Investor Lesson 5 – Are You Planning to Be Rich or Are You Planning to Be Poor
Robert Kiyosaki – Rich Dad’s Guide To Investing What The Rich Invest In
“Most people are planning to be poor ,” said rich dad.
“What?” I replied in disbelief. “Why do you say that and how can you say that?”
“I just listen to what people say,” said rich dad. “If you want to see a person’s past, present, and future, just listen to his or her words. ”
The Power of Words
Rich dad’s lesson on the power of words was very powerful. He asked, “Have you ever heard someone say, ‘It takes money to make money’ ?” Standing to get two soft drinks from the refrigerator, I replied, “Yes. I hear it all the time. Why do you ask?”
“Because the idea that it takes money to make money is one of the worst ideas there is. Especially if a person wants more money, ” said rich dad. Handing rich dad his soft drink, I said, “I don’t understand. You mean it doesn’t take money to make money?”
“No, ” said rich dad, shaking his head. “It does not take money to make money. It takes something available to all of us and is a lot less expensive to obtain than money. In fact, in many cases, what it takes is free.”
That statement made me very curious but he would not tell me what it was. Instead, as the lesson on investing ended, he gave me an assignment. “Before we meet again, I want you to invite your dad out to dinner …a long, slow dinner . All through the dinner , I want you to pay careful attention to the specific words he uses. After you hear his words, begin to pay attention to the message his words are sending.”
By this time, I was accustomed to rich dad giving me strange assignments, assignments that seemed unrelated to the subject we were discussing or studying. Yet he was a firm believer in experience first and lesson second. So I called my dad and set up a date for dinner at his favorite restaurant.
About a week later, rich dad and I met again. “How was dinner ?” he asked.
“Interesting, ” I replied. “I listened very carefully to his choice of words and the meaning of, or thoughts behind, the words.”
“And what did you hear?”
“I heard, ‘I’ll never be rich,’ ” I said. “But I’ve heard that most of my life. In fact, he often said to the family, ‘The moment I decided to become a schoolteacher , I knew I’d never be rich.’ ”
“So you’ve heard some of the same lines before?” inquired rich dad. I nodded, saying, “Many times. Over and over again. ” “What else have you heard repeatedly?” asked rich dad.
“‘Do you think money grows on trees?’ ‘Do you think I’m made of money?’ ‘The rich don’t care about people like I do. ‘ ‘Money is hard to get. ‘ ‘I’d rather be happy than be rich,’ ” I replied.
“Now do you know what I mean when I say you can see people’s past, present, and future by listening to their words?” asked rich dad. Nodding, I said, “And I noticed something else.” “And what was that?” asked rich dad.
“You have the vocabulary of a businessman and an investor . My dad has the vocabulary of a schoolteacher. You use words such as ‘capitalization rates,’ ‘financial leverage, ‘ ‘EBIT,’ ‘producer price index,’ ‘profits, ‘ and ‘cash flow .’ He uses words such as ‘test scores ,’ ‘grants, ‘ ‘grammar, ‘ ‘literature,’ ‘government appropriations, ‘ and ‘tenure. ‘”
Rich dad smiled as he said, “It does not take money to make money. It takes words. The difference between a rich person and a poor person is that person’s vocabulary. All a person needs to do to become richer is increase his or her financial vocabulary. And the best news is, most words are free. ”
During the 1980s, I spent much time teaching entrepreneurship and investing. During that time, I became acutely aware of people’s vocabulary and how their words related to their financial well-being. Upon further research, I found out that there are approximately 2 million words in the English language. The average person has command of approximately 5,000 words. If people want to begin increasing their financial success, it begins with increasing their vocabulary in a certain subject. For example, when I was investing in small real estate deals such as single-family rental properties, my vocabulary increased in that subject area. When I shifted to investing in private companies, my vocabulary had to increase before I felt comfortable investing in such companies.
In school, lawyers learn the vocabulary of law , medical doctors learn the vocabulary of medicine, and teachers learn the vocabulary of teachers. If a person leaves school without learning the vocabulary of investing, finance, money, accounting, corporate law, taxation, it is difficult to feel comfortable as an investor.
One reason I created the educational board game CASHFLOW was to familiarize non-investors with the vocabulary of investing. In all our games, the players quickly learn the relationships behind the words of accounting, business, and investing. By repeatedly playing the games, the players learn the true definition of such misused words as “asset” and “liability.”
Rich dad often said, “More than not knowing the definitions of words , using the wrong definition to a word is what really causes long-term financial problems. Nothing is more destructive to a person’s financial stability than to call a ‘liability’ an ‘asset.’ ” That is why he was a stickler for the definition of financial words. He would say, the word “mortgage” comes from “mortir ,” French for “death. ” So a mortgage is “an engagement until death. ” “Real estate” does not mean “real” in English. Real estate really comes from the Spanish words meaning royal estate. That is why to this day, we do not own our property. We only technically control our real estate. We do not really own it. The government owns our property and taxes us to use it.
And that is why rich dad would often say, “It does not take money to make money. It takes a rich person’s vocabulary to make money and more importantly, keep money. ”
So as you read this book, please be aware of the different words that may be used. And always remember that one of the fundamental differences between a rich person and a poor person is his or her words…and words are free.
Planning to Be Poor
After this lesson with rich dad, by simply listening to others’ words, I began to notice why most people are unconsciously planning to be poor. Today, I often hear people say, “When I retire, my income will go down. ” And it does.
They also often say, “My needs will go down after I retire, so that is why I will need less income.” But what they often fail to realize is that while some expenses do go down, other expenses go up. And often these expenses—such as full-time nursing home care when they are very old, if they are lucky enough to become very old—are large. An average nursing home for the elderly can cost $5,000 a month. That is more than many people’s monthly incomes today.
Other people say, “I don’t need to plan. I have a retirement and medical plan from my work. ” The problem with such thinking is that there is more to an investment plan than simply investments and money. A financial plan is important before someone begins to invest because it needs to take into consideration many different financial needs. These needs include college education, retirement, medical costs, and long-term health care. Many of these often-large and pressing needs can be provided for by investing in products other than stocks and bonds or real estate, such as insurance products and different investment vehicles.
I write about money to help educate people to provide for their long-term financial well-being. Ever since the advent of Information Age retirement plans, which are 401Ks in America and Superannuation plans in Australia and Registered Retirement Savings Plans (RRSP) in Canada, I have grown concerned about the people who are not prepared for the Information Age. At least in the Industrial Age a company and the government did provide some financial aid for a person after his or her working days were over . Today, when a person’s 401K or “cash balance retirement plan” (which isn’t a traditional pension) is drained dry, it will be the individual’s problem, not the company’s.
It is imperative that our schools begin to teach young people to invest for their long-term health and financial well-being. If we do not, we will have a massive socioeconomic time bomb on our hands.
I often say to my classes, “Be sure you have a plan. First, ask yourself if you are planning to be rich or if you are planning to be poor. If you are planning to be poor, the older you get, the more difficult you will find the financial world.” Rich dad said to me many years ago, “The trouble with being young is that you don’t know what it feels like to be old. If you knew what being old felt like, you would plan your financial life differently. ”
Planning for Being Old
It is important to plan as early in life as possible. When I say this to my classes , most of my students nod in agreement. No one disagrees on the importance of planning. The problem is, very few people actually do it.
Realizing that most people agreed that they needed to write a financial plan, but few were going to take the time to do it, I decided to do something about it. About an hour before lunch in one of these classes, I found some cotton clothesline and cut it into different lengths. I asked the students to take one piece of line and tie each end around one of their ankles, much like one would hobble a horse. With their ankles tied about a foot apart, I gave them another piece of the line and had them loop it around their neck and tie it back down at their ankles. The overall result was that they were hobbled at the ankles and instead of standing erect, they stooped over at about a 45-degree angle.
One of the students asked if this was a new form of Chinese water torture. “No,” I replied. “I’m just taking each of you into the future, if you’re lucky to live so long. The ropes now represent what old age could feel like. ”
A slow moan came from the class. A few were getting the picture. The hotel staff then brought in lunch on long tables. The lunch consisted of sandwiches, salad, and beverages. The problem was, the cold cuts were simply stacked, the bread was not sliced, the salad was not made, and the beverages were the dry mix type that had to be combined with water . The students, now stooped and aged, had to prepare their own lunch. For the next two hours , they struggled to slice their bread, stack their sandwiches, make their salads, mix their drinks, sit, eat, and clean up. Naturally, many also needed to go to the rest room during these two hours.
At the end of the two hours, I asked them if they wanted to take a few moments to write out a financial plan for their life. The answer was an enthusiastic “Yes. ” It was interesting to observe them actively taking an interest in what they planned to do once the ropes came off. Their interest in planning had increased dramatically once their point of view on life had been changed.
As rich dad said, “The problem with being young is that you don’t know what it feels like to be old. If you knew what being old felt like, you would plan your financial life differently. ” He also said, “The problem with many people is that they plan only up to retirement. Planning to retirement is not enough. You need to plan far beyond retirement. In fact, if you’re rich, you should plan for at least three generations beyond you. If you don’t, the money could be gone soon after you’re gone. Besides, if you don’t have a plan for your money before you depart this earth, the government does.”
Mental Attitude Quiz
Many times, we do not pay close attention to our silent and seemingly unimportant thoughts. Rich dad said, “It’s not what we say out loud that determines our lives. It’s what we whisper to ourselves that has the most power. ”
So the mental attitude questions are:
1. Are you planning to be rich or are you planning to be poor?
2. Are you willing to pay more attention to your deep, often silent, thoughts?
3. Are you willing to invest time to increase your financial vocabulary? A first goal of learning one new financial word a week is doable. Simply find a word, look it up in the dictionary, find more than one definition for the word, and make a mental note to use the word in a sentence that week.
Rich dad was a stickler for words. He often said, “Words form thoughts, thoughts form realities, and realities become life. The primary difference between a rich person and a poor person is the words he or she uses. If you want to change a person’s external reality, you need to first change that person’s internal reality. That is done through first changing, improving, or updating the words he or she uses. If you want to change people’s lives, first change their words. And the good news is, words are free.”