The Big Idea

FINANCIAL LITERACY = FINANCIAL INDEPENDENCE
A true tale of two dads— one a highly educated professor, the other, an eighth grade dropout. Educated dad left his family with nothing, except maybe some unpaid bills. The dropout later became one of Hawaii’s richest men and left his son an empire. One dad would say, “I can’t afford it” while the other, asked, “How can I afford it?”
Rich dad teaches two boys priceless lessons on money, by making them learn through experience. The most important lesson of all is How to Use Your Mind and Time to create personal wealth. Free yourself from the proverbial “rat race”. Learn to spot opportunities, create solutions and “mind your own business”.
Learn to make money work for you, and not be its slave.

Rich Dad’s Words of Wisdom:
• You are what you Think.
• A job is a short-term solution to a long-term problem.
• A highly paid slave is still a slave.
• Why climb the corporate ladder when you can own the ladder?
Good Thinking:
Two roads diverged in a wood, and I— I took the one less traveled by, And that has made all the difference.
Robert Frost, from ‘The Road Not Taken’

Overview

There is a Need.

The rationale for teaching people financial literacy comes from the fact there is no real job security these days. Even after years of toil, the poor and middle class may find they do not have sufficient funds for their children’s college education, or their own retirement. Why work for a corporation, the government, and the bank all your life? Awaken your financial genius and gain financial independence and freedom!

Lesson 1: The Rich Don’t Work For Money

At age 9, Ariel Tannenbaum and his best friend Mike asked Mike’s father (Rich Dad) to teach them how to make money. After 3 weeks of dusting cans in one of Rich Dad’s convenience stores at 10 cents a week, Tannenbaum was ready to quit. Rich Dad pointed out this is exactly what his employees sounded like. Some people quit a job because it doesn’t pay well. Others see it as an opportunity to learn something new.

WORK TO LEARN

Next Rich Dad put the two boys to work, this time for nothing. Doing this forced them to think up a source of income, a business scheme. The opportunity came to them upon noticing discarded comic books in the store. The first business plan was hatched. The boys opened a comic book library and employed Mike’s sister at 1$ a week to mind it. Soon they were earning $9.50 a week without having to physically run the library, while kids read as much comics as they could in two hours after school for only a few cents.

Lesson 2: Why Teach Financial Literacy?

They don’t teach this at school.

The growing gap between rich and poor is rooted in the antiquated educational system. The system trains people to be good employees, and not employers. The obsolete school system also fails to provide young people with basic financial skills rich people use to grow their wealth. Know your options and use this knowledge to build a formidable asset column.
In an age of instant millionaires it really isn’t about how much money you make, it’s about how much you keep, and how many generations you can keep it.

Steps to get out of the proverbial rat race:

1. First, understand the difference between an asset and a liability.
Assets Liabilities
• Real Estate • Mortgages
• Stocks • Consumer Loans
• Bonds • Credit Cards
• Notes
• Intellectual Property

The poor have day-to-day expenses, the middle class purchase liabilities that they think are assets (i.e., a home or a car), and the rich build a solid base of income-generating assets.
The middle class finds itself in a constant state of financial struggle. Their primary income is wages, as wages increase, so do their taxes. Expenses increase as wages increase. Hence the phrase “the rat race.” They treat their home as their primary asset instead of investing in income-generating assets.
The rich get richer because they keep acquiring more assets and investments to generate more income, which far exceeds their expenses.

Reasons why the home is not an asset but a liability:

1. People work almost all their lives to pay off a home (30-year loans)
2. Maintenance and utilities expenses.
3. Property tax
4. House values can depreciate.
5. Instead of investing in income-earning assets, your money goes out to payments for the house.

Your losses:

1. Time that could have been used to grow value in other assets.
2. Capital which could have been invested rather than paying home-related
expenses
3. Education that makes you a Sophisticated investor If you want to buy a house, first generate the cash flow by acquiring assets, which bring income to pay for it.

Examples of real assets are:

• Apartments for rent
• Real estate
• Businesses that do not require your physical presence. You hire managers.
Average time of holding on to an asset before selling it for a higher value:
1 year
• Stocks (Startups and small companies are good investments)
• Bonds
• Mutual funds

7 years
• Real estate
• Notes (IOUs)
• Royalties on intellectual property
• Valuables that produce income or appreciate In summary, the key steps to getting out of the rat race are the ff:

1. Understand the difference between an asset and a liability.
2. Concentrate your efforts on buying income-earning assets.
3. Focus on keeping liabilities and expenses at a minimum.
4. Mind your own business.

LESSON 3: MIND YOUR OWN BUSINESS

KEEP YOUR DAY JOB BUT START MINDING YOUR OWN BUSINESS.

Tannenbaum sold photocopiers on commission at Xerox. With his earnings he purchased real estate. In 3 years’ time his real estate income was far greater than his earnings at Xerox. He then left the company to mind his own business full time. He knew that in order to get out of the rat race fast, he needed to work harder, sell more copiers and mind his own business.
Don’t spend all your wages. Build a good portfolio of assets and you can spend later when these assets bring you greater income.



End of Part I (Part 2 will be posted soon or visit http://www.investment-suisse.com/


ABOUT THE AUTOR :
Dr. Markku Zaota holds a Bsc, MBA and PhD in Business Management with a concentration in Risk Management. In addition, he holds Certificates in Production Management, Human Resources Management and Economics from the University of Oxford and London School of Economics.


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