Transcription
(Upbeat tempo) So, welcome back. It's Robert Kiyosaki with my dear friends' daughter here, Alexa. And we're talking about Millennials and money, and we've gone through some lessons. I don't know how many more, but let's continue on with another lesson here.
And so we were talking about, you know, assets and liabilities, right?
-Yes.
And when you read Rich Dad Poor Dad, I said your house is not an asset; what did you think?
-Well, I think that's a conception that many people believe, but as you demonstrated in the last seminar that we went to in Argentina, my mom had her properties and she converted them into assets.
Correct.
-I think it just depends on what you do with it, and it would be great if you could show us how to turn your house into an asset. It's very—it's really fundamentals. If I could go back, I probably covered it earlier, (marker rattling) but it's a crucial question, and this is what financial education and financial literacy really is. Again, it starts with the financial statement, and I would say probably 95 percent of all college graduates don't know what a financial statement is. You took an accounting course, right?
-Yeah, I did.
I know you go through parts of this, but I say to young people like you, there are six basic words to financial literacy and financial education. And the six words again are income, expense, asset, liability. See, I don't really care about my FICO score. A FICO score just basically registers are you trustworthy with borrowing money, but a bank will never sell. I borrow in the hundreds of millions of dollars. (Chuckling) A FICO score is not going to get me there, okay? It's—so it's kind of a ruse. I mean, I don't—it's important, but not for me. So these are the four words: income, expense, asset, liability. Then the last two words are the words cash flow. And that's why the game is called Cashflow (marker squeaking), and the secret to being rich is not a college education, but can you control cash flow. And this is what cash flow in looks like. So this here, you need this: income, expense, asset, liability. (Marker squeaking) Again, this is—you get a job, and this is my poor dad: go to school, get a job, get your PhD. And so this here is cash flow, so income comes in and it goes out this way. The first line of expense is tax, but this is a poor person's cash flow pattern. It's not how much money you make. Most people, you know they—I don't care if you have a PhD or no school at all. They can't control the cash flowing out through their expenses. So that's why people like Susie Orman say, cut up your credit cards, live below your means, cause you're a spend-a-holic. So that's a poor person. This is a middle-class person's cash flow patterns, and this is where the house comes in. They—first thing you know, most kids do when they get a pay raise and all that, they buy themselves a bigger house. Now, my house is an asset. Who tells you that? Your real estate agent, of course!
-Yeah. (Alexandra giggling)
Right, cause they—they want to give you this false sense of security while you're getting screwed.
-Exactly. You know, but when you look at what happens with the house, a personal—I mean a personal residence that I live in, the money comes in, it goes out, and this is middle class, but also goes out through a mortgage. Mortgage payments—oh, but I don't have a mortgage. You still have taxes; you still, you know—Hawaii just raised the property taxes on me, which is probably why I'm going to sell. I'm going to get out of Hawaii, but you have taxes and you have upkeep, so money is always flowing out. So that's why your house is not an asset; it's because it's taking money from your pocket. So very simply said, assets put money in my pocket; liabilities take money from my pocket. And then this here is—so I'm not saying don't buy a house, but here is a house that—and I started when I was 25, bought my first house; it was an apartment with an investment property. I didn't live in it; I rented it out, and it put money in my pocket. So very simple, the definition of asset and liability is not the house or this; it's cash flow. Where is the cash flowing? So as a young person (Robert coughing), and to all Millennials, or if you're old, financial intelligence is the ability to control cash flow. And that's what they don't teach you at school. They tell you to go to school, get a job. The first thing is tax; you know, you'll pay—most of your money will go out through taxes in your lifetime. Then they tell you to buy a house, a car. Cars an asset? No, cars a liability. You got insurance, gas, upkeep, and all this. Now, if you buy a taxi car, it could be an asset; it's cash flow. And that's very simply it. So this is a poor person. Money goes out. There's a lot—we just interviewed some National Football League players who make millions of dollars in their 20s, and most of them are broke in two years because they can't control cash flow. Intelligence—IQ—is can you control cash flow, not your college degree. College degrees are important, but they're not going to teach you this. So the Cashflow game trains you over and over and over again to get your money in here, to get the cash flow this way. So I started with this; cost me 18,000 dollars. I paid for the credit card, and I put 25 dollars in my pocket, okay? It's an infinite return because the cash flow paid for the mortgage, it paid the expenses, pays the operating costs, and I still made 25 dollars. Kim's first year was the same; hers wasn't 18,000; it was 50,000, 45,000, and it put 25 dollars in her pocket, but Kim now owns 6,500 rental properties. And she pays no tax because the income comes from here.
-Mm-hmm.
If you have a job, you pay tax, but income—the rich get richer because when you have asset income, taxes are less. You can get it down to zero if you want. But that's financial intelligence—but can you control cash flow? Okay, so say that again. Assets what?
-Assets put money into your pocket; liabilities take money out of your pocket.
And so as a young person, you just focus on that. So when you're buying a new house, you're going to say, is this going to take money or put money? You buy an apartment house; is it going to take money or put money? That's it; it's cash flow. Six most important words for financial intelligence and IQ are income, expense, asset, liability, but it's really cash flow. Now, if I could bring up a more horrible subject, is—do you think people can be assets or liabilities?
-I think they could be both, to be honest.
So for most young people, they fall in love, they get married, they have kids. Is a child an asset or liability?
-A child is definitely a liability.
I'm not saying don't have kids, but you gotta think the kid is expensive, and they don't get cheaper. They get more expensive every year; you know, then they go to college, and then it gets even more expensive. So a human being—now this sounds horrible to all those socialists and communists out there, but the fact is, kids cost money. But as an old guy, I want you to think about this: as I get older, as people get older, family members become liabilities. So I have a friend whose mother—thank God she had long-term—I don't know what they call it, but they just canceled it on her. She can go to an old-age home, and I think the price is 18,000 a month. Most—so that as a young person, as your parents get older, the question is, can I afford to spend 20,000 dollars a month on my mom or my dad's long-term healthcare? Yes or no?
-No, not right now. No, so—
-No. And this is going to happen to my generation. Many people don't realize, but their brothers or sisters or sisters' kids and all this become liabilities to them. So as a person who's fairly well off, I'm—and Kim and my friends are thinking about two-legged liabilities. So I know today that if my sisters become ill, I'm the one with the money, and it's my responsibility to pay for them. Same as my brothers and their kids. So these are things that people don't think about a lot of times is what happens not only as they grow up, but what happens as they age. Statistics show the average person in my generation, let's say, has a million dollars. Eighty percent of that million dollars will be gone the last two years of life because medical expenses go through the roof, and today insurance companies are canceling—I forgot the name of it, but my friends' mother—it was just canceled. So he doesn't have 18,000 a month, so he had to bring his mother into his house and, you know, create another room and all this. Well, I love her, which he does, but she's a big liability, and all he had was savings. So the savings are being depleted, going out this way, okay? So with your question about houses and people, but people are also assets and liabilities. For most people, with our favorite subject, a 401(k), is it asset or liability?
-From what I've learned from you, it's definitely a liability.
Or an IRA or a pension, cause it's always going out this way. There's no guarantee it'll be there. So this is the basic of financial intelligence, financial literacy, stuff like this. Another thing about people is you have a bad advisor, like a bad financial planner, or a crook, or a business partner that's a crook, a wife that's a crook, and all of that. They can be human liabilities. I have two friends right now who just joined a million-dollar club. They married beautiful women, got divorced, and the woman is now costing a million dollars a year in alimony. So their beautiful wife and the child support—it's a million dollars going, and she's only 40 years old. So she has a whole pile of boyfriends, but it's costing him a million dollars a year for her boyfriends. I said, I want to be her boyfriend. (Both laughing) Not really, you know. That makes sense to you?
-Yeah, it makes sense.
Financial IQ is can you control cash flow. IQ means how big a problem can you solve. So if, like my friend whose mother is now costing him 18,000 dollars a month—well, thank God he has about 100,000 in savings, but in one year, it's gone.
-Yeah.
That's not high IQ, but for myself, 18,000 dollars a month—I ain't going to make that much cash flow pretty easily.
-Yeah.
Okay. So when you're like in your 20s, per—well, how am I going to make—let's say by the time, probably a 100,000 a month to take care of my parents, because like it or not, it's cash flow, and they become liabilities. And the problem is getting worse or because the bond markets are not providing income. So many insurance companies have to renege on their promises to provide the cash flow to take care of our loved ones, the same as medical.
-Wow.
And so that's why when people say I'm going to go out on my own and do all these things, they're kind of doing what they love, which is good, but they've really gotta think about how many liabilities do they have. It's not just your rent, you know; it's your family. And so for me (marker tapping) and for Kim, we have family members, but they're liabilities, so that's why we stay over here. Hopefully, nothing will go wrong, but if one of my sisters got ill and she needs 100,000 a month, at least I can provide it.
-Yeah.
Otherwise, she—they go—they go indigent, whatever they call it, kay?
-Yeah.
Any other comments or questions?
-No, thank you for sharing so much about this content and all this information. That's going to be super valuable for all my friends and all the Millennials out there just like me.
So I have two friends that are in the million-dollar-a-year club; it doesn't mean they're making a million dollars; it's their wives are taking a million dollars a year out of their pockets and their kids and all this. And I go, you should have thought about that 20 years ago.
-Yeah.
But you don't, cause you're in love, and you're going to have kids and going to make it together.
-Mm-hmm.
But your parents offer great role models. So once again, the six words you have to know and be masters at: income, expense, asset, liability, cash flow. You can control cash flow; that's financial intelligence, financial IQ, and financial literacy, okay?
-Okay. Thank you.