I thought it was funny to read about himself and his wifes accountant and how she (the accountant) reacted when the couple wanted to take 30% of $1000 to invest instead of paying the bills. Even though they owed $1500 to creditors. The accountant became very upset.
This lesson about paying one-self first is something that very few do. They pay themselfs last, but think they pay themselfs first. The thing is that people pay themselfs what is left over. That is not paying yourself first.
It takes a certain kind of guts paying yourself first. Especially 30% of income. Robert Kiyosaki and his wife actually made money through business dealings and paid themselfs 30% before taxes. That takes real guts. Though I would guess the taxman got the first rights to the money on what was left over, before the other creditors
.
But I can’t help it, I like Robert’s crazy way with money. It resonates with me and makes real sense to me. I like his creative financing schemes as well. I really do. Others thinks he is a total moron, I can’t agree at all. He is probably the sanest person out there.
This guy knows that in the end, yourself goes first in line. You only have yourself in the end. I find it (just as the author does) funny that we prioritize others more than ourselfs. People think that this is our responsibility. That is BS, I am responsible for me first. Always. Then I can be responsible for others. But I need to secure my ass first. How can I secure my own ass first when everyone else is entitled to my money before I am entitled to it?
So think about this:
Every time you get $1 in your pocket from business dealings, take 30 cents right of the top and invest it. Pay taxes on what is left and the other creditors. The creditors that are left when there is no more money, need to wait until you earn some more money. This makes you really productive. You have to be..hehe. You have no choice.
Creditors of importance are always:
YOU
The goverment
Banks and financial institutions
Other small time creditors.
If you are dealing with criminals and the Mafia then I would propose for you to stop dealing with those people. It can become a problem if you pay yourself and fall short of paying those guys.
Read the book by all means, you can never get enough of Robert’s refreshing view on finance and business.
I would like Robert to write a whole book on creative financing examples. I think that would have been a slam-dunk. I would have bought it directly.
If there was one question that people would pay a million bucks to have the answer to, it would be – How do I get rich? The answer is really obvious – if you have a million to spare then why waste it on a foolish question.
Invest it and over the years you’ll surely get your millions.
But that’s not the answer they are looking for. Surely there has got to be something more to it — some deep insights, some invaluable pearls of wisdom, some magic!
Not really. It’s often just simple common sense. Like Robert Kiyosaki’s best selling book Rich Dad, Poor Dad that should be made the Bible of the financial world. Here are four points from there on how you can do it:
1. The value of learning
Go back to your earliest memory. When you wanted to ride a bike on your street, the first thing you had to do was learn how to ride. Or when you wanted to pass your Maths exam, you had to learn your tables. Then why is it that when we want to make money, do we not understand that we have to learn good investing?
Instead we tend to just pick up the phone, speak to our stockbroker, buy a stock and start dreaming of becoming rich. That’s exactly what rich investors don’t do.
Instead, they ‘learn’ to ‘invest’. They learn all there is to know about the art of investing in stocks. All about the stocks they wish to buy and only then do they take the plunge. Above all, they keep practicing what they have learnt. They keep sharpening their saw. This single factor of learning before hand separates the rich investors from the poor investors,
2. Shop at a discount
Another bit of common sense — What do you do when your neighborhood super market announces a SALE? You flock into the stores and buy up every little item and build up at home piles of grocery, soaps, etc. But when stock markets reduce the prices of shares and announce a ‘crash’ every investor rushes in to ’sell’ and runs away from the market.
Again, conversely, when Super Markets raise their prices, customers shy away and refrain from buying till the next ’sale’ but when Stock Markets announce rising prices, every investor rushes in to ‘buy’.
This is not the way rich investors behave. They follow the same principle of buying at the super market. They buy stocks only when the stock markets crash. Ask Warren Buffet!
3. Define asset
If you own it, it’s an asset. If you owe it, it’s not. The rich never keep their wealth in the form of liquid money in a bank account. They always keep acquiring assets while the poor acquire liabilities, which they mistakenly believe are their assets.
A house bought on a loan is not an asset, it’s a liability. The same goes for paying for groceries through credit card. So you need to learn the difference.
In life what is important is not how much money you ‘make’ but how much of that money you succeed in ‘keeping’ and ‘multiplying’.
The rich know how to keep it because they know how to invest it. Money well invested is money well kept. Good investing is often more rewarding than good earning.
4. Make real money
Real money is made when you ‘buy’ an asset and not when you sell that asset is yet another gem from the author. Be careful of the price you pay when investing in an asset.
Don’t rush into buying any investment at any price. Wait till the prices come down the way. The ‘price’ of the asset when you buy is the sole determinant of your profit on that asset when sold. If you buy that asset cheap, your profit on sale is obviously larger.
All these four seems rather straightforward now that you think about it. We known all this instinctively and we only have to apply it to the stock markets — it’s really common sense.
The only problem is that common sense isn’t really all that common.
~ Kanu Doshi
Excerpt from:
How to get rich despite bloodbath at markets
1 Indebtness
2. Low wages
3. Financial illitetracy
4. Bad family relationship
5. Lack of sound personal financial management principle
6. Poor habit spending
7. Lack of clear financial goals
8. Credit card dependency
9. Poor knowledge of number game when comes to money
10. Your money working for others
11. Fear of taking investment risk
12. Play safe when comes to money matters
13. No financial budget to follow
14. Bad spending habit, expenes exceed our income
15. Lack of patient in accumulation of money
16. Constantly looking for financial independence short cut
17. Setting financial goals with no time bound
18. No plan to follow
19. Not knowing who to be your influencer when comes to money matters
20. Waiting for tomorrow
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20 Major Challenges to Financial Independent
If I want to become rich, then I need to invest in assets that generate passive income. This is what I have learned from reading the Rich Dad’s series by Robert Kiyosaki. One such asset that can generate passive income is real estate. And anyone who can afford to invest real estate will likely to do so. And they will rent their properties out in hope of earning passive income. But a lot of time, they miss out quite a number of costs in their calculation to decide whether they can afford to invest in their properties.
Let imagine that I decide to buy a property that is priced at $200,000 for investment. It does not simply mean that I will be paying $200,000. In fact, I will be paying much more than $200,000. To understand why, there is a need to know more about the type of costs involved.
There are two kinds of costs to look out for when doing any investment, namely fixed and variable costs. Fixed cost means that the cost is fixed. It will not change. Variable cost means that the cost is not fixed and it changes with time. Also, cost can also be classified into one time cost or regular cost. One time cost is something that I need to pay once only. Regular cost is something that I need to pay at regular interval such as once a month. Fixed cost is usually one time cost. Regular cost is usually variable cost.
If I buy a $200,000 property, I will need to pay legal fees to the lawyer to transact the purchase. This is an additional one time fixed cost on top of my purchase price. Another example of one time fixed cost will be the stamp duty fee.
I will also need to pay an accountant to manage and file the income tax for my rental income. This is an additional regular variable cost on top of my purchase price. Another example of regular variable cost will be maintenance fee for my property.
And there are hidden costs too! Hidden costs exist in any kind of investments or businesses. They do not just exist in real estate investment. I am simply using real estate as illustration on hidden costs. Thus, one should always on a look out for hidden costs in any kind of investments.
For example, I need to manage and maintain my own property by investing my time. Thus, time is a hidden cost. Also, I will need to find a valuator to perform a valuation on my property before the bank will loan me the money. When I apply for mortgage loan, there is a need to pay for loan acceptance fee.
As you can see, when the realtor tries to sell me a piece of real estate, he will only present the price of the real estate. He is unlikely to tell me the list of all other costs that is involved in the transaction. Also, he is unlikely to tell me that if I intend to rent the real estate out, what are the additional costs involved. In the end, I will end up spending much more than $200,000 to buy the real estate and rent it out.
Similarly, I can end up spending more money than I intended to when I buy something for personal use! An item that is cheap can be very tempting. But there is always a danger of hidden costs.
For example, I can buy a printer at a very low price. But the original ink cartridges are rather expensive. By buying a few original ink cartridges, I can almost buy a brand new printer. Thus, the hidden cost is the original ink cartridges replacement costs.
If I have noticed the hidden costs, then I am able to do something about my decision. For example, I may buy another printer instead where the cost of replacing original ink cartridge is low. Or I can look for alternatives other than using original ink cartridges. If I can find a good alternative for original ink cartridges, then I will buy that particular cheap printer.
In conclusion, I should always look for all type of costs whether I play the role as an investor or business owner as defined in cashflow quadrant by Robert Kiyosaki. Or I am simply playing the role of a consumer. After identifying all the possible costs, then I will be able to budget the amount of money really needed for the investments or whatever things. I will not be caught in a situation where I am overstretched financially because I have done a good job at budgeting my investment based on the various types of costs.
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Cost and Budgeting
A lot of us are worried in the global financial crisis that we are all facing. Companies are cutting down their costs. Unemployment rate rises. Economies are entering recession. Many are left homeless and are doing their best to make ends meet.
While this scenario may be a disadvantage for a lot of us, this crisis poses an advantage and a great opportunity for the so-called “VULTURE FUNDS“. It’s a great time to hunt for their food. But what exactly are vulture funds in the first place?
Just like vultures, birds who prey on dead bodies of animals, vulture funds also prey on dead things. They prey on distressed debts and assets of ailing companies experiencing financial turmoil. Sometimes, they are also called special situations fund. The ultimate goal is to buy these distressed debts and assets at a very low bargain prices and profit from it turning trashes into an instant gold.
During the height of the Asian Financial Crisis in 1997, a lot of debts and assets turned sour. A lot of borrowers who availed loans in dollar currency were left with a ballooned principal and interest as an effect of rising mighty dollar against a basket of asian currencies. Because of this, there’s an aggressive increase of non performing assets in the balance sheets of banks which are considered as trashes ready for write down. In order to avoid huge potential losses from these trashes, banks dispose it by selling to vulture funds.
One of the countries hardly hit by the Asian Financial Crisis before was our country Philippines. Non-Performing Loan Ratio (NPL Ratio), the ratio of non performing loans to total loans of banks, reached its peak to as much as 20% on their balance sheets. In order to address this problem, the Congress passed a law in 2002 called Special Purpose Vehicle Act of 2002 (SPV Act of 2002). This particular law gives huge tax incentives to vulture funds buying distressed debts and assets of banks. Six years after the passage of the law, banks now have considerably reduced their NPL ratio to as low as 5% disposing billions of distressed debts and assets to vulture funds set up by leading investment banks such as Deutsche Bank, Lehman Brothers, JP Morgan Chase, Morgan Stanley, Amroc Investments, and Barclays Capital.
On the latest study conducted by Debtwire on Asian Distressed Debt Outlook for 2009 surveyed among 100 hedge funds, China and Indonesia posed the greatest opportunity for distressed debts and assets as an effect of the global financial crisis that we are currently facing.
Truly, vulture funds can easily turn banks’ trashes into gold. But as with any other investments, high returns mean high risks. Detailed due diligence and the right resolution strategy is the key in a successful distressed debts and assets investments. Once again, vulture funds will be on their active hunting season for their preys…
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Vulture Funds On Hunt for Distressed Investments
