Rich Dad, Poor Dad, and Me... The secrets of financial mumbo jumbo

A few years ago Rose's dad (let's call him Frank) gave Rose and me a peculiar Christmas present.  A copy of Robert Kiyosaki's books Rich Dad, Poor Dad and Cashflow Quadrant.  This was a strange gift in many regards, one being that Frank has always been pretty tight with his money (the books were purchased used) and that he had never talked about money with either Rose or I at all.  I understood the notion to mean that he was interested in helping us gain an understanding of the use of money so that we would be financially stable or free.  A very nice gesture and one that I very much appreciate...

I sat on the books (not literally) for a few years before cracking them open.  Apart from being a horrendously bad read and illustrating a 9 year old Robert K. as a highly enlightened (or soon to be) burgeoning businessman, Kiyosaki's model for how to be financially liberated is really very simple.  He breaks it down into 4 categories: Income, Expenses, Assets, and Liabilities.  

Income is pretty simple.  Money coming in.  It can come from a steady job, or from dividends from investments... The latter is what he pushes.

Expenses are equally simple.  Money going out... for any reason.  Whether it be that fancy new car or the water bill, these are all expenses, and we all have them!

Assets are things that you own that appreciate in value or produce income.  Mutual funds, a business, a rental property, these are things (other than you personally) that can produce money for you.  This is the literal "money-maker."

Liabilities are things that you own that depreciate in value.  Basically all of your consumer goods that are automatically worth 40% less when you carry them out of the store.

So, what does he say about all of this?  In a nutshell it is to have enough assets to cover your expenses.  

He uses this to define wealth as "Having enough money coming in or in savings that you can pay your monthly liabilities indefinitely."  That is an awesome idea!  Having my assets, things that I don't have to work at or for in order to earn money, produce a seemingly infinite income stream... One question:

HOW?

Well, Robert got rich in the real estate market.  He took advantage of tax loopholes to reinvest his capital gains into other properties that either were worth more money than he paid for them, produced more money than he could spend, or showed signs of potentially increasing in value...

Did I mention that he wrote this book in the late 1990s?

This is when the housing market was exploding and people were finding it easier and easier to get bigger and bigger loans and thus, houses.  

Enter cynicism here.

But to avoid the trap of cynicism and saying that Robert K. is fully of Oscar Meyer weiners (or bologna if you roll that way), I have to say that there is a ton of sense in his model.  Its beauty is in its simplicity and just like a lot of the most powerful philosophies in the world, it is the APPLICATION of the ideas that really make the difference.  

If I were a burned out employee who was working my whole life for my retirement package and read this book, I would likely cuss him out in my head and go back to work, most likely a little less satisfied than I was the previous day.

If I were a young, bright eyed, adventurous soul, I would start working on ways that I could build up unique assets and get them producing money for me asap.  Or if I were a little less motivated I would buy a bunch of lottery tickets.  The jackpot is $250+ million dollars right now!  What?  That is enough to give you a high just thinking what you could do with all of that money.  Maybe THAT is really riches, finding contentment in your mind... But that is a blog post for another day!

If I were a young adult with a family, a solid job, and a lot of good ideas, I would look into how I can use my income to produce more income and thus develop the assets he speaks of while holding down my day job... (This is where I am by the way...)

So he leaves the door open for opportunity and the creativity of the reader.  This way he is off the hook!  He even warns that you will lose money before you make money unless you are an amazing investor.  

The entire basis for these books is that Robert has two dads: his biological dad and his best friend's dad, who teaches little Robbie about money.  Robert's dad is a highly ranked government official in the education department, gets paid a lot of money, but never has enough money.  Robert's friend's dad is a business owner who basically, it seems, runs the island of Hawaii through his holdings.  Robert sides with his friend's dad most of the time as being the one who is right.  This was hard for me to swallow as I owe my entire life and situation to my dad's hard work; he worked a lot like Robert's biological dad.  Robert comes around to admitting that people who work hard for money can still fit his definition of wealth.  They just can't spend their money for 30 years or so.  The rich have the benefit of having their money work for them, basically passively creating cashflow that can be reinvested or spent on other things... like $400 golf clubs or a Mercedes (I am glad that I don't want either of these things!).

So, how does this apply to me?  I WANT to work.  I want to feel my body invested in my daily activities.  Could I create a ton of assets and meet this model?  Sure.  I know that I could.  I could start today if I wanted to.  Would I be satisfied with that?  Maybe, but probably not completely.  I want to live my life in service to something greater than myself.  A cause that it is my generation's privilege and responsibility to effectively address or simply to leave the world in better shape than when I arrived.  Can these things be harmonized?  I am certain that they can.  Do I know how to do that right now?  I have ideas, but I am not quite there yet.  I hope to use this blog to start drilling to the core of these ideas (I am not advocating mining...) and creating some effective models for this.  Wish me luck!