Transcription
He's taught millions worldwide how to become rich. Now, best-selling author and financial expert Robert Kiyosaki reveals the financial secrets of the rich with you. See how Robert's simple formula for personal wealth can transform your life and put you on the path to true financial freedom. 60 Minutes to Getting Rich begins right now.
Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. You're very kind. Thank you very much. Uh, first of all, thank you for coming here this morning. And some of you came great distances. Uh, I remember every time I do a talk, I'm always worried that people won't show up. And so my ego couldn't handle the blow. So thank you for showing up. And I'll do my best to be of some value or entertainment today.
Uh, first of all, how many people have had the chance to read "Rich Dad Poor Dad"? Good. Okay. Thank you. For those who haven't had a chance to read the book, I'll give you a quick background on the story. "Rich Dad Poor Dad" is a true story. And it's based upon my two dads. My real dad was the head of education for the state of Hawaii. A very smart man. He was the boss and things like that when I was in school. And my rich dad was my best friend's father. And my best friend's father was a man who didn't finish school. He dropped out of school at age 13, but ultimately became one of the richest men in the state of Hawaii. Self-made. Did it on his own and stuff like that.
So "Rich Dad Poor Dad" is a true story of what two fathers tell their two sons, my best friend and I, about the subject of money. And as the sub, or the positioning statement, the book says, "What the rich teach kids about money that the poor and middle class do not." And as we all know, for the most part, we learn very little to nothing about the subject of money in school. And so what we learn about money oftentimes is handed down from parent to child. And those are the ideas that we have relative to the subject of money.
So my rich dad was a man who, when you, he was my best friend's father, said, "When you look at the white sand beaches of Waikiki and the hula girls and the palm trees," my rich dad was the guy that owned the land underneath the hotels. And my poor dad, I mean, I call him my poor dad, although he was a high-paid government official. I do mean high-paid. He made a lot of money. In fact, he made much more money, as far as a salary and paycheck goes, than my rich dad. And so the story is really what my rich dad taught me as compared to my poor dad.
And so what we're going to be going over today are some additional ideas and thoughts and information that may assist you in getting wealthier, easier, quicker. How many people like to get wealthier, easier, and quicker? Good. Thank you.
So in contrasting them, most of us have heard, like my poor dad, very middle-class man. I mean, smart man, but he had middle-class ideas when it came to money and values. And he always said, "Son, our house is an asset and it's our largest investment." And my rich dad would say, "Here, I'm nine years old." I'll go, "Okay, I got it, Dad. I got it." Right. And then I would go over to my rich dad's house and I would say, "My dad just said our house is an asset and our largest investment." And my rich dad would say, "Well, that's why your old man's not rich. It's because your house is not an asset. And if it's your largest investment, you're in really big trouble." And that's when you know the contrast that started to hit me.
And then my poor dad always said, "Do you think money grows on trees?" And his favorite words were, "You know, say, Dad, let's buy this." He goes, "I can't afford it." And my rich dad said, he forbade his son and I from ever saying the words, "I can't afford it." He said, "The moment you say you can't afford something, you know it becomes true." So the power of the spoken word, or your thought, has the ability to become what you think is real in the world. So if you say, "I can't afford something," that becomes your real world, or reality. And what my rich dad said instead was, instead of saying, "I can't afford it," simply say, "How can I afford it?"
Or in school, a lot of times with my, you know, I'd say, "Hey, Dad, guess what? I'm going to be a millionaire." He goes, "You can't do that." And my rich dad said, "Never say you can't do something. Ask yourself, how can I do it?" And he said, "Just in the switching of those words, if you say, 'How can I afford it?' your mind opens up to the possibility. And your mind then has to go to work. This is your single most powerful tool you have is the brain. But if you say, 'I can't afford it,' then the thing goes to sleep. And it sits there, goes dormant, and doesn't have to do any more work. You're just, you're the one who's doing the work then."
So those are some of the subtle, you know, differences. My poor dad, the school teacher, always saw the head of education, always said to me, says, "Son, go to school, get good grades, get a safe, secure job, high-paying job, and work hard." And my rich dad said, "It's a good idea if you want to work hard all your life. He says, but if you want to get rich, you have to learn how to have money work hard for you so you don't have to work for it. And you also have to learn to buy companies. Don't be the guy applying for the job. Be the guy that's handing out the job."
But I want to give you something I really share to say to people is that there were three main points that I think made a difference in my life. And point number one is that I realized very early on in life, money is a what? Idea. It's whatever you think it is. Now, when people say, "Well, how can I get more money?" I said, "Well, just first change the way you think. Change your ideas." That's the good news. That's all you have to do. I realize when I talk to people about money, I'm slamming straight into their ideas. And you know, a lot of times with money, there's several subjects you don't talk about at the dinner table: sex, religion, politics, and money. And whatever. And the reason for that is it's a very volatile subject. Whereas in my family, my poor dad, the school teacher family, was, "I'm not interested in money. Money is not that important to me." I began to realize that was my poor dad's idea, was his attitude. Whereas my rich dad always said to me, "Money is power. Money gives you power. Respect. Treat it respectfully." You know, so there's all these different ideas about the subject of money. The thing I hear people say is, "I'll never be rich." And that becomes a self-fulfilling prophecy, you see. And that's why money, just as an idea, is so, so powerful.
And when I talk to people, I oftentimes ask them, I said, "What did your parents tell you about the subject of money?" Because that becomes real, you know. If you were told, "Go to school and get a job." See, many of us may not be in the same profession, but we're following the same path. And most people did not come from families that were rich. In America, less than one out of 100 people age 65 becomes rich in the richest country in the world. One out of a hundred. Four percent become wealthy. I think 56% are dependent upon the government or a pension to take care of them. And they start going downhill. So what I had to do with what I'm going to be talking to you about is I had to watch my ideas. I had to watch what I said. And I had to watch who was giving me the ideas, okay? Because they're not the same. Like you, you go to one doctor and they say, you know, "Eat a low-fat, high-carbohydrate diet." You got another doctor, they say, "Eat a high-fat, low-carbohydrate diet." Somewhere, you got to make your choice.
Number two, the thing that I learned by having two dads with contrasting points of view, I realized this really early on. I realized that money doesn't make you what? Rich. Because my poor dad made more money than my rich dad. So I think one of the biggest mistakes would be going into this. A lot of times, people actually think, "If I win the lottery, you know, then I'll be rich." Or if I go to Vegas or gamble, or my luck changes, then I'll be rich. That's nothing to do with it. Money is a very powerful tool. As my rich dad used to say, "If you use it well, it'll make you richer. If you abuse it, it'll make you poor."
So one of the big things that my poor dad made the mistake of saying, he always thought that if he got a pay raise, that would solve his money problems. And the trouble is, every time he got a pay raise, he got bigger problems. So it made him poorer and poorer. The more money he made. Does that make sense, you guys? That was a very big problem with him.
And then the third thing I realized by having two dads, having two contrasting points of view, was that there's two kinds of money problems. One problem is not enough money. The other problem is too much money. And they're both problems. And the thing that I say to people is this, that, you know, like I think most people think they're real special. "I'm the only one with money problems." Well, the reality is, everybody has money problems. Everybody. Every single person. Every company has money problems. Every country has money problems. Every government has money problems. Everybody has a money problem. What makes you rich or poor, middle class, is how you challenge or handle the problem. And what most people do, since, you know, so most of us came from families where the problem was too much or too little, too little. And that becomes our idea. We think money is scarce, hard to get, work hard for it. Very popular idiom going around today suggesting that the way you get rich is cut up your credit cards. Oh, yeah. Live below your means. Those are poor people's mentalities. Save. You know, go long-term. Buy mutual funds. It's not a rich person's way of thinking. I love my credit cards. They make me happy. You know, you know, I drive. He says, "Drive a cheap car." I don't look good in a cheap car. I don't feel good.
Now, the point I'm making here again, this poor, middle class, aren't rich. And very early on in my life, I really realized that being poor and struggling did not look good on my face. I did not like it. But I grew up in the family that if you were rich, you know, the idea was that you were crooked, evil, not caring, inhuman, not generous, and all that stuff. So if I said, "I want to be rich," then I went against my family's values. You know, it was tough having that.
Now, the other thing I saw was that by my rich dad managing his money well and doing, becoming a business owner and an investor, that he got richer and richer and richer. Then he had a different kind of problem. His problem was too much money. And my rich dad said to me, when I was about 18 or 19 years old, he said, "Son, there's two kinds of problems: not enough, too much. Which one do you want?" And at that point, does it make, you know, it's, and so I made an obvious choice. I said, "I like the one with too much." You know, like, I want to have that problem. And it's a very big problem.
So knowing these three different things, I could make different distinctions and different choices in my life. The big point I want to make today is that money comes down to fundamentally a choice. That's all it is. And so as a young boy, having two dads, starting at age nine, I had to make a choice of which dad I was going to listen to. And it was a tough decision. Really, really, really hard. Because I loved both men. Both men were big men. You know, if there was a role model, they feel they were tall and they looked, they acted like John Wayne or Robert Mitchum, you know, not Pee-wee Herman. They were big, strong, powerful, good, honest, hard-working men. I loved them both. But their ideas were almost polarized, completely opposite. And that's why in "Rich Dad Poor Dad," in the book, I write that Robert Frost's poem, I think, "The Road Less Taken," "Other less wordless travel." I had to make a choice of which one I was going to listen to, which one was I going to follow down the path. And I made that choice. And it was a hard decision because I had to go against my whole family's culture, beliefs. And they're all school teachers. You know, they can, when I came back from Vietnam, they said, "You know, I got my bachelor's degree. I got that Bachelor of Science." Because now, "Son, you are going for your master's, aren't you?" I said, "I kind of doubt it." He said, "But you won't get a good job. You know, you get a better pay raise if you have a higher degree." I said, "I'm not going to get a job." And it's hard. You sit at a dinner table, there's no conversation. You know, "Well, you're going to get your doctorate?" I said, "Well, if I'm not going to get my master's, I don't think I'm going to get my doctorate." "Yeah, but you get a better pay raise." You know, they came from the government model that it was not what you did, was how high, what your degree was that you got paid by. And that's their reality. It's not my reality. So I have to make a choice.
And the thing I say to people is that in many ways, I'm more like my poor dad. And when I retired in 1994, sold my company and all this, I was set for life. You know, I realized that I've been too much like my rich dad. And that I want to run the second half of my life more like my poor dad. But I was going to teach people what my rich dad taught me. I was a decision I made. But the thing is, as a choice. And my propensity, my natural inclination, my genetic makeup, my mental makeup, is more to be poor. I have to fight my natural inclination to go for job security, to play it safe, save money, invest for the long term, all that other rot my father believed in.
The point I'm making here is this: Every morning I get up, I still make the same choice. Every morning I get up, I make the choice: Do I make the choice to be poor, middle class, or rich? And we all have that choice. You know, what we have to, as individuals, make that choice. But end of my talk today, you'll find out how easy it is to become exceedingly wealthy. But it's just a choice. Okay? So my intention is to maybe shake some of your core values. You know, think about the way you think. Change the way you think. You may want to make some new choices and things like this. That's my purpose.
So what I'd like to ask you to do is you find a partner. I'll give you about 30 seconds. And you just talk it over. You talk about what your parents taught you, what choices you had. But more importantly, talk about this subject here. It's just an idea. What were some of the ideas you got from your family? The idea that you think you work harder and make more money will that make you rich? I don't think so. And there's only two kinds of money problems. Which one do you want? If you're sitting by yourself, uh, break out a notebook and just write down some of your thoughts. Because really, it's just your ideas that cause you to be rich, poor, middle class. So we take about 30 seconds and discuss with the person next to you some of these ideas. Thank you.
The main point of the book "Rich Dad Poor Dad," for those who have not read it, so this is book number one. The main message and the point is the importance of financial literacy. Can you read a financial statement? So again, comparing my rich dad and my poor dad. My poor dad, the school teacher, was very worth literacy. I mean, we, he read a novel a week. He read constantly. And he used to say to me, "You know, readers are leaders, and leaders are readers." I said, "Good." And I go see my rich dad. He's who didn't read that much. He says, "But I could see the difference between your father and I. I can read the financial. I can read numbers."
So this is a, so "Rich Dad Poor Dad" is very simply about the numbers. And this is an income, income, expense, assets, and liability. And that's the basis of financial literacy, financial statement. Now, the problem. And so what it is about the difference between assets and liabilities, things like this. This is really what the book was about. You know, the thing about asset. My father would say, "My house, our house is an asset." And my rich dad would say, "It's not." Because very simply, assets, according to my rich dad, assets will put money in your pocket whether you work or not. And a liability will take money from your pocket whether you work or not. It was very simply. Yet, the important things about a financial statement is that it allows you to see the truth instead of being stymied by other people. My bankers never asked me for my report card, yet, you know. And what your banker asks for is your what? Financials. Because what a banker wants to see is your financial intelligence, not your academic intelligence. And both are important. Academic intelligence is important, you know, forever. But so is financial intelligence. So my rich dad said, "Your financial statement is your report card once you leave school." The problem is, 99% of the people leave school and they don't have a clue what a financial statement is, much less what a checkbook is. And they know credit card, but they don't know much beyond that. And so they're easily swayed with the idea, "Your house is an asset." And that's what gets them in trouble. They can't tell the difference between an asset and a hole in the ground. That's a big problem there.
And then book number two, which is this one here, was "The Cash Flow Quadrant." Quadrant means four. And the quadrant was the four people that make up the world of business. E stands for Employee. S stands for Self-Employed. B stands for Business Owner. And I stands for Investor. So my poor dad always said to me, you know, "Son, go to school and get a job." So he was programming me to come here. But I kept saying, "But I want to be rich." My mother says, "Yeah, don't listen to your dad." You know, I mean, my mother was a nurse. She says, "If you really want to be rich, you should become a doctor. They make a lot of money." So my mother was saying, "Become, you know, specialist, self-employed, or small business owner, independent." You know, you hear people say, "If you want to be successful, get a profession like something you can fall back on." You know, "Become a plumber, electrician, attorney, accountant, something you can fall back on." Because these guys are the smart guys. You know, these are the, these are the people that come, doctors, lawyers, accountants, and they're really the brains of the class.
My rich dad said to me, you know, "Robert, you're, you make a lousy employee. You can't follow orders. You don't like sitting still. And you're not very smart, right?" He says, "You'd be very good over here." These guys aren't that smart. And that's the truth. That's why some of the richest people on earth are over here, because they're not smart, but they know how to surround themselves with smart people. And that's the figures. One of the biggest differences.
The other part is the investor. And the investor uses a different mentality, different emotions. Investor wants their money to work for them. And their words are, "What's my return on investment? How soon I get my money back?" See, most people have the money in a 401k. That's not an investment plan. It's a savings plan. An investor would not do that because it ties that money up too long. I want my money in, and I want my money out. I want to know when it comes back to me. It's called velocity. How soon do I put it in? How soon does it come back? Savers put it in and they leave it there forever. It's a different value system.
My rich dad said, "You always tell an employee by their words. They use the same words all the time." Said, "Employee will always say, 'I'm looking for a safe, secure job with benefits.' Always." "I wish that." I also said, "You can always tell a self-employed person because they'll say such things as, 'I charge you, I'm going to charge you six percent commission,' like a real estate salesperson, or '$100 per hour,' or 'I'm going to charge you for the job by this much.'" They go for these people. Time is money.
And the business owner, what they say, "I'm looking for the smart people, best people. I'm looking for the best system." They don't, because they want to move on, start another business. They want to have multiple corporations. Very big difference. An investor says, "I want an ROI now." The theme song for the self-employed, there's been a small business owner, and the big business owner is very simply this: A big business owner, if they do the job right and build the company, they can leave. And when they come back, the company's doing better without them, more profitable, because they have the brightest people running it. A self-employed or a small business owner, if they leave, the income goes where? Down. Or they, if they have employees, they were there, you know, they just fare it out. All they just take everything. The thing falls apart. So that's the difference.
And also the difference between S and a B is the size of their ideas. Like a lot of times I meet people, come at me, say, "I want to start a hamburger stand." You know, one hamburger stand. You know, whereas the same guy named Ray Kroc comes, says, "I'm going to build a hamburger stand all over the world." Difference in vision, idea, and leadership skills. They're very, very different people. And the reason they're different is because emotions. This person here values their, it's fear. So they want security. Security drives them hard. So they're fearful. This person over here is lack of trust. And these guys are highly specialized. And also the most satisfying, you know, because they like, they do, they have their own time, their own life, and all this, and very happy this way. But it has its limitations also. Generally, these people are limited to about $500,000 a year max. In here, just because time is money. Over here, it goes unlimited how much you can earn. So they're very, very big differences.
And the thing, the investor here, their thing is they're neutral. Emotionally neutral. In other words, what that means, they don't care if you're winning or losing. When somebody says, "I'll go to somebody, the stock market's going to crash. Mutual funds get wiped out." They're not neutral. They're reacting. A true investor doesn't care if the market goes up or the market comes down, because they're going to make money either way. That's an investor. They really do not care. They know that losing is part of winning. It's called money management. How well you do that. And all this. Very, very neutral. And this person over here, the emotion is patience. You have to be patient. These guys want to get paid now. These people may not get paid in the average, what, three years, right? They don't get paid. That's why the first question when somebody comes to ask me to invest in their companies are, "Are you willing to work for free for three years?" "Go, no." I said, "Well, I don't invest with you because you're still thinking like this." So those are the emotional differences. You know, because today, just being an employee is suicidal. You know, today, you have to be employee plus an investor. You can be self-employed plus investor, okay? You have to be on both sides of the quadrants. What I'm saying, minimum, whether you're here, here, or here, if you ever want some time off, you have to be an investor today.
So very simply, on starting from the age of nine and ten, I learned, I started here, and I stayed here. That makes sense. Here, I stayed here because this is my money working hard for me, so I don't have to work hard for money. It's a different point of view. And very, very different. The rich have the best investment. Number one, because they have money. People say, "How do you find the deals? Get rich." Because if you have money, they come find you. It's really simple.
The thing about this one here, the richest or the fastest game in the world played today. The way to get rich forever has been this one. I talk about in this book how my rich dad went and bought one of the best pieces of white sand beach in Hawaii. And I said, "How did you afford that?" You know, I mean, he was, he wasn't making any money. He didn't have a job. He would have this. He says, "How do you afford the best piece of beach in Hawaii?" He says, "Personally, I can't afford it." See, none of these people could afford it either. It's about $10 million. Individually, you cannot afford it. But your business can afford it. It's one of the biggest secrets of all. So the reason I started here and learned to build businesses so I could invest, so I can take down bigger and bigger properties. By this, individually, I cannot do that. I don't earn enough money as an individual. But my company can.
So the thing about the third book, which is "Rich Dad's Guide to Investing," is called "The 90/10 Rule of Money." The 90/10 rule of money is very simply says is this is that 10% of the people always make 90% of the money. Always. That's a very big part of it. And a big part of the investment book is that is how do you take your idea, build a business around it, and take your business public? The reality, as I know, is every single one of you sitting out there in the audience, you have an idea that can make you exceptionally wealthy, beyond your wildest dreams. Every one of you is created enough to have an idea. The trouble is, when you went to school, they didn't train you to be a business owner. They trained you to be an employee working for the rich. What the rich have the ability to do is take their ideas and create massive businesses out of them. So you have, you have your business, which does your investing for you. And the tax laws are written in your favor. Investing through a business, that's how the rich get rich because they pay less in taxes. Very simply, because they invest through the B and I quadrants. Investing from here, the laws are written against you. Here in America, in 1943, was the current tax payment act, which made anybody who's an employee could not pay themselves first. Government gets paid first. If you get a pay raise, government gets a pay raise. Forever, forever. You make a million dollars, you still pay more in taxes incrementally. 1986, they passed the current, they passed a tax reform back of '86. All doctors, accountants, attorneys, and they, their the laws were changed against them. But they never changed the laws for the rich. Because this is how the rich have gotten rich by owning corporations and businesses. And that's been in effect since 1215, which is a sign of the Magna Carta. So ever since, the things you have to know, you want to get rich, you have to play by the rules of the rich. Because the rich make the rules.
And for the last thing I'll say about taxes is this: If you're an employee, the tax laws are is that you, your financial looks like this. If you're a business owner, your financial looks like this. And the big difference here is this is as an employee, your first line on expense is tax. If you're a business owner, it's the last. That is the biggest loophole ever. And that's why the rich get richer. They can take their money that comes in here and goes in here. And these guys, the money comes in and goes there. Very big difference.
So would you take 30 seconds and discuss whatever you have heard so far? Thank you very much.
One of the ways I understand that money does not make you rich. When I was in my 20s, late 20s and early 30s, I became a millionaire. And it went straight to my head. You know, when you have money, you think your IQ goes up. In reality, your IQ goes down. You know, and it was, it was fast cars and even faster women. And I was a millionaire ball on V-bone around Waikiki. Now, I don't regret a thing. It was a lot of fun. But the more money I made, the more stupid I became. Anybody ever had that problem? So that's how I learned. I made a lot of money, and it made me instantaneously poor because I still had poor habits. Here, you see this right here? This is financial literacy, or financial intelligence. If you cannot read a financial statement, you cannot tell what's happening. You cannot read. And what you don't see here is how the rich make more and more money because of this one little loophole here. You know, that's my account. You know, over here, you hit 300, what, $335,000 in income, and your tax rate keeps going up. Over here, you hit $335 in income, income rate, tax rate goes down. The laws are written for the rich, by the rich, period.
So very quickly, I'll go into a financial statement. And this is the basis of wealth here. So my, so what happens to most people? As they say, "Their house is an asset." And all this. My rich dad said, "Your house is not." Whether a house is an asset or not, there's nothing to do with this thing here. It has to do with the most single important word in business. And that word is called what's the word? Cash flow. It's cash flow that determines it. So very simply, when I was nine years old, my rich dad said, "An asset is something that flows money into your pocket. A liability, something that takes money from your pocket." Just because your banker or your accountant says your house is an asset doesn't mean it's an asset. So when I read a financial, I see something listed here, and then I see whether it lodges up here. Now, if it doesn't lodge up here, then it must be going this way. It's going out the expense with no income. Does that make sense, you guys? Here, it's very simple way of looking at it.
Now, taking it one more, one step further. This is where the confusion sets in. Is very simply because if you buy a house for, let's say, $100,000, and you get an $80,000 mortgage on it, you put $20,000 down. The problem is, your house has listed both asset as well as liability. And that's where the confusion starts. It's listed in both sides. And that's the problem. So the thing here is this. And by the way, the word mortgage comes from the French word "mortir," which means death. So that means you're engaged until you're dead with the house. And staggering.
So let's say you buy this little green house here, okay? The way you know it's an asset, a liability. Let's say I use it as a rental property. And after paying all taxes, you know, taxes, insurance, and expenses, and all this stuff, I make $100 a month. It shows up over here under income of $100 a month. Now, if, let's say, I have a tenant who trashes the place, doesn't pay me rent, takes me a year to evict the bugger. Immediately, that house becomes a what? Liability. So the house can be either asset or liability. But it's not because it's an asset, a liability listed here. What determines if it's an asset, a liability is income and expense.
So what makes a person struggle financially is that what they do is they go out and buy a house and they call it an asset. They have a house mortgage over here. You buy a car, you call it an asset. You buy yourself a Gucci suit, that's called an asset. You get a gold watch, as an asset. And all this. But they're really what? Liabilities. And so what happens is, I can tell if a person is rich or poor, middle class, very simply by reading the financial. I can look at the financial and see if this, if money is coming in and money is going out. This is the cash flow pattern of a poor person. It's not how much money you make. It's how you spend your money. I know a doctor here in Arizona. He makes over $500,000 a year, but he spends $525,000 a year. It comes in and it goes. Oh, he thinks like a poor person. The average middle-class person, because they have a job, and then people, the bankers like people with jobs, and all this, they get all this stuff. This is their cash flow pattern. They have huge long-term liabilities. They're illiquid. And this is the cash flow pattern of the great middle class who think they're rich. My rich dad said, "It's just because you drive, you live in a big house, have a nice car, and drive, wear nice clothes, doesn't mean you're rich. You could be broke than the more poor than the poor person."
So the difference was for me was that I spent my life learning how to acquire assets so I don't need a job. The object was never to work for money. It was to learn to acquire assets that put money in my pocket, either stocks, bonds, real estate, businesses. So this is the cash flow pattern of the rich. The question, the way, the way you find out how rich you are is this is, let's say you're married, husband and wife. If two of you stopped working, what happens? If my wife and I stop, income still keeps coming because it's not dependent upon us working. The average person, all their assets, they realize if they stop working, are really liabilities. As my rich dad said, "Assets feed you. If you stop working, liabilities eat you." And the reason they can't stop working is because the liabilities eat them. So the definition of wealth is how long can you survive without working? It's measured in days or years in time. So when I retired in '94, my wealth was infinite. In other words, I always had more than enough money coming in that was greater than my expenses. As a way of thinking.
Would you please take 30 seconds to discuss that thing on cash flow? It's cash flow that determines if you're rich or poor. Okay.
So one of the things I'll be clear on this is whether you're an employee, self-employed, business owner, investor, the most important thing is this asset column here. Is your business? One thing that Rich Dad said, "You got to mind your own business." You know, when you become an employee, you mind somebody else's business. You're self-employed, you're oftentimes helping somebody else's business. So regardless of where you are, this is your business here. Like I talk about in "Rich Dad Poor Dad," you know, somebody says, "What, what profession are you?" "I'm my business. I'm a banker." So, "Well, but what, you know, that's our profession. It's not their business." This is your business. And your, your business, you should be an investor, you know, managing your own portfolio, acquiring your own assets, be it business, real estate, or paper like stocks and mutual funds. So what we're taught in school is not to mind our own businesses. We're taught to mind everybody else's business. And that's my message is, mind your own business. That's how you get rich. Okay.
So moving on. Last thing is this. So when a banker says to your house is an asset, he's not lying to you. You're just not saying whose asset it is. It's his asset, right? So when you go across town, you look, you go to your friendly banker, and you'll see that your mortgage is listed under what? Their asset column. So that's the fact right here. It's a mortgage here. And the way you know it's an asset, and they list it that way, I'm not telling you something that they listed that way. The way you know it's an asset is because your mortgage puts money in their pocket. And your mortgage takes money from your pocket. You see, it actually goes like this. It's a complete circle. Now, so that's why they're not lying to you. So say that, not saying whose asset it is. It's theirs.
Now, the other part about it is when you save money over here, it's really your asset. Now, if a balance sheet must balance, it has to balance someplace else. You go to the bank. Where does it balance? Bank. But is it their asset or their liability? It's their liability. Your savings are their liability. Notice that because they have to pay you money for your money. As cash flow determines that. Now, if you notice something else too, you get tax incentives to be in what? Debt. And you're taxed for having savings. And that's why I said, "How can we tax savings?" Because you're not smart enough yet. The banks know that. You know, political action committees, they control the rules. Are written by the rich. I'm not saying I love my bankers. I love them dearly. But you have to know the difference between assets and liabilities. And whose rules are you playing by? Poor, middle class, or the rich? Got it.
I'm going to talk about a subject that's getting nearer and dearer to many of my peers' hearts lately. And the subject is retirement, or the lack of the ability to retire. So I said, the way I retired early has to do with the issue of this debt versus what? Equity. The reason I could retire early was because I'm in debt. I borrowed my butt off to retire early. The average person is going to take to 65, 75, as long as possible, because they're trying to retire on what? Equity. In other words, they're going to try and use their hard-earned cash to retire. Where I would rather use the bank's money to retire. So I am in debt up to my eyeballs. Because the reason is, unless I know some of you are there, because I'm sure some of your parents told you to get out of what? Debt. Well, that's not that intelligent. Because you have to know this: good debt and what? Bad debt. And most people are loaded with what? Bad debt. And if you want to get rich, load up with what? Good debt.
And the question I was, I asked those bankers, I said, "Let me ask you this, how long would it take you to save one million dollars?" How many, I'll ask you guys, how long will it take you to save a million dollars? A couple of years, at least, right? How long does it take you to borrow a million dollars? About 10 minutes. If you have good financials. And that's the difference. And that's the price people pay for not being educated in this world to think that you have to work hard, save money, and finance your retirement on equity. I'd rather do it on debt. The way I do it on debt is my banker will always lend me money on a thing called real estate. Always. They will not lend me money to buy stocks. But they will, even with, you know, Bank of, you know, what stock they own stock. They won't lend me a million dollars for 30 years at 8%. But I find a commercial building, million dollars, 8%, 30, there all day long.
The thing that scares me right now is never have so many people in the history of the world bet their retirement on the stock market. And they've bet real money. Am I correct? And trust me, the market will crash. Always has and always will. Now, those taking deep breaths right now because you're not, because, because that should be good news. Because if it crashes, that's when you get rich. But the people who have been trained to think of playing it safe and all this, they're going to be in terror. Completely different point of view.
So the point I'm making here is this: The one of the reasons I wanted to get educated, understand cash flow, play the game, was just so I could borrow money faster. When my poor dad always said, "Get out of debt." That was bad. So I just call, you know, it's called my broker down the street here. I said, "I need 2.4." He says, "Come in and sign the paperwork." That was it. 2.4 million. Just sign. Now, because I can take that money and make 10 million out of it. The average person will go on vacation with it, or buy a big house, or buy a boat. It's called fiduciary responsibility. If you can prove you know how to manage your money, and you have the good financials, plus you have a couple of million in cash, they'll lend you all the money you want. Because they know my problem is too much money. And the reason I buy real estate is because I get more tax breaks. I get the real estate is the game of the rich, not paper. It's really interesting world.
So what I'm going to go into is how you can get to the point where you don't. I'm not recommending just go out and borrow today, especially if you have no education. I spent 40 years getting here to the point where I can call my broker up. Before, you know, 10 years ago, I called them up and they'd laugh. "How much do you want?" Well, I think there's a feedback that I have to improve my financials. Does that make sense, you guys here? To the point where they would say, "Yes."
So the difference between my poor dad and my rich dad was this: My rich, my poor dad always said, "Get a high-paying what? Job." Big mistake. Because the trouble, the high-paying job is you get taxed. So my rich dad said, "Michael is my poor dad, high income job." That was the key to success. That's a very middle-class, pedestrian point of view. The rich know this: It's not how much money you make. It's how much money you keep. You've got to keep it. It is not how much you make. It's how much you keep. It's called the income to expense ratio. In other words, how much drops to your bottom line. Does that make sense, you guys here? How much drops? So the minimum is 30%. So I'm making a thousand dollars, the minimum that can drop is 30%. If you're not going 30% to the bottom line, in other words, this way, and you don't have to do it, I'm just giving you the ratios that work. If you have a thousand dollars coming in this way, then $300 needs to hit here somehow. That's the ratio. The average person, you know, much is hitting here? Nothing. That's why they're poor. They're making more and more money, a high-paying job. You know, I went to the university to get a high-paying job, and I'm now a GS-19, and I'm getting more money, but less is dropping here. Does that make sense, you guys here? Because they're buying more what? Liabilities. It's called the income to expense ratio. How much is dropping? That's what counts. As it was to Sir John Templeton, he said, "When he got first got married, for every thousand that came in, 500 hit here." That's what makes the rich rich. It's not how much they make. It's how much they keep. It's a matter of focus. And my poor dad always said, "I'm making more money." My rich dad says, "I'm keeping more money." Big difference. Huge difference in long-term wealth. It's how much is hitting this here.
So the thing I have is an exercise that'll prove that anybody can be rich. And when I was a little kid, my rich dad gave me one of these. He gave me three of these little things. They're called what? Piggy banks. So if you want to get rich, go out and buy three of them. Okay? Three piggy banks. That's all it takes to train yourself to think to be rich. Now, for every piggy bank, so you have one piggy bank, two piggy banks, three piggy banks. One is for saving, one's for investing, and one is for tithing or charity. Very important to give. The decision you make today, you're going to, it's because I'm talking about choices. You can say, "Well, that's too simple." You know.
But the choice you make is for the next, for the rest of my life, or for the next 90 days, whatever you can handle. How much am I going to put in each bank every day, not once a week, every single day? Because what you're training is your brain to think like, and act like, and be like a rich person. You're dropping it to the bottom line.
So, let's say the most you can handle today, given your horrific financial brilliance, is one dollar. Good. Now, I don't care the dollar amount, but I do care that you do it. It's like going to the gym and saying, "You know, today I'm gonna look, today I look like a sumo wrestler, but tonight I'll be like Arnold Schwarzenegger." It's not possible, you know? I mean, it's not gonna happen. So, how many people right now could say for the rest of your life, with three piggy banks, you'll put one dollar a day away per bank? Good, right?
And it's not, and everybody can do it, but the problem is most people won't, and that's the difference. But once it hits your piggy bank, it's yours for the rest of your life. You pass it on for generations. That's what the rich do. The middle class find some cheap and tacky excuse to break the bank. Am I correct? "Oh, you know, I gotta spend this money." That was my poor dad. "Well, if I make more money, I'm gonna pay raise next year, government, you know, be a GS-195." But they kept breaking the bank.
Now, it has nothing to do with a dollar amount. It has to do with the habit, the way of thinking that this is more important to me than eating, is more important than my kids' clothes, more important. Everything else is this. This is first. So, start with a dollar. Everybody can do that. All it is is zero to go to 10.
Now, at this point, people say, "Well, that's not that tough." Try 10 bucks a day. Then you see some heartbeats. At that point, you're now at the boundary of what's possible for you. It's only a zero added on to it, and you want to spend it. Now, if this becomes easy at ten dollars, then just up it to, and you'll find your heart rate going up. So, when people say, "Well, this is not, this is a simple exercise, I'm beyond it," then try going to it. It is not the dollar amount. I mean, it's not the, it's not the things, it's the habit.
And you know, you're a stud. This ghost is never spent. This is what your mad money is. You buy your properties in stocks and bonds, mutual funds with you. Please, you can afford to lose this if necessary. You never lose this one. And you tithe either your church or charity of your choice. Now, I give to the charity that I would like to support, but I don't have the time to spoil it. So, you put your money where your body would be. Does that make sense to you guys here?
I reached, I gave it to his church. My poor dad gave nothing. He says, "When I have the money, then I'll give it." That's why he was poor.
The next point here is that my rich dad always believed in job security. My poor dad, job security. And my rich dad believed in financial security. So, the way you get financial security is again via these three things. This is the basis of it: savings, investing, tithing. So, the way you get financial security is start with this. Then I start investing with this. As I make sure my investing account, this is when I have my fund, I play with that money.
So, the deal here is this: whether you're buying a business, real estate, or paper, the ratio is this. You can ask my wife the question. For every, somebody says, "Well, you know, I don't have any money. How do I get some money?" I said, "Start with that, the, you know, three piggy banks." "Well, how do you find a nothing down deal?" The reason they want nothing down deals is because they got nothing to put down, right? And that's the most risky thing you should do. You can only take a nothing down deal when you have a lot of money to put down. This is too risky. I can take a nothing down deal because I got the money to cover in case it goes bad on me.
But the point here is this: how I got my experience, how I can find a deal, is this. You can ask my wife this: for every one property I buy, how many properties or businesses or stocks do I analyze? 100. That's the ratio. Before I buy one piece of property, I will analyze a minimum of 100 properties. If I don't buy one property in that hundred, I start all over again. It's a hundred to one is the ratio. That's how I find a deal.
Not only that, is when I had no money, what was I doing? Still analyzing a deal. It's a hundred to one before you can find one deal. We become, "Oh, you know, I went with a ride with a realtor and we found one property and we bought it." I said, "How many did you look at?" "Just that one." That's an idiot, not an investor. They have no clue.
The way you want to find out the market trends, the ups and downs, ins and outs, is you analyze 100 deals. Out of that 100 deals, you put in offers on 10, because 90 are bad. But in the practice of analyzing the deal, you get smarter. I learned more. I learned something from each deal I look at. Of the 10 I invest in, I put offers in, I might get three accepted.
Now, this, this counts my friend Dolph de Roos, who is a real estate genius. He says, "If this number is like six, what does that mean? You're offering too much money. That means you're not being tight enough. You've got to screw it down a little bit more. It gets down to nobody except when you're too tight." So, you want to keep it in this creation of that, you'll buy one property.
When people say, "How did I get my education?" I got my education evaluating deals. I estimate to this day, right now, I've gone, I've looked at over 50,000 deals. That's how I got smart instead of going to work. I look at deals. If I'm buying a business, ratio is the same: 100, 10, 3, 1. If I'm buying a stock and a company, I've got 100 companies. Same ratio. Everybody can do that. Does it cost them any money? No, not at all. It's free.
When I go on vacation with my wife, Kim, she knows where I'm going to wind up. It's a real estate office or brokerage office, because it's a habit. So, this is what gave me financial security, and what my poor dad focused on was what? Job security. He had no assets when he lost his job.
Okay, 30 seconds. Please discuss that ratio. 50,000 properties I've looked at. Now, I know the one last thing that in my experience keeps most people poor or struggling financially. So, remember the three piggy banks that gives you the money doing this 100 deals. The reason I don't have a job is because of interference, be looking at deals. I don't want to do that. I'm looking at a deal constantly against the people that work with it constantly. That's all I'm doing is tracking down deals. It's a waste of time to work. I don't get rich. So, that's the thing.
The second part is most people don't have the time to spend the time to get rich. They're too busy working for the money. And the third part is most people say it's risky or it's fearful, or they chicken out. You know, they see a deal, even if they see it, they back out. I've seen so many people do it.
And the reason for that is because if this is an iceberg, okay, most people, they say, "I'm gonna go, I'm gonna get the three piggy banks, I'm gonna look at a hundred deals." But it comes time to put the money, be called, "Go hard on the dollar." Gotta go hard.
If this is your conscious mind, let's say this is your what, subconscious, money, sex, politics, religion, this thing takes over. I've seen people, "Hey, you know, I might lose money. You know what, wouldn't what stock market crashes and whether this is better? You know, I'm gonna call my account, my attorney." This talks. I see him walk away from it. "Well, I think, I think about it."
It doesn't cost you anything to buy a piece of property. Nothing. It costs nothing. It's called you put an option down on it. I sit there, "So we got a million dollars to sit here. Here's a 20,000 check. Don't cash it for a week. I'll see you." I option it. Same as in stock market option. I don't use the thing. It doesn't cost anybody to buy a piece of property, but people will talk themselves out of it. Instead of interacting, these guys are reacting. And, "Well, you know, it's really tough here in Arizona," or, "You don't know what it's like to be in New York." And going, it doesn't make any difference, because the problem is between your ears. Because the fears come up, they start talking. You can't talk to these people at that moment. They're like, and the reason is, is because of the magic word. What is it? Fear.
And what happens to the average person? Fear stands for False Evidence Appearing Real. And what I mean by false evidence is that if this starts talking, they'll start gathering the evidence to make sure that it's real. "Well, you know that most businesses fail. Let me show you the facts and let me show you the stats." See, they're looking for all that false evidence. They'll validate, they'll justify it. They'll call, they'll call their mother, their sister-in-law, their brother-in-law. "Yeah, we agree with them." Am I right? They'll make it real. It's not real.
Like I got crucified that said, "You know, then the 9 out of 10 businesses fail." I said, "That's correct. Most of them fail, but one makes it." I said, "Look, I failed twice. Twice I was part of the nine, but once I made it to the ten. Different, you and me, because you haven't failed at all yet." Yogi Berra once said, "The great thing about the National League is that you strike out seven out of 10 times, you're on the a Hall of Fame."
So, the biggest mistake with my poor dad, my rich dad, this did his thinking for him. He could give you all the reasons why you fail. When I failed, I felt terrible for about a year. It was horrifying. I lost millions of dollars, self-esteem. I was homeless again on the street and all this. But once I got that back, I was stronger. Then I failed the next time, a little bit, six months depression. Third time, I hit it. Difference is, my poor dad said, "You failed." My rich dad says, "You haven't failed enough." There is a difference. And my rich dad also said, "Failure is part of success. People who evade, avoid failure also avoid success." So, you lose. Your biggest expense is not what you spend. Your biggest expense, the money you're not making because you're free.
So, the thing that my rich dad taught me very early on, called fear: fail early and fail responsibly. Look, if you know you're going to fail, do it now. Don't wait, because each time you make a mistake, you get smarter if you do it responsibly. So, the thing that I do is when I feel like, "Oh, you know," like I said to my investors a couple of four years ago, I said, "I need to raise three million dollars. The chances are we're going to fail. If you can't handle the 50,000 shot, don't put your money in here. There's a good chance I'm going to fail on this one." So, people left the room, and I got more money because I was forthright with them. I said, "If I lose it, I'll tell you I lost it, and until the next deal." But failure is part of the process.
So, the thing that I say to people is, fail early, correct, but fail small. The first deal my wife and I did when we got back into real estate was a 45,000 dollar deal, 6,000 dollars down. If we failed, we would have got smarter than somebody who didn't fail at all. But we didn't. So, we pushed the boundary, going bigger and bigger, hoping to fail. Well, everybody's avoiding failure. I'm hoping to fail because I'm going to get smarter. I open my mind up. I ask people for the advice. I synthesize the data and make my own decision. But I live and die. If I make a mistake, I own this. I apologize. I blew it. I made a mistake. This is what I learned. Continue on.
So, I want to thank you all for being here. The thing I want to leave you most with is that every morning, you know, as a nine-year-old boy, I think that which was gonna listen to as a choice, Rich Dad or Poor Dad. Every morning I get up, and I still make that choice. What am I gonna listen to? And I hope you make your choices for yourself. Thank you very much. You.