the prospect of failure inspires you to fight and win, maybe you should challenge yourself to change your financial habits. Educate yourself and take some financial risks. The more education you have, the less risk there will be.
All of us have some Chicken Little in us. You remember Chicken Little—the character in the children’s fable who ran around the barnyard warning other animals that the sky was falling. Chicken Little had a doom and gloom attitude toward life. He was a
classic cynic.
There are Chicken Littles everywhere, especially in the financial world. If you want to be rich, you need to stop listening to their clucking. The-sky-is-falling warnings from financial cynics are just a lot of empty noise. We hear that noise all around us, from friends, family, co-workers, and the media, and we tend to succumb to it because inside each of us there is a little bit of chicken.
Rich Dad’s Tip
“Cynics criticize and winners analyze.”
Why should we ignore the cynics? Because cynics never win. They’re do-nothing alarmists who spend all their time spreading fear. It’s the people who read a situation correctly who end up winning—the analysts. Cynicism blinds you to opportunities, while analysis opens your eyes to possibilities. One leads to paralysis, the other to action. Peter Lynch of Fidelity Magellan recalls the time during the 1950s when the threat of nuclear war was so prevalent that people began building expensive fallout shelters and storing food and water. Had they used their hard-earned dollars to make some wise investments instead, those Chicken Littles would probably be financially independent today.
How good are you at filtering out cynical noise? Think of things you don’t want to happen and things you do want to happen. If your I-don’t-wants outweigh your I-wants, you may be letting doubt and fear close your mind instead of open your eyes.
Rich Dad’s Tip
“Losing is part of winning.”
Chase Away Chicken Little
If you’re a Chicken Little, the story of Colonel Sanders might inspire you to change your attitude of doom and gloom. At the age of sixty-six Colonel Sanders lost his business and found that Social Security wasn’t enough to live on. So he went around the country trying to sell his recipe for fried chicken. He was turned down 1,009 times before someone said yes. And he went on to become a multimillionaire at an age when most people are retiring with a small pension. If you’re in doubt and feeling afraid, do what Colonel Sanders did to his little chicken—he fried it.
Obstacle 3: Laziness
Busy people are often the laziest. Busyness is a form of avoidance. If you stay busy you can avoid some of the things you don’t want to face—like exercising, or taking care of your wealth.
What’s the cure for laziness? A little greed. Wait a minute, you say. Isn’t greed bad? Too much of it, yes. An excess of anything is bad. The fact is, however, that all of us secretly harbor a desire to have new or exciting things. We’ve been told by our parents and others to suppress that desire. We’ve been made to feel guilty about it. How many children have asked a parent for something and gotten the response, “Do you think I’m made of money?” In truth, guilt is worse than greed. Guilt stifles dreams.
FEAR:
I wish I could invest, but I’m too busy and can’t afford to invest.
FACT:
Busyness is a form of laziness and avoidance. Instead of saying, “I can’t afford it,” ask yourself how you can afford it.
FREEDOM:
The question “How can I afford it?” opens up avenues to our dreams.
When we stop saying “Life is too hectic to change it” and say, instead, “It’s time to exit this rat race and find new ways to earn wealth,” we begin to cure ourselves of our busy laziness.
Rich Dad’s Tip
“The words ‘I can’t afford it’ close your mind, while the words, ‘How can I afford it?’ open your mind. The human spirit is powerful—it knows it can do anything.”
Rich Dad used to say, “The phrase ‘I don’t want’ holds the key to your success.” I saw what he meant when I got into real estate and quickly learned that I didn’t want to fix toilets. By finding a property manager who could fix toilets, I was freed up to buy a lot more real estate. And as a result, my cash flow increased.
Go ahead, be greedy, if that’s what your heart is telling you to do. Make a list of what you really want, and don’t limit it according to someone else’s idea of what you shouldn’t have—be truthful with yourself.
Things I Want
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
When your list is complete, step back and appraise it. Don’t ask yourself whether you can afford the things on your list, but rather how you can afford them. This fresh appraisal will create a stronger mind and a more dynamic spirit, helping you to shed your lazy ways.
Obstacle 4: Bad habits
When you pay your bills at the first of the month, do you have anything left over? Probably not. If so, that’s the main reason you’re struggling financially—you have bad habits. The worst financial habit is paying your creditors before you pay yourself. That doesn’t mean you shouldn’t pay your bills on time. What it does mean is that you should pay yourself first—even if you’re short of money.
Rich Dad’s Tip
“Pay yourself first.”
Rich Dad told me to do this once. I was perplexed. “How can you pay yourself first?” I asked him. “It’s all a matter of motivation,” he replied. “Who will scream louder if they aren’t paid—you or your creditors?” The answer was obvious: the creditors. “Precisely,” he went on. “Creditors are bullies. And because they’re bullies, the pressure to pay them will be so great that it will force you to seek sources of income other than what you’re making working for someone else.” Rich Dad was right. What laziness won’t get you to do, pressure will. By paying yourself first, you’ll become mentally and financially stronger, and better equipped to vanquish the bullies.
Arrogance is ego plus ignorance. The ignorance is hidden behind the ego. Many people try to bluster their way through financial discussions when they don’t know what they’re talking about. They’re not lying, but they’re not telling the truth either. The world of finance is full of people who don’t know what they’re talking about.
Rich Dad’s Tip
“Arrogance is ego plus ignorance.”
In financial matters, it’s easy to stumble over your own ignorance and fail. When you’re arrogant you believe that what you don’t know is unimportant. In truth, what you don’t know is as important as what you do know. Instead of arrogantly hiding your ignorance and bluffing your way to failure, start educating yourself for success.
What’s Your Arrogance Barometer?
How much do you really understand about:
Financial statements?
Real estate?
Stocks and bonds?
Starting and selling businesses?
For each of these subjects you could rate yourself on a scale of 1 to 10, then come up with a quantitative tally. But you don’t need to. That’s because the real measure of your arrogance is brutal honesty. In your heart you’re aware of what it is you don’t know, no matter how well hidden from the world it may be. Go ahead, admit your ignorance. Then instead of chastising yourself, read on. In Section 2 you’ll be absorbing knowledge that will empower you to act wisely.
Obstacle 6: Disappointment
Do you react with disappointment when things don’t go as you’d hoped? When I left the Marine Corps, Rich Dad recommended that I get a job that taught me to sell. He knew I was shy and that learning to sell would help me succeed.
For two years, I was the worst salesman in my company. My tendency was to blame my failure on the economy, or the product I was selling, or even the customers. Rich Dad would say, “When people are lame, they love to blame.” To learn to sell, I had to face the pain of disappointment. Eventually I did learn how, and along with the skills of salesmanship came a priceless lesson: how to turn disappointment into an asset rather than a liability.
Rich Dad’s Tip
“Prepare yourself for disappointment, and you’ll turn disappointment into an asset.”
Many people turn disappointment into a long-term liability. “I should have known I would fail”—these are the words of people who have let disappointment stop them from learning. As you get ready to embark on your journey to financial freedom, I offer you the same advice Rich Dad offered me: “Prepare yourself for disappointment.” Why? Because if you’re prepared for disappointment, you have a chance of turning disappointment into an asset.
Preparing yourself for disappointment doesn’t mean you won’t still be upset and concerned. But if you’re prepared, you won’t beat up on yourself too hard. This is important, since being too hard on yourself will make you overly cautious about taking risks or trying new ideas. If you can face your failures, control your emotions, and use disappointment to learn new financial skills, you’ll flourish.
FEAR:
I’ve been disappointed one too many times. Never again.
FACT:
Instead of running from disappointment, prepare for it. That doesn’t mean preparing to accept failure passively. It means getting ready mentally and emotionally to learn.
FREEDOM:
If you’re prepared, you’ll react with calm to failure, learn from it, and move on.
Will You Think like Rich Dad or Poor Dad?
Can you overcome the six obstacles? Let them hinder you, and you’ll find yourself following the path of Poor Dad, working harder and harder for money and having less and less time with your family. Conquer them, and you’ll find yourself following the path of Rich Dad, full of confidence and having your money work hard for you.
Poor Dad
Rich Dad
“Go to school and make good grades.”
“Become financially literate.”
“Get a safe, secure job.”
“Build businesses.”
“Work hard and save.”
“Don’t save, invest.”
“Work for money.”
“Let money work for you.”
“Pay your creditors first.”
“Pay yourself first.”
“Save money by shopping for bargains.”
“Make money by shopping for investments that will go up in value.”
“Don’t buy something you can’t afford.”
“Ask yourself how you can afford it.”
“Investing is risky.”
“Not investing is risky.”
“Your house in an asset.”
“Your house is a liability.”
“The rich are greedy.”
“The rich are generous.”
“Money is a necessary evil.”
“Money is power.”
Poor Dad’s slogans are the words of fear; Rich Dad’s slogans are the words of passion. While fear reflects disappointment and passivity, passion reflects confidence and energy. What builds wealth isn’t fear, but passion. Sometimes it is called a strong business mission.
I know that from personal experience. In 1977 I launched a manufacturing company that was one of the first to make nylon and velcro wallets. The company’s growth was meteoric, but stiff competition soon forced us to move our manufacturing operations to southeast Asia. When I inspected our new overseas factories and saw the cruel conditions under which people were forced to work, it drained some of my passion. I no longer wanted to become rich if it meant exploiting low-paid workers. My business began to sag.
Rich Dad recognized that my enthusiasm for the company was gone. “Let the manufacturing company go,” he advised me. “It’s time to build a business around your heart—around your passion. Have a strong business mission.” We both knew what that passion was: teaching. I may not have acquired financial intelligence from Poor Dad, but I had picked up his love of teaching.
So in 1985, my wife Kim and I packed up everything we owned and moved to California to start an educational business based on exciting new teaching methods. It wasn’t easy. We quickly depleted our savings and exhausted our credit cards. We lived in the basement of a friend’s house. Uncertainty and self-doubt plagued us. We knew what we wanted—financial freedom—but we didn’t know if this new business would enable us to reach that goal.
Rich Dad’s Tip
“Broke is temporary, poor is eternal.”
Despite our fears we followed our hearts and kept on, and in less than five years we had a multimillion-dollar business with eleven offices throughout the world. We had built a business around a new approach to education, and the market loved it. Our passion for the business and its mission made it happen.
Do you know what your passion or mission is? Many people don’t, and they have a hard time finding it. To find your passion or mission you have to dig deep inside. Here are some questions to get you started:
Are there any activities or thoughts that absorb you so thoroughly you lose track of time?
What subjects do you find most exciting to talk about?
Who are your heroes? What is it about them that you admire and want to emulate?
Do you have any skills or talents that inspire self-confidence and pride?
When you have a free afternoon, how do you choose to spend it?
If you had all the money you needed to pursue a hobby or a special project, what would it be?
Do you subscribe to magazines or read books? What sort of reading material excites you?
If you could develop a “dream” business for yourself, what would it be?
It may help to talk about your passions with people whom you know well and trust. Sometimes other people can read our souls when we can’t. Once you become aware of your passion, you can determine your mission and begin to feed it. This in turn will feed the drive that will make your dreams come true.
Choose to Be Rich
I have the passion to get rich, you might be thinking, but how do I actually do it? Getting rich isn’t just a matter of luck, or inheritance, or having a brilliant idea. People who inherit wealth, and the few who win it by way of the lottery, assume the burden of watching over their new-found riches lest they lose them. As for brilliant ideas, they’re nothing but dead ideas without a thriving business system to give them life. More than anything, getting rich is a matter of confidence—of changing your thinking from “I can’t” to “How can I?” Once you commit to this way of thinking, once you make up your mind not to let anything get in the way of success, you’ll be on your way. You won’t get rich—you’ll choose to be rich.
of choice. I choose to be rich,
and I make that choice every day.”
You’re about to embark on this work/study program because you want to change your life. But before you change your life, you need to change your mind. Your thoughts and beliefs are deeply ingrained, so deeply ingrained that you may not even be aware of how much they’ve shaped your financial woes. If you harbor the hope of financial freedom, self-awareness is critical. In this chapter you’ll be taking an inventory of your attitudes. You’ll learn which ones are helping you and which ones are holding you back. And under Rich Dad’s guiding influence, you’ll encounter a wealth of new ideas that have the power to steer you in a different direction, down the path to financial freedom. Whether or not you travel this path is up to you.
Rich Dad Tip
“Money is just an idea.”
When you look in a mirror, what do you whisper? Do you berate yourself with comments like “I’m overweight” and “I’m getting old”? Or do you stand tall and say “I look great!” A mirror reflects much more than what your eyes see. A mirror reflects your inner thoughts and your beliefs—your soul. Listen to the thoughts that come from your soul. Are they negative? You’ll never embark on the road to riches if you let such thoughts constrain you.
Rich Dad Tip
“There is nothing more powerful than an idea whose time has come, and there is nothing more vulnerable than someone who is still thinking old ideas.”
The Nattering Nabobs of Negativism
A well-known figure in the political world once coined the phrase “nattering nabobs of negativism” to refer to habitual naysayers. People will conjure up any number of excuses not to choose wealth, excuses that say more about their inner thoughts than about the difficulty of achieving wealth. Are you a nattering nabob of negativism? Take a look at these excuses, and see if any sound familiar:
“I can’t give up a regular paycheck.”
“Invest? You want me to lose all my money, don’t you?”
“I don’t have any money to invest.”
“I tried that before. It’ll never work.”
“I don’t need to know how to read financial statements. I can get by.”
“I’m not smart enough.”
“My husband would never go for it.”
“My wife would never understand.”
“What would my friends say?”
“I’m young. I’ve still got time.”
“It’s too late for me.
“You can’t do that.”
Talk Back
If you’re harboring negative thoughts, you need to understand what they really mean. For example, if you tell yourself “I can’t stop working and start my own business—I have a mortgage and a family to think about,” you might really be saying “I don’t have time, and I’m too tired to learn anything new.”
It’s time to dig deep down and unearth your personal truths. Jot down the negative statements you whisper to yourself and, after some honest soul searching, record the personal truth that lies beneath each:
Sometimes we let negative statements play over and over in our minds like endless mantras. Once you know the truth beneath your negative statements, talk back to them. Start an argument with yourself! Think of ways to counter each one.
If you’re having trouble identifying what’s holding you back, keep a daily journal. Once your negative ways of thinking become clear, then repeat this exercise. Don’t let buried thoughts sap your energy and motivation. Unearth them, and free yourself to move forward.
Nurture Your Better Self
Now that you’ve removed the mines blocking your path, consider the positive traits that will propel you forward on your quest for financial freedom. Here are some strengths that are common to people who succeed in business and investing:
Vision—the ability to see what others do not see
Courage—the ability to act despite fear
Creativity—the ability to think outside the box
Self-confidence—the ability to withstand criticism
Self-control—the ability to delay gratification
Look at people around you who demonstrate these strengths. Try to emulate them. And don’t forget to look within. Are there areas in your life where you’ve exhibited such traits? Nurture them and allow them to spread into your financial life.
Prepare for Opportunity
So far, you’ve been focusing on internal things that you have the power to change. What happens when your internal self meets the external world over which you have so little control? In truth, you have more control over that world than you think. It has been said that luck is what happens when opportunity meets preparedness.
Imagine two men walking down the street on a windy day. A piece of paper blows along the sidewalk in front of one man, then the other. The first man ignores the litter, keeping his eyes on the block up ahead; the second man peers at the scrap, realizes it’s a twenty dollar bill, and picks it up. Is that person luckier? No. The same opportunity crossed the path of both men, but only one of them was prepared to take action.
When it comes to financial matters, it’s important to keep your eyes and ears open—and to know where you are. Only then will you spot opportunity when it crosses your path.
In a broader sense, it’s important to know where you are in history and in the world at large. Christopher Columbus’s voyage of 1492 eventually led to the start of the industrial age, a momentous historical shift. At the height of the industrial age it was people like Henry Ford and Thomas Edison who became millionaires. I believe that the fall of the Berlin Wall in 1989, some 500 years after Columbus set sail, marked the end of that great age and the beginning of another equally dynamic one: the information age. Generations from now, people will look back and remark what a thrilling, tumultuous era this must have been. Computer-industry figures such as Bill Gates and Michael Dell are the magnates who typify this new age. It took Henry Ford twenty-three years to become a billionaire during the industrial age; it only took Michael Dell three years to become a billionaire during the information age—and he started his business part-time.
These are heady times, and frightening for some. The economy’s speedy adaptation to the demands of the information age has threatened the financial security of millions of people whose jobs have become obsolete or moved elsewhere. Take a look at the difference, for example, between an industrial age pension plan and an information age retirement plan. In the industrial age, companies would employ people for life and give them pensions once their working days were over. Today companies aren’t giving out pension plans the way they used to; less-generous contributions to retirement plans are more common now. And people are retiring earlier and living longer lives. The rules have changed. Retirees need more financial security and thus more-sophisticated ways of building assets than were offered by the pension plans of the industrial age. Unfortunately, most people—those who can least afford to keep their heads stuck in the sand—are acting as if the rules haven’t changed.
Take Note
Today retirees need more financial resources at retirement and more-sophisticated ways of building assets than were offered by the pension plans of the industrial age.
The 90/10 Rule
Throughout history, 90 percent of the money has been made by 10 percent of the people. For instance, 10 percent of the athletes make 90 percent of the money made by all athletes. This is one of the rules of money that Rich Dad taught me. One reason the 90/10 rule has applied is that 90 percent of the people choose comfort and security over being rich. Most of these people do not realize they could choose to be rich.
While the 90/10 rule still holds, it’s being challenged by the changing circumstances that the information age introduced. Thanks to the electronic revolution, it is now possible for more and more people to gain access to the world of wealth, for wealth now resides in information that flies over the airwaves and through television and computer networks. Information is not restricted to the few, as land and resources were in past ages.
The Internet epitomizes this new avenue toward wealth, for it enables the masses to gather information and interact with one another in almost complete freedom. Today it’s possible for people to take their ideas and, with the help of this new-age medium, build products or services around them. Network marketing, the selling of consumer goods, investing, publishing—these are only a handful of the thousands of on-line activities that have been launched by aspiring entrepreneurs and savvy investors.
We’ve only just begun to see what kind of world is possible in this new age of information, but I’ll wager that in the near future, the pressure of the information age is going to shatter the old 90/10 rule. It has never been easier to choose to be rich.
Take Note
The times are rapidly changing, and if you want to be rich, your approach to money and investing has to change too.
When I was a boy, Rich Dad used to say, “If you want to get rich, you need financial literacy. You have to learn to be an investor.” My educated dad disagreed. “I don’t need to learn how to invest,” he’d say. “I have a guaranteed government pension plan, a pension from the Teachers Union, and Social Security benefits. Why take risks with my money?” That’s head-in-the-sand thinking. If you think your financial security is the responsibility of a company or the government, you’re going to be sorely disappointed in the coming years. You need to switch from industrial age to information age thinking:
Industrial age thinking
Information age thinking
• Study hard and find a safe, secure job.
• Study hard but also become financially literate.
• Get a job and save money.
• Create assets on your own.
• Your pension and Social Security will protect you in retirement.
• Your pension and Social Security will not support you in retirement.
• Your income will go down when you retire.
• Your income should increase as you age.
• Diversify your investments.
• Concentrate your investments.
• Blue chip stocks and mutual funds are safe investments.
• Blue chip stocks and mutual funds will not protect you if there is a stock market crash.
• Put your investments in the hands of someone else.
• Watch your investments but seek competent advisors.
People get old or obsolete because they cling to old ideas. Rich Dad used to say, “You can’t help but get older physically. That doesn’t mean you have to get older mentally.” If you want to stay young longer, adopt younger ideas.
It would be great if everyone had a Rich Dad and grew up learning financial literacy. Most of you didn’t have such an advantage. Don’t let that discourage you. Regardless of what did or didn’t happen in the past, when you’re ready to make big changes, amazing things can happen in a short time. Many great fortunes have been built by determined people who started out later in life, even people who were in considerable debt. Look at Colonel Sanders-he was sixty-six and broke when he started Kentucky Fried Chicken.
In my years of teaching, I’ve had the good fortune to meet and hear from many wonderful students who have taken Rich Dad’s advice and turned their lives around. No matter what stage of life a person is in, if the desire to change is there, change is possible. The following are comments from real people who have chosen the path to financial freedom:
David and Liz
“The Rich Dad philosophy taught us that money is just an idea. Rich Dad’s approach is simple but very profound: You can take what’s in your head and turn it into cash flow. This approach is empowering because you know that when you see that little trickle begin, eventually it’ll become a tidal wave.
“One of the biggest impacts Rich Dad’s advice has had in our life is on our children. Our son used to think it wasn’t a good thing to have a lot of money. Now he sees that when you have money, you can give to other people. He and my daughter have also learned that you can do whatever you set your mind to do. That’s one of the most valuable lessons in life. Thanks to Rich Dad, we’re leaving our children not just a legacy of money, but a legacy of mind.”
“Rich Dad’s approach is simple but very profound: You can take what’s in your head and turn it into cash flow.”
—David and Liz
Michael
“I had my own real estate office and was working crazy hours, manning the phone twenty-four hours a day. I thought because I was working for myself that I was a business owner, even though I wasn’t achieving the sort of success I wanted. Then I started reading the Rich Dad books and it hit me—I didn’t own a business, I owned a job.
“That revelation made all the difference in the world. Up till then, I’d been doing everything on my own. Rich Dad taught me to draw on the talents of other people to help me reach my financial goals. That turned me from a self-employed person into a true business owner. Now I’ve got ten agents working for me, and I’m reaping the benefits of their efforts as well as my own.”
“I thought because I was working for myself that I was a business owner.... Then I started reading the Rich Dad books and it hit me—I didn’t own a business,
I owned a job.”
—Michael
Darrell
“I was brought up with the idea of going to school, working hard, and accepting the limits that come with being an employee. I dropped out of college twice and started working for an insurance agency without much success. When I first saw Rich Dad’s ideas in print, it had a huge impact on me. They made so much sense that I internalized them quickly, and I realized that for my whole life I’d been trying to fit into a mold that other people cast for me. I didn’t want to be in that mold—I wanted to be a business owner and investor.
“Rich Dad has helped me focus my sights not on what others think is good for me,
but on what I want—wealth.”
—Darrell
“Now I have a real estate company that buys a lot of properties. Thanks to the Rich Dad philosophy, we avoid buying property for the wrong reasons. We only buy properties that will put money in our pockets and not suck us dry. His concepts have kept me from going bankrupt several times in this year alone. Rich Dad has helped me focus my sights not on what others think is good for me, but on what I want—wealth.”
Jonathan
“I grew up with the saying, Love of money is the root of all evil. That’s hard to overcome. When I came across the Rich Dad approach, I saw that I was missing out in life because of my false ideas about money.
“I’m self-employed and although I’m making pretty good money, I know that the deck is stacked against my making more this way. The Rich Dad approach has motivated me to take a serious look at building a real business and making investments. One of the big challenges for me is learning the financial end of things. That’s what is so phenomenal about Rich Dad: His information is so easy to digest and apply. Rich Dad has provided a nice stepping-stone for me as I re-direct my efforts away from self-employment toward business and investing.”
“When I came across the Rich Dad approach, I saw
that I was missing out in life because of my false
ideas about money.”
—Jonathan
Christine
“I was a sole proprietor of an accounting business when I came into contact with the Rich Dad way of doing things. That changed my way of thinking forever. I didn’t have a lot of money so I said, ‘Okay, I’ve got to take action,’ and I approached someone with money who became my business partner in a real estate venture. He’s the money side of it; I’m the one who finds the properties and manages them. We’ve put a great team of people together and the business has really taken off. In a year and a half, I’ve built up half a million dollars in assets.
“It’s amazing. Rich Dad made me realize that I had the ability to do this—the confidence and the desire. After that, it was a matter of gaining knowledge and building my team. So far, I’ve been doing a series of small real estate deals. As Rich Dad would say, I’ve mastered one formula and now it’s time to master a new one. Now that I’ve got the money, I’m preparing myself to do a big deal as soon as the opportunity presents itself.”
“Rich Dad made me realize that I had the ability to do this—the confidence and the desire.”
—Christine
Most of us grew up thinking that mistakes are bad and should be avoided at all cost. We tend to correlate mistakes with low intelligence: The more mistakes you make, the dumber you are. In Rich Dad’s mind, however, mistakes were opportunities to learn something new. “There’s a bit of magic hidden in every mistake,” he told me. “That magic is called learning.” Instead of telling me how to avoid mistakes, Rich Dad taught me the art of turning a mistake into an opportunity to gain wisdom.
Rich Dad’s Tip
“There’s a bit of magic hidden in every mistake. That magic is called learning.”
It’s not easy to learn from our mistakes and setbacks. How we react to them tells us who we are. Here is a cast of characters that Rich Dad drew up to describe different reactions to financial setbacks. Which character are you?
After recognizing that you’ve made a mistake, it’s difficult not to let one of these characters take over. So go ahead, bang your head against the wall. Lie. Whine. Complain. If you’re ever going to get your financial house in order, however, eventually you need to let another character, the Responsible You, take control of your thinking. The Responsible You asks, “What priceless lesson can I learn from this mistake?”
Think back on three financial mistakes you’ve made. What lessons can you learn from those mistakes? Take a few moments to record your thoughts.
Managing Risk
One of the valuable lessons I learned from my own mistakes was how to manage risk. Like it or not, risk is a part of investing, whether you invest in paper securities, the real estate market, or a business of your own. Everyone who has built a fortune from scratch has felt on the edge of a cliff at one time or another. If you’re going to get rich, at some time you’ll have get close to the edge of the cliff, too. But that doesn’t mean you have to jump. It’s quite possible to make investments that receive high returns with low risk, and you can learn how.
Rich Dad’s Tip
“Some of the biggest failures I know are people who have never failed.”
As I’ve said, too many people rely on big government or a big company to eliminate the financial risk in their lives. They play it safe in their jobs, buy houses and cars and, if they don’t have pensions, put a little money aside monthly for retirement plans. This was the path of Poor Dad.
What’s wrong with this scenario? Plenty. Today, more and more people are graduating with good grades and advanced degrees, but there are fewer and fewer secure jobs with benefits. Rich Dad taught me differently. He said that working for someone else just created the illusion of security—that it was much riskier than investing or starting your own business. To Poor Dad, investing was risky; to Rich Dad, not investing was risky.
As you move forward in this work/study program, you’re going to learn that true investing is not a gambling game of hunches, but rather a plan. Once you become financially literate and begin enacting your own plan, whether through investing, building businesses, or both, it’s likely that your ideas about what is risky and what is not will have changed.
FEAR:
I’m putting my money in a savings account. Investing is for high rollers.
FACT:
Investing isn’t a gamble, it’s a plan. Once you become financially literate, your ideas about what is risky—and about how to invest your money—will have changed.
FREEDOM:
Enact a sound plan, and you can turn risk into riches.
Rich Dad’s Tip
“Investing isn’t risky; not investing is risky.”
A Risk Self-Assessment
Before you reach that point, it’s helpful to get a sense of your overall risk tolerance. No matter what you do in your financial life, there is always the possibility of losing some money. How comfortable are you with this possibility? The following questions are meant to get you thinking about your general attitude toward risk:
Do you get bored easily? Are you usually looking for a new challenge, or do you like to stick with what you know?
Do you feel confident that you can handle whatever comes your way, or do you tend to worry?
When you lose something valuable, do you get anxious and obsess about it, or are you able to accept the loss and move on?
How easily can you turn important matters over to others? Do you trust experts to act on your behalf, or do you prefer to handle everything yourself?
In Sections 2 and 3, you’ll learn more about financial risk and how to handle it. The more financially educated you are, the less risk you’ll face. By the time you complete the Rich Dad program, you’ll know the truth of this statement: On the road to riches some risk is inevitable, but if you keep a cool head and improve your financial literacy, you can manage it.
Knowing how to manage risk is one of the prerequisites of financial literacy. Once you’ve fulfilled all the prerequisites and become fully literate, does financial freedom follow? Not necessarily. Certain personal obstacles can prevent even the most financially literate from developing abundant wealth. Despite all their knowledge, they’ll continue working full time just to pay the bills instead of living the life they dream. By learning to recognize these personal obstacles, you can overcome them. What are they?
Fear
Cynicism
Laziness
Bad habits
Arrogance
Disappointment
Obstacle 1: Fear
Fear of losing money is the main reason 90 percent of the American public struggles financially. But fear isn’t the real problem. It’s how people handle fear that matters. Rich Dad used to tell me that the primary difference between rich people and poor people is how they handle the fear of losing money. Some people, when hit with a financial loss, give up. Others transform the loss into a win. As John D. Rockefeller said, “I always tried to turn every disaster into an opportunity.” Losers are defeated by failure. Winners are inspired by it.
Rich Dad’s Tip
“The primary difference between rich people and poor people is how they handle fear.”
Rich Dad often commented that the real reason for lack of financial success was that people played it too safe. “People are so afraid of losing money that they do lose it,” he would say. If they have some cash, they buy big houses and big cars rather than big investments. Or they invest all of their money in balanced portfolios—in CDs and low-yield bonds and mutual funds and a few individual stocks. These are people, driven by fear, playing not to lose. Of course, a balanced portfolio is a lot better than no portfolio. It seeks safety through diversity. Having a financial plan for security and comfort first are important. But if you have any desire to become rich, you must focus, not diversify. You must put a lot of eggs in a few baskets rather than putting a few eggs in many.
FEAR:
I’ll lose all my money if I invest in anything riskier than CDs, bonds, and mutual funds.
FACT:
If you lose some money, you can learn from the failure. Once you become an educated investor you’ll be positioned to reap potentially huge rewards.
FREEDOM:
Financial failure can be transformed into financial gain.
If the prospect of failure frightens you, then play it safe. Keep your daytime job until you have enough cash to buy bonds and mutual funds and consult with a financial planner. But if the prospect of failure inspires you to fight and win, maybe you should challenge yourself to change your financial habits. Educate yourself and take some financial risks. The more education you have, the less risk there will be.
All of us have some Chicken Little in us. You remember Chicken Little—the character in the children’s fable who ran around the barnyard warning other animals that the sky was falling. Chicken Little had a doom and gloom attitude toward life. He was a
classic cynic.
There are Chicken Littles everywhere, especially in the financial world. If you want to be rich, you need to stop listening to their clucking. The-sky-is-falling warnings from financial cynics are just a lot of empty noise. We hear that noise all around us, from friends, family, co-workers, and the media, and we tend to succumb to it because inside each of us there is a little bit of chicken.
Rich Dad’s Tip
“Cynics criticize and winners analyze.”
Why should we ignore the cynics? Because cynics never win. They’re do-nothing alarmists who spend all their time spreading fear. It’s the people who read a situation correctly who end up winning—the analysts. Cynicism blinds you to opportunities, while analysis opens your eyes to possibilities. One leads to paralysis, the other to action. Peter Lynch of Fidelity Magellan recalls the time during the 1950s when the threat of nuclear war was so prevalent that people began building expensive fallout shelters and storing food and water. Had they used their hard-earned dollars to make some wise investments instead, those Chicken Littles would probably be financially independent today.
How good are you at filtering out cynical noise? Think of things you don’t want to happen and things you do want to happen. If your I-don’t-wants outweigh your I-wants, you may be letting doubt and fear close your mind instead of open your eyes.
Rich Dad’s Tip
“Losing is part of winning.”
Chase Away Chicken Little
If you’re a Chicken Little, the story of Colonel Sanders might inspire you to change your attitude of doom and gloom. At the age of sixty-six Colonel Sanders lost his business and found that Social Security wasn’t enough to live on. So he went around the country trying to sell his recipe for fried chicken. He was turned down 1,009 times before someone said yes. And he went on to become a multimillionaire at an age when most people are retiring with a small pension. If you’re in doubt and feeling afraid, do what Colonel Sanders did to his little chicken—he fried it.
Obstacle 3: Laziness
Busy people are often the laziest. Busyness is a form of avoidance. If you stay busy you can avoid some of the things you don’t want to face—like exercising, or taking care of your wealth.
What’s the cure for laziness? A little greed. Wait a minute, you say. Isn’t greed bad? Too much of it, yes. An excess of anything is bad. The fact is, however, that all of us secretly harbor a desire to have new or exciting things. We’ve been told by our parents and others to suppress that desire. We’ve been made to feel guilty about it. How many children have asked a parent for something and gotten the response, “Do you think I’m made of money?” In truth, guilt is worse than greed. Guilt stifles dreams.
FEAR:
I wish I could invest, but I’m too busy and can’t afford to invest.
FACT:
Busyness is a form of laziness and avoidance. Instead of saying, “I can’t afford it,” ask yourself how you can afford it.
FREEDOM:
The question “How can I afford it?” opens up avenues to our dreams.
When we stop saying “Life is too hectic to change it” and say, instead, “It’s time to exit this rat race and find new ways to earn wealth,” we begin to cure ourselves of our busy laziness.
Rich Dad’s Tip
“The words ‘I can’t afford it’ close your mind, while the words, ‘How can I afford it?’ open your mind. The human spirit is powerful—it knows it can do anything.”
Rich Dad used to say, “The phrase ‘I don’t want’ holds the key to your success.” I saw what he meant when I got into real estate and quickly learned that I didn’t want to fix toilets. By finding a property manager who could fix toilets, I was freed up to buy a lot more real estate. And as a result, my cash flow increased.
Go ahead, be greedy, if that’s what your heart is telling you to do. Make a list of what you really want, and don’t limit it according to someone else’s idea of what you shouldn’t have—be truthful with yourself.
Things I Want
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
When your list is complete, step back and appraise it. Don’t ask yourself whether you can afford the things on your list, but rather how you can afford them. This fresh appraisal will create a stronger mind and a more dynamic spirit, helping you to shed your lazy ways.
Obstacle 4: Bad habits
When you pay your bills at the first of the month, do you have anything left over? Probably not. If so, that’s the main reason you’re struggling financially—you have bad habits. The worst financial habit is paying your creditors before you pay yourself. That doesn’t mean you shouldn’t pay your bills on time. What it does mean is that you should pay yourself first—even if you’re short of money.
Rich Dad’s Tip
“Pay yourself first.”
Rich Dad told me to do this once. I was perplexed. “How can you pay yourself first?” I asked him. “It’s all a matter of motivation,” he replied. “Who will scream louder if they aren’t paid—you or your creditors?” The answer was obvious: the creditors. “Precisely,” he went on. “Creditors are bullies. And because they’re bullies, the pressure to pay them will be so great that it will force you to seek sources of income other than what you’re making working for someone else.” Rich Dad was right. What laziness won’t get you to do, pressure will. By paying yourself first, you’ll become mentally and financially stronger, and better equipped to vanquish the bullies.
Arrogance is ego plus ignorance. The ignorance is hidden behind the ego. Many people try to bluster their way through financial discussions when they don’t know what they’re talking about. They’re not lying, but they’re not telling the truth either. The world of finance is full of people who don’t know what they’re talking about.
Rich Dad’s Tip
“Arrogance is ego plus ignorance.”
In financial matters, it’s easy to stumble over your own ignorance and fail. When you’re arrogant you believe that what you don’t know is unimportant. In truth, what you don’t know is as important as what you do know. Instead of arrogantly hiding your ignorance and bluffing your way to failure, start educating yourself for success.
What’s Your Arrogance Barometer?
How much do you really understand about:
Financial statements?
Real estate?
Stocks and bonds?
Starting and selling businesses?
For each of these subjects you could rate yourself on a scale of 1 to 10, then come up with a quantitative tally. But you don’t need to. That’s because the real measure of your arrogance is brutal honesty. In your heart you’re aware of what it is you don’t know, no matter how well hidden from the world it may be. Go ahead, admit your ignorance. Then instead of chastising yourself, read on. In Section 2 you’ll be absorbing knowledge that will empower you to act wisely.
Obstacle 6: Disappointment
Do you react with disappointment when things don’t go as you’d hoped? When I left the Marine Corps, Rich Dad recommended that I get a job that taught me to sell. He knew I was shy and that learning to sell would help me succeed.
For two years, I was the worst salesman in my company. My tendency was to blame my failure on the economy, or the product I was selling, or even the customers. Rich Dad would say, “When people are lame, they love to blame.” To learn to sell, I had to face the pain of disappointment. Eventually I did learn how, and along with the skills of salesmanship came a priceless lesson: how to turn disappointment into an asset rather than a liability.
Rich Dad’s Tip
“Prepare yourself for disappointment, and you’ll turn disappointment into an asset.”
Many people turn disappointment into a long-term liability. “I should have known I would fail”—these are the words of people who have let disappointment stop them from learning. As you get ready to embark on your journey to financial freedom, I offer you the same advice Rich Dad offered me: “Prepare yourself for disappointment.” Why? Because if you’re prepared for disappointment, you have a chance of turning disappointment into an asset.
Preparing yourself for disappointment doesn’t mean you won’t still be upset and concerned. But if you’re prepared, you won’t beat up on yourself too hard. This is important, since being too hard on yourself will make you overly cautious about taking risks or trying new ideas. If you can face your failures, control your emotions, and use disappointment to learn new financial skills, you’ll flourish.
FEAR:
I’ve been disappointed one too many times. Never again.
FACT:
Instead of running from disappointment, prepare for it. That doesn’t mean preparing to accept failure passively. It means getting ready mentally and emotionally to learn.
FREEDOM:
If you’re prepared, you’ll react with calm to failure, learn from it, and move on.
Will You Think like Rich Dad or Poor Dad?
Can you overcome the six obstacles? Let them hinder you, and you’ll find yourself following the path of Poor Dad, working harder and harder for money and having less and less time with your family. Conquer them, and you’ll find yourself following the path of Rich Dad, full of confidence and having your money work hard for you.
Poor Dad
Rich Dad
“Go to school and make good grades.”
“Become financially literate.”
“Get a safe, secure job.”
“Build businesses.”
“Work hard and save.”
“Don’t save, invest.”
“Work for money.”
“Let money work for you.”
“Pay your creditors first.”
“Pay yourself first.”
“Save money by shopping for bargains.”
“Make money by shopping for investments that will go up in value.”
“Don’t buy something you can’t afford.”
“Ask yourself how you can afford it.”
“Investing is risky.”
“Not investing is risky.”
“Your house in an asset.”
“Your house is a liability.”
“The rich are greedy.”
“The rich are generous.”
“Money is a necessary evil.”
“Money is power.”
Poor Dad’s slogans are the words of fear; Rich Dad’s slogans are the words of passion. While fear reflects disappointment and passivity, passion reflects confidence and energy. What builds wealth isn’t fear, but passion. Sometimes it is called a strong business mission.
I know that from personal experience. In 1977 I launched a manufacturing company that was one of the first to make nylon and velcro wallets. The company’s growth was meteoric, but stiff competition soon forced us to move our manufacturing operations to southeast Asia. When I inspected our new overseas factories and saw the cruel conditions under which people were forced to work, it drained some of my passion. I no longer wanted to become rich if it meant exploiting low-paid workers. My business began to sag.
Rich Dad recognized that my enthusiasm for the company was gone. “Let the manufacturing company go,” he advised me. “It’s time to build a business around your heart—around your passion. Have a strong business mission.” We both knew what that passion was: teaching. I may not have acquired financial intelligence from Poor Dad, but I had picked up his love of teaching.
So in 1985, my wife Kim and I packed up everything we owned and moved to California to start an educational business based on exciting new teaching methods. It wasn’t easy. We quickly depleted our savings and exhausted our credit cards. We lived in the basement of a friend’s house. Uncertainty and self-doubt plagued us. We knew what we wanted—financial freedom—but we didn’t know if this new business would enable us to reach that goal.
Rich Dad’s Tip
“Broke is temporary, poor is eternal.”
Despite our fears we followed our hearts and kept on, and in less than five years we had a multimillion-dollar business with eleven offices throughout the world. We had built a business around a new approach to education, and the market loved it. Our passion for the business and its mission made it happen.
Do you know what your passion or mission is? Many people don’t, and they have a hard time finding it. To find your passion or mission you have to dig deep inside. Here are some questions to get you started:
Are there any activities or thoughts that absorb you so thoroughly you lose track of time?
What subjects do you find most exciting to talk about?
Who are your heroes? What is it about them that you admire and want to emulate?
Do you have any skills or talents that inspire self-confidence and pride?
When you have a free afternoon, how do you choose to spend it?
If you had all the money you needed to pursue a hobby or a special project, what would it be?
Do you subscribe to magazines or read books? What sort of reading material excites you?
If you could develop a “dream” business for yourself, what would it be?
It may help to talk about your passions with people whom you know well and trust. Sometimes other people can read our souls when we can’t. Once you become aware of your passion, you can determine your mission and begin to feed it. This in turn will feed the drive that will make your dreams come true.
Choose to Be Rich
I have the passion to get rich, you might be thinking, but how do I actually do it? Getting rich isn’t just a matter of luck, or inheritance, or having a brilliant idea. People who inherit wealth, and the few who win it by way of the lottery, assume the burden of watching over their new-found riches lest they lose them. As for brilliant ideas, they’re nothing but dead ideas without a thriving business system to give them life. More than anything, getting rich is a matter of confidence—of changing your thinking from “I can’t” to “How can I?” Once you commit to this way of thinking, once you make up your mind not to let anything get in the way of success, you’ll be on your way. You won’t get rich—you’ll choose to be rich.