Robert Kiyosaki Blog

~ Kim Kiyosaki

As my mind ran through all the mistakes I’ve made over the years, two thoughts came into my head.

First, I don’t consider a mistake something bad or something I wish I hadn’t done. A mistake, to me, is simply an action I took that did not have the outcome I intended. Every mistake I make teaches me something I didn’t know. Human beings are designed to learn from mistakes. The more mistakes I make, the smarter I become.

So even when I lose money on an investment, that loss tells me there’s something I need to learn. People who avoid making mistakes stay stuck, even trapped, by what they know. They rarely venture into untested waters and don’t learn anything new.

Second, I found that my mistakes–where the actual results didn’t match my intended results–fell into two main categories: 1. when I lost money or 2. when I lost a good deal.

These cases all had something in common. The mistake was not losing the money or losing the deal. That was the result. What was more important was what caused the result. That’s where the real mistake–plus the lesson–lies.

It turns out that every memorable and costly faux pas I made was the result of the same simple but powerful failing: My biggest investment mistakes occurred at times when . . . I did not trust my gut.

It was those times when I doubted myself: when something sounded so good it had to be true (that’s also known as greed) or when I allowed the so-called experts to talk me out of it.

Not trusting your gut, also known as not following your intuition, can last just a moment. It’s when you see or feel something, as subtle as it might be, and you ignore it.

“No, I must have heard him wrong.”

“I’m sure this case is the exception.”

“But all my friends have invested in this. They must know something.”

My “mistakes” occurred when I didn’t listen to the warning signals going off, and that’s when I got into trouble.

It may be as simple as a gut feeling that says, “Sell those ABC stock shares now.” Then the broker talks you out of it . . . and the shares go downhill. I’ve done that one.

Or when I knew, from one snapshot moment, that I should walk away from a deal because my gut was screaming “No, no, no!” I went through with it because the returns being reported were better than anything I had seen–and I wanted those returns. Here’s the story that goes along with that scenario:

My husband Robert and I met a man who owned a hedge fund while we were attending a stock-trading seminar. Several knowledgeable investors we knew were investing with him and telling us about the incredible returns they were getting. We were interested. So interested, in fact, that we made a special trip to his firm’s offices in Florida to conduct our due diligence on the company.

This man claimed to have designed a unique and confidential trading system that was the core of his success. He had just refurbished and moved into plush offices. I made a mental note of the high overhead he was paying monthly. What we heard and saw did not set off any alarms. That night he and some members of his executive team took us out to dinner at an upscale steakhouse.

This man had made a strong point of telling us what a good Christian man he was. Now I don’t care whether a person is Christian, Jewish, Buddhist, Muslim or Hindu. However, I’m a strong believer in practicing what you preach; if this man goes out of his way to share his religious principles with me, then I expect him to act in a way that is congruent with those principles. Not the case here.

During dinner, and after a bit of wine, this man and his cohorts turned into the most obnoxious, rude, womanizing and embarrassing people I had ever been around. Diners near our table were getting up and walking out. At that point I knew in my gut that, at least on the “Christian” level, this man did not practice what he preached. And my instincts raised the red flag: “Where else is he not practicing what he preaches?” That was the moment I should have walked away.

The next morning I had convinced myself that maybe this was just a fluke. Maybe this man was just letting off some steam. “Can I really judge a person’s character from one incident?” I asked myself.

Why didn’t I trust my gut? Greed. The returns on his investments were far beyond the average. People I spoke with who were investing with him sang his praises. I could certainly overlook this one flaw if it meant I’d make a lot of money, I rationalized.

So Robert and I invested money with this man. The statements we received showed beautiful returns–on paper. We were about to invest more money into the hedge fund when Robert brought home a copy of a well-known investment newspaper. On the front cover was our friend, Mr. Hedge Fund, sitting on the beach with the headline, “Would You Trust This Man With Your Money?”

At first I was shocked, and then I began defending the guy. “It’s probably a disgruntled employee wanting to get even,” I thought.

In fact, this man conned his investors out of millions of dollars that he spent on everything from a new house to a new boat. He’s in prison, and investors may get about 10 percent of their money back.

The lesson for me was this: Had I trusted my gut at that defining moment at dinner when I knew something was not as it should have been, I would have saved myself money, distress and frustration.

Mistakes are truly mistakes only when you cover them up and pretend they didn’t happen; if you do that, you learn nothing. And in that case, you’ve just wasted a perfectly good mistake.

Go here to see the original:
Trust Your Gut

The Australian Government provides a money-management site that is useful to people around the world. Understanding Money encourages readers to adopt a three-point approach to their finances:

1. Prepare a budget plan - work out how much you earn and what you spend it on, to help you see where you could make changes.
2. Set some financial goals - they don’t have to be big, but they’ll help you see what you could gain by being better with your money.
3. Get into the savings habit - once you’ve set some goals, try to save regularly and as much as you can to meet your goals.

Understanding Money includes a free, downloadable budget planner in Excel format; a financial health check with links to financial literacy resources; and a free, downloadable money handbook in PDF format. Though some of the details (such as the types of retirement programs) are Australia-specific, the concepts are applicable to anyone, anywhere.

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Understanding Money

Cherie Kerr wants out of her home. The 65-year-old comedian and public speaking coach paid $590,000 for a 1,150-square-foot Los Angeles condo two and a half years ago–only to find the construction so flimsy that her upstairs neighbor woke her up by dropping a coin on the wooden floor.

“A defect hell,” fumes Kerr of her newly built abode. She has moved back into a suburban home she still owns and would love to unload the apartment, but housing values have fallen so far that she figures such a move would lock in a $200,000 loss.

The good news is that Kerr is anything but stuck. A real estate agent recently informed her that the condo can fetch $3,300 a month in rent. That’s enough to cover her mortgage and property taxes. So Kerr has decided to lease out her condo until values rebound. While she no longer harbors visions of becoming rich off the downtown L.A. property, things could be a lot worse.

“It’ll be a tax writeoff,” she says.

Kerr has lots of company these days. No less a financier (and former do-it-yourself tax preparer) than Treasury Secretary Timothy Geithner is leasing out his Mamaroneck, N.Y. home after failing to get for it a bid he was willing to accept. If you’re one of the horde suffering real estate buyer’s remorse, you too may be able to turn a modest profit renting out your albatross of a residence. How can that be? Thank the trove of tax breaks for residential landlords.

The first step in figuring out whether renting makes sense is to find out how much your place is worth. A professional appraisal is best, but written statements from a few Realtors will do as long as they agree on the value and stipulate how much is attributable to land and how much to the building. (The appraisal, as you’ll see later, is essential for two separate tax calculations.)

The next step is to see how much the property will fetch in monthly rent and weigh that against the costs and tax consequences. As a landlord, you can’t claim mortgage interest as an itemized deduction on Schedule A of your tax return. Instead, you deduct interest costs, plus property taxes, monthly condo fees, insurance and anything you pay to a property manager (most charge 10% of rent) against rental income on Schedule E. You can also expense travel and other costs you personally incur to look after the property.

The other big tax deduction for landlords is depreciation. The tax code allows you to divide the value of your building (but not the land) by 27.5 and to claim the result as an annual depreciation expense. Here’s the first place that the current appraisal comes in. When you convert to a rental, your depreciation is based on the cost of the property plus improvements or its market value at the time of conversion–whichever is less.

In Kerr’s case she must use the $390,000 fair market value of her condo, not the $590,000 she paid. Assuming that 10% of the $390,000 is attributable to land under her building, the depreciation expense comes to $12,764 annually (and reduces her cost basis by the same amount). Add in Kerr’s other expenses and the total is likely to exceed her $39,600 gross annual rental revenue. Almost any residential landlord with a mortgage is going to be in that boat.

The amount by which expenses exceed rent is a tax loss that can be used to shelter up to $25,000 in other income–say, from your salary–if your adjusted gross income is $100,000 or less. (The same cutoff applies to both singles and couples.) Above $100,000 the break is phased out, and it disappears completely at $150,000.

“It’s the one and only time you get to use a passive loss to shelter active income,” says Sacramento tax attorney Roni L. Deutch.

If you happen to be a real estate professional–defined as someone spending at least 750 hours a year, and at least 50% of his working time, in the business–then your career managing property becomes an “active” one and your losses are fully deductible against other income. If you fail the income test or to qualify as a pro, your rental losses don’t go entirely to waste. The net loss gets carried forward and deducted if and when you dispose of the loser real estate or you have gains from passive investments. These gains could be from selling the property in question at a capital gain or from owning other passive investments, like oil wells.

Note that “passive” is a term of art in the Internal Revenue Code and does not cover portfolio investing (stocks and bonds). So if you collect $30,000 from stock dividends and have a $30,000 loss on Schedule E, you can’t net one against the other. But you can wise up, sell the stocks and use the proceeds to pay off the mortgage. At that point you’re probably out of the loss column on the rental and pulling real cash out of the property. A good part of the cash return will be sheltered from taxes by your depreciation deduction.

How are gains taxed when you sell a converted property? A lot depends on timing. If you lived in the property for at least two years and then rented it out for less than three, you may be able to use the provision that excludes $500,000 in gains from the sale of a principal residence, per couple, from tax. (You’ll still owe gains tax on the amount claimed as depreciation.) If you sell at a loss, the only deductible portion is the loss occurring after you converted the house from personal to income-producing use. The appraisal is crucial here.

Kerr hopes that sales prices will rebound in two years. Assume instead that they slide and she clears only $340,000, or $50,000 less than what her Realtors said her condo was worth when she converted it to a rental. Her tax basis in the property will be $364,500 (the $390,000 minus $25,500 for two years of depreciation). She’d be left with a $24,500 capital loss she can use to shelter taxable gains on other investments. Also, she could then claim any passive losses she couldn’t use before.

Renting does present problems. You must either maintain a property yourself or pay someone else to do it. Tax and real estate experts warn against hanging on to real estate if rent falls far short of your pretax, out-of-pocket costs. In other words, look to the tax benefits to sweeten the deal, not drive it, says tax accountant William Fleming of PricewaterhouseCoopers.

Rent Out Your Home. Cut Your Taxes.

It’s a quote from a book I just finish reading : Cashflow Quadrant: Rich Dad Poor Dad.

It’s an interesting read – I know I’ve read it twice and the reason why I bring up this topic “Making Money” is because of the economy. Really – I look at my kids and I wonder … have I wasted my life. Have I been so busy in the pursuit of my own happiness that I can’t offer more for my children because I thought wanting to make more money was “evil”… or maybe because I was scared or too lazy to try?

This kind of book – how to make money or the mentality behind it really makes you think.

Yes I know – I’m not trying to make it rich or even become rich over night. But I do have that urge to do more, make a little extra so my kids can have it easy. If anything – learn a couple of money managing or wealth building skills I could teach my kids so they don’t end up like dear old dad – a slave to a job – always wondering if this recession or hard time will destroy all my dreams [ if I have any ].

What parent doesn’t want the best for their kids and who doesn’t dream of “making money effortlessly” … I mean seriously! It’s not like it can’t be done – People today are making money sitting at home. You have people who make six figure incomes because they came up with some lame application for the iphone that millions just had to buy.

The other reason I bring up the “money and how to make it” plus the mentality behind how you think and spend your money – is because of my loving wife. We are on opposite sides of the spectrum when it comes to money. I am more of a saver thinking of tomorrow and she is more of a “lets have fun today before we die tomorrow” kind of person. Which really makes it difficult when it comes to money and our finances.

I’m trying to get my daughter to read – Rich Dad Poor Dad
, by Robert T. Kiyosaki…
Not because I want her to be money hungry but rather I want her to think differently when it comes to money. In today’s economic crisis – millions of people are learning that having a job is not having security. We are all learning that depending on the government truly is more riskier than playing the stock market.

Wanting Better for your Kids Financially

Really is it bad to want better for your kids, financially speaking? Or maybe just the chance to change the way your kids look and think about money and how it works. I went to the book store yesterday and saw hundreds of posters and stickers about “buy 2 get one free” deals. Everyone is hurting in this economy – but the wealthy or smart people weather it better because they have options and a deferent mind set – as where regular people like me are stuck making money [income] at a dead end job. If you love your job, career hey that’s great. But when the kids ask for toys, milk or an unexpected expense comes along that breaks your bank – you only have X amount of dollars to work with because your boss is not going to give you a raise.

I watch the gas pump like a hawk [ not that it does me any good ] and at my job [ where I make most of my money after taxes ] I see people purchase with the gas pump in mind. I mean that people will say things like – “I have to watch my pennies, gas is too high”. Why, because even with a job – we live on a fixed income and every time gas goes up, food prices go up – our dollar [ spending power ] drops.

No I don’t want my kids to be greedy make money at all cost kind of people. But I do want them to think different, see the world different. Have the insight to take educated risk and plan wisely for the future. Rather than be like dad and save , save , save and be no farther ahead than I was 20 years ago. Or worse – be like Mom and millions of other Americans who live for today and now 20 years later still can’t see that their no better off than they were before.

Growing old and finding out that making money was important

I watch my father in-law who only has a year to go before he retires at age 50. It’s great that he has a job that gives him that ability – but he wonders if he could afford to retire. He is concerned with the fact that the money he makes, the money he saved, … will it be enough for him to live a comfortable life? I listen to him and wonder – what will I be thinking, doing when it’s time for me to retire – will I be able to retire?

Do I want my kids to do the same or can I teach them to do things, think in ways that will better them in the long run. That when they reach age 40, or 50 they could retire with little worries and if they work, it’s because they want to – not because they need to make money in order to survive.

I’m not talking making them into millionairs – just better off than me.

Here is the original post:
Making Money is not evil

Robert Kiyosaki

I am often asked, “What advice do you have for the average investor?” My reply is, “Don’t be average.”

Most of us know of the 80/20 rule. That rule is a good rule for averages. And in the world of money, the rule is 90/10. This means 90 percent of the people make 10 percent of the money and 10 percent of the people make 90 percent of the money.

This 90/10 rule holds true in almost anything financial. Take the game of golf, for example. Ten percent of the professional golfers make 90 percent of the money.

Taking the ratio to the next level, the top 10 percent of professional golfers make 90 percent of the money. Just look at Tiger Woods. When you compare his winnings plus endorsements, he is in a league unto himself.

Last year, my wife Kim was invited to play in a pro-am as part of a professional Tour event in New York. (No, they did not invite me…) Kim is pretty good and was the only woman in a field of around 300 golfers. I was a proud husband as she confidently walked alone to the women’s tee. Without hesitation, she placed her ball on the tee, took a clean back swing, and swung her club.

She out-drove two of the men in her five-some. Bruce Vaughn, the professional golfer in the group, rushed up to congratulate her. The men amateurs were also complimentary. I could tell they were relived to have a much better than average “woman golfer” in their group. Kim hits her drives longer than most men, myself included.

Tough Way to Earn a Living

The tournament was the first time I got to see the real life of a professional golfer. It is a tough life. It is not the glamour I thought it was. If a professional did not make the cut, they simply moved on to the next tournament in some faraway city…and teed up again. They do not stay for the tournament. They pay for their own transportation, lodging, food, and fees. They are on the road, away from their families for months at a time. Even those who make the cut and play on the weekend have no guarantee of enough earnings to offset expenses. It’s a tough way to earn a living.

Like professional golfers, who live and die by the ‘money list,’ money is how I keep score. It’s my score card, my report card as an investor. It’s how I tell how well — or how poorly — I’m doing. My rich dad said, ‘Making money is my game.’ It’s my game, too. And that’s why I have so much respect for professional golfers… their livelihood depends upon how well they play the game — as professionals.

In the world of golf there are average and professional golfers. The same is true with investors. The problem with being an average golfer or investor is that average people rarely make any money. Many average investors are in financial trouble today because they are simply that: average. They never turned pro.

When the financial crisis began in 2007, the professional investors were already out (or getting out) of the market. The average investors did as they were told, which is to invest for the long-term, hanging on tight as the Dow plunged from 14,000 to below 7,000, a 50 percent loss in value. Many real estate flippers and homeowners enjoyed the same wild ride.

Tragedy of the Average Investor

The tragedy is that many amateur investors are still clinging to their losses. They hope the market will bounce back. Amateurs are still following the advice of “invest for the long term in a well-diversified portfolio of stocks, bonds, and mutual funds.” Or they continue to believe “your home is your biggest investment.” That is subprime advice for subprime investors.

It seems to me that more people keep track of their golf scores than keep track of their money… their ‘financial’ scores. That’s why they’re amateurs… in the money game.

Even after the crash, the same subprime financial advice continues to be dished out in magazines, newspapers, and on television. Subprime advice continues to flow from real estate and stock market professionals who are not professional investors. They are professional sales people. They live on commissions — not ROI, the returns on their investments. If they do not sell, they do not eat.

If you’re going to turn pro, you will need to upgrade your financial advice. Why continue to invest for the long term while the market is crashing? Why continue to diversify when diversification did not protect investors from the crash?

In 1974, as I was leaving the Marine Corps, I decided I wanted to become an entrepreneur and investor. In other words, I did not want a job with a 401(k). That meant I had to become street smart, rather than school smart. It meant I needed a different set of life skills and better financial mentors if I were to survive on the street.
Just like the life of the pro golfers, there were long stretches of losses, no wins, no money or security.

In early 1985, things got so bad that Kim and I were temporarily homeless. I still remember leaving her in San Diego with only $2 for the week, while I traveled to Australia to put a deal together. Somehow we survived the year. In December of 1985 we finally made $1,500 after a year’s worth of losses. That year was a great qualifying school. Today, even in this tough economy, our investments continue to grow. This crisis is a good time for professionals and a bad time for amateurs.

Not Good Enough

Years ago, I asked my rich dad, “What is the difference between a professional and an amateur?” His reply was, “Professionals know their best is not good enough. They always want to do better.” He paused before continuing and said, “When someone says, ‘I’ll do my best’ or ‘I’ll give it my best shot’ or ‘I’ll try,’ they’ve already lost. Those are not words of a winner.”

In the world of ‘the best,’ your best is never good enough. If you’re going to be a winner in life, you have to constantly go beyond your best. Most people are happy being average. Most are happy being faceless in a sea of faces. That’s why 10 percent always win 90 percent of the rewards. I get up every day, grateful for what I have accomplished, yet looking forward to doing better. I want do better than my (previous) best everyday. It’s not about the money anymore. I have enough money. I just love the game of making money.

Today I give most of my money away…but I will not give up the game of money. I play the game because the game is always better than me…and my best will never be good enough. I continue to work hard to become better at a game I love.

I once read a book on golf that said, “People say amateurs play for the love of the game and professionals play for money. That is not true. Amateurs are amateurs because they do not love the game enough. When it is cold and rainy, a professional golfer will play. The amateur will not. When they are sick, the professional will play. The amateur stays in bed. When they are losing, the professional will practice harder and enter more tournaments. The amateur will quit and take up tennis.”

It matters little if the game is golf, tennis, or money. Ten percent of the people will always make 90 percent of the money. When the markets began crashing in 2007, the money did not disappear. Ninety percent of the money went to 10 percent of the investors.

A financial crisis is a great time for professional investors and a horrible time for average ones. If you’re going to invest, don’t be average. It’s time to turn pro… or take up tennis.

Originally posted here:
Investors: Don’t Be Average