Rich dad, poor dad – the story that formed my views on making money
micaelwidell.com
micaelwidell.com
“Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.” Ronald Wright
"17 percent of Christians surveyed said they considered themselves part of such a movement, while a full 61 percent believed that God wants people to be prosperous. And 31 percent—a far higher percentage than there are Pentecostals in America—agreed that if you give your money to God, God will bless you with more money." Time magazine, Does God want you to be rich?
Healthcare costs cause 62% of personal bankruptcies in the US; 72% of those who file for bankruptcy due to medical costs had health insurance at the time of illness. RomneyCare didn't change those figures in Massachusetts much even though everyone had health insurance, and ObamaCare has not made much of a dent there either.
What will an average person do in the face of such market forces? One (God-given) illness will wipe away everything they ever had, and just getting a better job won't in general help -- it's not a big enough pay bump. And collective political action is for socialists. So... pray!
edit in response to some downvotes: I'm not saying anything anti-religion or anti-Christian here; read carefully.
There is a huge class of working poor, who earn just enough (or not enough) to cover real necessities. For this group, there's not much value in advice on economic strategy. Even in the event of a moderate-sized windfall, the history of scarcity makes it impossible to use a windfall to improve your situation in a lasting way.
However, there is another huge class of people in the US who earn more than enough to be free from economic worries and start building serious wealth, yet they squander their huge paychecks each month. For this group, maybe books like this can have some value.
I'm naturally quite a retiring person, but getting candid explanation of people's techniques and approaches has given me the "if they can do that, I can try it too" attitude numerous times (as has HN and numerous blog posts, to be fair - I can pinpoint certain things I've done to being inspired by specific pieces of content).
I'm familiar with the feeling you describe (They can? Then I can too!) so I'm just curious to see what is in those posts that can inspire someone (content, semantics, anything).
This helped me a lot in my first few jobs, i.e. identify a person who is successful and well respected, get to know them and try to do things the way they do.
Works in school too -- if you want to do well, do what the successful students are doing. Usually boils down to pretty simple stuff, e.g. studying a lot more.
Read Rich Dad Poor Dad before. There are criticism online about how they aren't real people. But it does display different mindsets, and how that mindset will change the perception of an event -> action taken because of the event.
And to your question of the majority of rich people reading these books. Meh. Not sure the majority, but the more interviews I read/listen/watch from wealthy people there are certain books they have in common, for example Tony Robbins (haven't read any of his books yet). Not to say the majority of self help books aren't total fluff.
E.g.:
Work your job, but move towards income from a business.
(Not that I've gotten very far yet ;) )
We all need to seize good opportunities we get, but we also need to focus on creating wealth. Something that can benefit society as a whole.
The quintessential example of this is a guy like Dean Kamen, working on the Slingshot clean-water project. I hope he gets rich from that... because he'll have done it saving millions of lives per year.
Well, that depends. The core lessons really stuck with me and changed the way I thought about money. Especially about the cash flow differences between poor people vs rich people (income goes into assets and the income generated by assets is what can be spent).
I would directly credit this book for my start in real-estate investments and for changing my mindset. I used to be blind to the opportunities around me.
As with most things in life, it's what you get out of it. If you want to forget it, you probably will.
The bottom line, as I've always thought about it, is that if you can usefully create significant value, then you will always have a livelihood, and just basic common sense will get you to your goals.
"Creating significant value" is a pretty high bar though, and a different story.
No, I don't. But you know what they do have? They've grown up in a household and a culture that teaches them thousands of small lessons in being and staying rich. They don't have to read about it, because their parents and friends and lawyers and accountants and country club associates have all been reinforcing those lessons their entire lives.
No, the old rich were families whose wealth was secured by long-established bonds of connection with other old-rich families who constituted the ruling class and dominated politics and business and acted together, for protection of their mutual interest, as a tribe jealously defending against outsiders, the new rich were those who had secured money but not yet been admitted to the ruling tribe.
(This is still the case, though "old rich" and "new rich" aren't particularly popular terms for it; if your family has connections where, e.g., the Saudi royals will bail out your failing enterprises for the value of maintaining a useful network, and you wealthy establishment donors will pour fortunes into your brothers campaign for office for the same reason despite being willing to say that they think the whole thing is a waste as long as they can be anonymous while doing so, what your parents have given to you is connections more than discipline.)
Hearing how dad weathered a hostile merger, or a neat tax shelter, doesn't mean much if you aren't in a place to have that happen to you in the first place.
Inheritance. And connections.
The real benefit I got from that book was how it draws a line between a liability and an asset. For example, a car is not an asset; especially if you had to take a loan to pay it off. That is something that takes money away from your cash flow every month; not add to it.
A rental house that brings in money every month is an asset. The book goes on to say you should never get rid of an asset unless you are replacing it with another 'more valuable' asset.
No, wait, the basic problem is that he is passing inspirational advice off as financial advice.
But don't take my word for it, read the critique:
http://www.johntreed.com/blogs/john-t-reed-s-real-estate-inv...
Good books are the best educational value (though maybe some MooCs are a better value now.)
"But you have to admire a guy who can spin two or three paragraphs of very ordinary financial platitudes into such a range of books."
Luckily I bought my copy at a library book sale for something like 50 cents. I quit after reading half of it, because there's just nothing there.
I'm a naturally frugal person, but the book helped me formulate new ways of thinking about money and my relationship with it. The major concept being that money is a representation of your life energy. You work X hours a day at an hourly rate of $Y. Knowing those numbers allows you to think about purchases in a new way. For instance, "That new phone will cost me 2.5 days of work" or "If someone offered me $500 or the new phone, which would I take?" If you chose the $500, then you know you don't need to buy the phone.
I would recommend Your Money or Your Life before all other financial "self-help" books. In fact, I think I'm going read it again.
Many other financial books recommend developing income streams outside of selling your labor at an hourly or yearly rate, which would seem to be missing from your book.
I am salaried, but when I sat down and calculated my hourly rate, I was a little shocked. I didn't factor in benefits or anything besides my after tax take home pay. It's as simple as $(2 week paycheck) / 80. What you get is effectively your hourly rate.
As a salaryman, knowing this value will help you avoid working overtime since overtime is unpaid. The more hours you work, the less your effective hourly rate. I would argue that if you are asked (either implicitly or explicitly) to work more than 40 hours a week, you should find a different job as you are diluting your own pay.
Note that SpaceX is not publically traded, but it represents assets I would like to own.
For a better personal finance book, try "I will teach you to be rich", despite the clickbait title: http://www.amazon.com/Will-Teach-You-To-Rich/dp/0761147489
The title and bright color was bait by his own admission. The point being he follows it up with great practical advice instead of stories and filler.
People should be aiming to keep most of the wealth they create. What makes the world shit, and what we cannot all do, is live off the backs of others.
If he knows people who are billionaires they go there by not passing on the wealth created by others. Nobody adds a billion of wealth creation, not even Gates.
How about JK Rowling. Must be close.
But you can still follow the same path in a tech way, such as selling your own product online. As you work on it, if it's producing income, that can begin to be an asset for you.
Land is a special case and should be treated as such. Land value tax would address this by capturing most of the added value from land for the common wealth rather than land monopolists.
Property taxes already exist. The people renting the property already pay it. If that tax goes up, then so do the rents.
If I have a $10m net worth, I might want to lend someone $1m for a year on which they will pay me 5% interest per year. If that person can turn that million into one and a half million, what's the problem?
http://bankunderground.co.uk/2015/06/30/banks-are-not-interm...
Debt is not a lever it's a stick to beat the landless with in order to extract labour as tribute to the elite.
The bank doesn't lend you someone else's money, it creates the money(no effort) and you have to work and put up real collateral to pay it back.
By G-d we should all be working to expose and undo this madness.
Err, there most certainly is an effort assessing credit risk and dealing with the fallout when someone defaults.
Is it genuinely not obvious to you than bank deposits aren't something that banks can create and destroy on a whim?
The loan is the asset because that is money coming into the bank. Your deposits are liabilities because that is money you could withdraw from the bank.
So it is both a liability and an asset. They don't create it out of thin air, they create it out of ink and paper. It's a hack of the double-entry bookkeeping system.
I recommend Paul Grignon's Money As Debt: https://www.youtube.com/watch?v=jqvKjsIxT_8
And do you agree there is a "risk to the Bank in lending out money they just created" or is that still up for discussion?
What is the bank risking when it creates the money and uses the anachronistically titled "loan" contract to distribute it? • They risk only being able to extract so much labor. • They risk taking on collateral which is a REAL asset that someone worked for, like their home if they're unable to generate enough of the assets the banks just write into existence. • They risk passing the buck up the ladder ultimately to the lender of last result if they're "too big to fail" which just creates more money to deal with the problem.
Banks are not lending out other people's money, everyone tacitly knows this, if they were how come when you go to the bank they never say, sorry its out on loan at the moment? This was the case at historically and banks are still riding on the fact that people haven't gotten wise to the way it's worked for centuries now.
There is no lending taking place when bank loans are made.
You seemed to be claiming that a bank incurs no cost ("no effort") to issue a loan. Are you sticking to that?
It is that bad.
No it's not. There are plenty of costs involved in issuing loans that will eat into that 1.9%.
A billion dollars is not very much. There are ~150M Americans working in the US, if something helps every one of them make $7, then over a billion dollars has been created.
Microsoft has enabled practically every person in a developed nation to do their job more efficiently. This is worth far, far more than a billion dollars.
Gates did a lot but he stood on the shoulders of giants, seemed to have some "sharp" business practices enabled by our monopoly loving nation states and a lot of employees did the heavy lifting.
I'm not criticising Gates, I don't mean to pick on him. If we had cheaper land I think the balance would shift to workers being less over a barrel and more able to negotiate higher wages to capture a greater share of their added value.
I understand and appreciate you sentiment. You're right, it wasn't entirely due to him, it was a collaboration between hundreds of people. But, if he left during the very early years, it's an almost certainty that MS would not have achieved its success and influence.
In hindsight: the book is great and the key message is very true. And this book is a great motivator (three days motivation is better than nothing) but in my case I needed way more to enter the dark side than reading a self-help book (which would be another long post).
Life is more complex.
You meet really entertaining characters in bars sometimes too. They are fine for entertainment but don't take them too seriously.
Putting money to work for you is wise, good advice and there are better books for it. Like "The millionaire next door" and "the wealthy barber" (a little lite but a good intro) and "Buffetology" and "The dummies guide to REITs" and the like.
Managing real estate yourself is no small task- you have tenants and a lot of work to do for them. Putting an agency in between you and the tenants means you may be giving up a lot of your profits to the agency.
The best thing that happened to me, though was I started reading http://mises.org. There in 2000ish I learned about how the fed and CRA were going to create a housing bubble. And the consequences of that. I invested along that thesis in the mid 2000s, getting out of the market in 2007 when things were too crazy to make sense (missed the top by a year, but still good timing.)
Macroeconomic understanding (And I don't mean what politicians talk about or the politically connected people like Paul "we need a housing bubble" Krugman) has been very profitable for me. More profitable than any stock tip.
Also gained a lot of insight from attending Berkshire Hathaway annual shareholder meetings, but now I just read the annual reports.
You only have to think about it for a moment to realise this. What if everyone did it? We'd all starve. What if everyone worked hard to gain a skill and then used it to create wealth? We'd have a great life.
I understand what's happening with land exploitation but I won't join in because it's disgusting. It's not "just business" as these sorts would say.
If everyone did anything other than grow/hunt food, then we'd all starve. The entire structure of our economy is built are specialization where only a small fraction of workers produce enough food for the entire population.
And you know you're in trouble, if even bankers consider you a scam.
In my opinion, personal financial stability (and even prosperity) can be boiled down to a few simple rules:
1. Earn more money than you lose.
2. Be very careful with debt.
3. Take risks, but be very aware of the downsides.
4. If you have to invest, invest in yourself first (education, connections, etc.) and in securities second.
Having been brought up in a middle class, academic family and moving successfully down an academic track, it opened my eyes to ideas that I couldn't even have comprehended existed before.
I don't know if the majority of what Robert Kiyosaki sells is bluff and bluster, but I do know that the foundational message of the book (as told in the quotes on this blog post) were absolutely revalational to me.
Similar lessons, less smarmy (own the ladder? dude, stfu).
Trying to invent the next great technology is hard, and you'll probably fail. But following in the footsteps of others greatly increases you odds of success.
People like him are what's wrong with society today and nothing short of a bloody revolution will set us back on the right path.
There's nothing inherently exploitative about renting homes. Owning a home in the US is within the reach of most American families. So lots of people rent because they chose to. Some people prefer the flexibility to move, don't want to do maintenance, or prefer to live in higher density areas where personal homes are less common.
People who rent real estate are just providing a service, and a critical one at that. If nobody rented places to live, then we'd have a lot of homeless people in the world.
The argument about "if nobody rents out" is just wrong. Are they going to knock the place down if they don't rent? Yes there is a need for rentals but this should be within a world where we have land value tax so the bulk of the gain is passed onto the state to reduce labour taxes, reduce land costs and improve living standards.
These guys are adding nothing, they are taking labour.
The cost of a home is not the cost of the bricks it's the cost of the land in the main areas with employment prospects.
The USA was originally a land of opportunity. Why? Because you could get hold of land cheap. You were no longer constrained to near-serfdom by total land enclosure in Europe. Now here we are back to square one with the rentiers creaming off labour and books on how to join them.
I can see you think that land tax would be fairer (I'm inclined to agree) but that's really not related to the message of the book. Are you opposed to private ownership of capital in general?
Were this to stop I think that we'd see a lot more actual productive work and a fall in the need for people to work all the time. The existing system ensures we all work all the time. If we get more productive rents go up to capture the gain.
If this stopped we'd see more people able to opt out of the labour market and we'd see a shift towards employees dictating terms, who would demand a higher cut of their value added via higher wages. They'd also get to keep more as most income tax would be replaced by land value tax.
If you invest in wealth generation that's fine to take a share of this. I'd like to see the high end taxed so being born isn't like joining a game of Monopoly near the end but in general this works for me.
What I'd really like to see is people who create wealth getting to keep that. What I see now is a bunch of b@stards exploiting our flawed / corrupt debt based system to capture wealth creation.
Land is a special case. You can make more laptops so if want to corner the market in that go right ahead, waste your money. Land is finite and it's the source of all wealth. Why should someone own this in perpetuity and be free to extract a percent of labour from someone else, handing it down across generations like kings?
We should each contribute and if we contribute well we live well. An end to the rentier leeches.
https://www.youtube.com/watch?v=ltz3e9LDaJ0
First 10 seconds "the game Monopoly" used as praise. Originally called "the landlord's game" inspired by the writings of Henry George as a criticism of land enclosure and money. He retires early because he has a stream of income from the labour of others. Nice!
http://www.theguardian.com/lifeandstyle/2015/apr/11/secret-h...
Secondly, I don't think this really has much to do with the book unless you think the returns to capital invested in land and housing is much greater than the returns to capital invested elsewhere.
Thirdly, land is only an issue because it's currently in short supply. You can't make laptops any more once we've run out of rare earth metals, say. When that happens we might have to start taxing stocks of them, too.
They will construct a building that earns them money. So all those people who rented the apartments are now homeless and their former homes are now an office complex, a parking garage, or a CVS.
Net result: land owner makes money (still), but now people are homeless.
> this should be within a world where we have land value tax
We live in a country where property taxes exist. These people (usually) pay them and it's not cheap. In fact, high property taxes fuel higher property values in the US.
Also interesting, property taxes are also a form of rent. They are often used by the local governments to force people off of their land. This is usually the first step to gentrifying a neighborhood. Rising property taxes cause property values to rise, creating a property tax feedback loop that forces people from their homes. This exact thing happened in my home town where property taxes doubled, then housing values went from $40k to $120k in like five years, effectively increasing taxes 6-fold in the neighborhood.
> Yes they are horrible and yes they are exploiting people
People need food, clothing and shelter. Companies sell food and clothing and I'm sure you think that's okay, but a company selling shelter is exploitation?
You are telling me that I'm being exploited because I live in a rental property. I just don't see it. I gain more value from my place than I lose in rental fees. Being able to move cheaply and quickly has earned me tens of thousands of dollars in extra wages and saved me tens of thousands in real estate transaction fees and maintenance.
Plus, I get to sleep indoors.
> The USA was originally a land of opportunity. Why? Because you could get hold of land cheap.
There's cheap land all over the US. Throughout most of the midwest, you can buy acres and acres of productive, high quality land for <$10k acre. You won't have neighbors for miles and you'll have to construct your own roads, but it's out there and abundant, just like it was in the 19th century.
The only good take away was the assets vs liability distinction.
I think there might be some good tips in there, but IMO, very few people get rich from seminars, bar the seminar leader and the company behind it. but at the end of the day i'm a cynic and quite likely a wage slave for the rest of my life.
- The Millionaire Fast Lane
- How To Get Rich (Dennis, not Trump)