Robert Kiyosaki Blog

Right now, the stock market news is all about soaring energy prices. And this may part of what could undo corn ethanol.

Earlier this year, corn ethanol looked to be in a sweet position. The government offers huge subsidies to the Big Ag companies (like Archers-Daniels-Midland Co.) who produce corn for ethanol. Additionally, rising oil prices were making alternatives (like corn ethanol) more desirable. Politicians were out there stumping on increased support for ethanol so that we could break ties to foreign oil.

Now, however, as things are liable to do on the stock market, things have changed. Corn ethanol is no longer looking profitable. Indeed, ethanol producers are seeing their profit margins shrink as two, rather large, new factors are introduced:

• Price of natural gas.
• Flooding in the Midwest.

Back in January, it was unforeseen that all energy prices would be surging to the levels that they are at now. And natural gas plays a big role in the production of corn ethanol. With natural gas prices following oil prices ever higher, it is costing more to produce corn ethanol.

The flooding in the Midwest isn’t helping, either. Corn that was meant to be turned into ethanol is being washed away, and in some cases the land it was growing on is being ruined by the things that floodwaters bring (toxins from chemicals and pesticides, excessive animal waste, debris, etc.).

What once looked like a promising investment is now starting look rather bleak. Indeed, this might herald the end of corn ethanol as an alternative to gas for cars. Which means that other fuel sources will have to be found. On the other hand, though, some might see it as an opportunity to get in while the prices are low and hope that Congress steps in save the budding ethanol industry. It’s been known to happen with increasing frequency.

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Corn Ethanol May Not Be The Best Investing Choice

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Self Defence Class with Kim and Robert Kiyosaki

In all my financial interactions -  be it planning for clients, training, teaching or writing, people have come to me with some problem which they think is unique.

In all the financial problems, I am able to find a pattern. Believe it or not, people more often than not choose the problem by their behavior. It is easy for me to find a pattern and say, “Well you choose your problem, did you not?“

Your financial problems would have been caused by some (or all) of the following financial behavior:

1. Not planning: The single biggest problem for most people is that they just do not plan their finances. Even if they are not happy about the results of what they have done so far, they do not change the way things are done.
2. Overspending: Many people with not very high incomes have very high ambitions. Most of this problem is because the salesmen in most shops do not tell you the price of a product, they only tell you the EMI - so anything from a plasma TV to a luxury home on the outskirts of the city are made to look cheap!
3. Not talking finance at home: Children are kept away from the finance topics at the dining table. Finance is perhaps the second most taboo topic at home! So many children grow up without knowing how much of sacrifice their parents have gone through to educate them.
4. Parents spending on education and marriage: There are just too many kids out there who believe that they need to worry about savings, investment and life insurance only at the age of 32 plus. This means your father, father-in-law or a bank loan has funded your education and marriage. Kids should take on financial responsibility at a much younger age than what is happening currently.
5. Marriage between financially incompatible people: Most marriages under stress are actually under financial stress. Either the husband or the wife is from a rich background and the other partner cannot understand or cope with the spending pattern. It is necessary to match people financially before marriage.
6. Delaying saving for retirement: “I am only 27 years old why should I think of retirement“ seems to be a very valid refrain for many 32-year olds! Every year that you delay in investing the greater the amount that you will have to save later in your life. Till the age of 32 it might be feasible for you to catch up, but after some time the amount that you need to save for retirement just flies away.
7. Very little life insurance: With all the risks of life styles, travel, etc. illness and premature death are common. We all have classmates who had heart attack at the age of 32 but still pretend that we do not need life or medical insurance.
8. Not prepared for medical emergencies: Normally big emergencies - financially speaking - are medical emergencies. Being unprepared for them - by not having an emergency fund is quite common.
9. Falling prey to financial pitches: The quality of pitches has improved! Aggressive young kids are recruited by brokerage houses, banks, mutual funds, life insurance companies, etc. and all these kids are selling mutual funds, life insurance, portfolio management schemes, structured products, et al.
10. Buying financial products from `obligated persons`: This is perhaps one of the worst things you can do in your financial life. A friend, relative, neighbor, colleague who has been doing something else suddenly becomes a financial guru because they have become an agent! You are saddled with a dud product for life!
11. Financial illiteracy: Most people do not wish to know or learn about financial products. They simply ask, Where do I have to sign? So buying a mutual fund is easier than buying life insurance!
12. Ignoring small numbers for too long: What difference will it make if I save $100 a month? Well over a long period it could make you a millionaire! So start early and invest wisely. It will make you rich. That is the power of compounding.
13. Urgent vs important: Most expenses, which look urgent, are perhaps not so important - the shirt or shoe at a sale. That luxury item which was being offered at 30% discount is such an example. These small leakages are all reducing the amount of money you will have for the bigger things like education or retirement.
14. Focusing too much on money: Money is no longer a commodity to buy things. It is a scorecard of one`s life. That will cause stress, and yoga might help. However if you will seek a branded yoga teacher - so that your friends think you have arrived, yoga it self could cause financial stress!

PV Subramanyam is a financial domain trainer and can be contacted at pv.subramanyam@irisindia.net

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14 Common Financial Problems!

Whitney UK and Rich Dad Education, a provider of educational programmes in property investment and financial well-being, have drawn up their own POSITIVE advice relating to the current mortgage market.

The advice is:

P lan ahead for the longer term. Try not to sell your home or investment properties unless you absolutely have to. Even if house price dips are making you fearful, historically in the UK, house prices will and do double every 10 years. So the only time you will potentially lose money is when you sell a property prematurely.

O ptions – speak to recommended brokers or lenders to look at your options. The mortgage product market is unlikely to dry up altogether – what you will find though is that only the major lenders will still be offering buy to let products for a short period, but perhaps with lower LTV built in, together with higher short-term interest rates and front end fees.

S supply and demand - understand that economic activity is cyclic and will change over time. The UK Government has said that we will need at least 200,000 new housing units until 2016 and we aren’t keeping up with this target. As demand continues to outstrip supply prices should remain strong. (Source: Whitney Development’s Wealth Club Newsletter: April 2008 Edition).

I nterest rates – economists are predicting that there will be at least two more rate cuts by the end of this year and that even fixed rates may also come down over time.

T ightening of credit? What this refers to is largely the availability of credit and mortgages in the domestic residential sector. For investors, different criteria applies so step on the investor ladder with a credible source of education from Whitney UK and Rich Dad Education.

I nformed. Keep yourself informed of how market changes affect you in real, not perceived terms.

V ictim mentality. Avoid this by finding solutions for your problems. With every perceived problem comes a viable solution. Don’t forget that as consumers we keep the banks and credit card companies in business! If one lender can’t help you, there is one out there who can and will.

E mployment levels are at record highs and stand at fractionally under 30 million people. Unemployment stands at approximately 1.6 million.

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A POSITIVE approach to the mortgage market

Most people out there always talk, or worry about how much money they make.  They compare salaries for jobs.  They get second jobs to supplement their income.  They leave jobs to go make more elsewhere.  Everything they do in life is based on the final end of year income.  How much did that W2 or 1040 claim you made for the year?

Well, I’ve learned that this is the absolute worst way to judge your financial situation.  In fact, it doesn’t matter how much you make.  Your financial situation has very little to do with your income.

It has everything to do, though, with your expenses, or what I like to call your ‘outcome’.

Expenses are the key to getting rich. As Robert Kiyosaki said in his book ‘Rich Dad, Poor Dad’, the definition of wealth is how many days you can live without working.  In order to live everyday without working, you must have more passive income than expenses.  Passive income is defined as income you gain without having to do any physical work (i.e. collecting rent checks, music royalties, stock dividends, etc.).

In our education system, they teach us to do well, go to college, and get a prominent job with a great salary.  However, let’s look at some of the jobs.  Most doctors go to school for umpteenth years, and then get out and have to build their practice.  They make nice incomes, but they also usually have very high expenses due to student loans and the cost of their education.

A doctor may make over $200,000 / year.  But add in a family, education bills, insurance cost, taxes, natural debt, and everyday expenses, and your ‘Outcome’ is maybe about $50,000/year.  Now let’s take a cop. A cop does not have to go to school for that long, if at all.  He makes a salary of somewhere b/t $60 -$100k (at least in NJ). That sounds like a lot less than the doctor, but it’s not.

The cop has very little, if any, expenses.  Being a cop, he gets a lot of ‘privileges’ and connections in the town.  He spends very little money on anything except everyday expenses.  He also only works 4 days/week, so he has 3 days to do something else to supplement his income.  At the end of the year, he probably had the same ‘outcome’, if not better, as the debt-ridden doctor.

Now, not every doctor is left with student loans.  Not every cop is debt free.  It is not necessarily the job I am criticizing.  I am speaking about the thought process this country teaches in its education system.  They expect you to want to go out and make the highest salary, but they don’t teach you anything on how to handle your expenses, how to properly buy a home, or how to balance your finances.  They expect you to learn it on your own.

Until a good friend handed me ‘Rich Dad, Poor Dad’, my financial education was non-existent. I thought you got rich by making the most money every year.  I didn’t know anything about passive income, balancing finances, or even what the real definition of being rich is.  After I read this book, and countless others like it, I started to understand what it means to be wealthy.  I made it my goal to further my financial education every day.

This made my goals easier to choose. It made decisions easier to make. I now had an education to base them on. The one thing that definitely stood out was….it’s not your income, it’s your ‘outcome’. It does not matter how much money you make, it’s how much you keep. Controlling your expenses is the key to getting rich, not your income.

I’m curious about everyone else’s take on the lack of financial education most Americans have.  Feel free to comment on any situations you have experienced in your life that may be related.  I’d love to start a discussion on this topic so we can all learn a little more…..

~ yinvsyang.com

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It’s Your ‘Outcome’, not Income that Matters.