complete philosophy cash flow

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PHILOSOPHYOF CASH FLOW


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DISCLAIMER

This publication and the accompanying materials are designed to provide accurate and authoritatiinformation in regard to the subject matter covered in it. It is provided with the understanding the publisher is not engaged in rendering legal, accounting, or other professional opinions. If leadvice or other expert assistance is required, the service of a competent professional should sought. Reproduction or translation of any part of the information contained herein, in any formby any means, without the written permission of the owner is unlawful.

© 2010 Rich Dad Education. All rights reserved. The Rich Dad and CASHFLOW word marks, logos, “CASHFLOW,” “Rich Dad,” “CASHFLOWQuadrant,” “B-I Triangle,” and the associated images are owned by Rich Dad Operating Co., LLC and any us of such by Rich Dad Educationis under license.

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PHILOSOPHY OF CASH FLOW

INTRODUCTION .........................................................................1

CHAPTER 1:

A Quick Introduction To Rich Dad ™ Philosophy ....................... 5

The Mindset Of An Employee ...............................................The Mindset Of A Specialist ...............................................1

The Mindset Of A Self-Employed Or Small Buisiness Owner .....12The Mindset Of A Big Business Owner .................................1The Mindset Of An Investor ................................................1The B-I Triangle ...............................................................18The Cone Of Learning .......................................................

CHAPTER 2:

What Has Your Programming Conditioned You To Create? ..... 27

The Four Asset Classes - The Four Types Of Income Production.34

CHAPTER 3:

Reprogramming Your Mind By Raising Your Financial I.Q .........39CASHFLOW Game ® Financial Statement ..............................42

Understanding How Cash Flows .........................................48

CHAPTER 4:

How The Rich Have Programmed Their Minds ..................................53

Emotional I.Q ..................................................................56What Does This Lesson Mean To You? .................................56How Does Bill’s Story Relate To You? ...................................60How The Rich Take Action ................................................62How The Rich Make Decisions ............................................64


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PHILOSOPHY OF CASH FTable of Conten

CHAPTER 5:

I Should Be Driving A Taurus: Context Determines OurCapacity For Wealth Accumulation ...........................................67

Context Affects Our Content ..............................................70

Context Is More Important Than Content ...............................72

CHAPTER 6:

Reprogramming Your Mind About Money ................................. 77

Goals and Dreams ...........................................................80Learning To Leverage Your Money, Time & Energy ..................82The Money Problems Of The Poor........................................8The Money Problems Of The Rich ........................................8The Value Of Financial And Professional Education .................88Overcoming The Fear Of Being Wealthy .............................89Learning To Protect Your Money ...........................................90When I Think I Can’t, Then I Know I Must! ............................91What Does This Mean To You? ...........................................92


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INTRO


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his book is designed to help you put into practice the well-known

philosophies of Robert Kiyosaki—hisCASHFLOW Quadrant® , B-I Triangle,and nancial statement theory, whilealso utilizing active established learningmodels (specically, Edgar Dale’sCone of Learning {1969}) to help

you put the information into practice.By now, I’m sure you’re jumping forjoy and can’t wait to turn the page!Well, relax and let me put the same

information into language that mighthave more meaning to your life andnancial situation.

The purpose of this book is toassist you in evaluating your currentlevel of nancial intelligence in order

to mentor you as you move towards your goals of becoming wealthy. Itis interactive, relevant to your currentnancial standing, and it is structuredin a way that makes it easier for youto evaluate your life situation, decidewhat is working for you, what youwant to keep, and what you want tothrow out or change. To put it in a shortphrase, “We are here to serve you as

you begin to move towards nancialfreedom.”

You may not be completelyfamiliar with Robert Kiyosaki’shistory, so by way of introduction,let me assure you that his story andupbringing are not that much differentfrom most Americans. He was born

T

YOU’VE BEENPROGRAMMED

Introduction

PHILOSOPHY OF CASH FIntroducti

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fail him if he placed his trust in them. Takingthe philosophies of his father and his friend’s

father, Robert began to examine whatwould work in the Age of Technology (vs.the Industrial Age), how the rules of moneyand retirement were changing, and whatwould move him to nancial freedom withthe highest probability of success.

In short, he made a conscious decisionabout how he wanted to live his nanciallife. He may not have been an A studentwhen it came to Calculus, but he got a PhD.in nancial freedom (and the PhD. stood forPretty High Dreams!)

Rather than just accept the beliefsystem handed down to him from his family,he took the two messages of his youth,

and made decisions that would shape notonly his own life, but the lives of millions ofpeople around the world. We believe youcan be one of those people as you becomemore familiar with his life, his work, and histeachings. We are here to help you beginthe process of putting your new goals intoaction!

Needless to say, Robert was not bornwith a silver spoon in his mouth—he wasborn into a real world of middle class peoplewho worked hard for a living. Perhaps oneof the hardest things he ever had to confront

in 1947 to a family who believed in theAmerican dream of, “go to school, work

hard, get a good job, save your money,and everything will be alright.” His fatherwas a professional educator, so the focus onschool and traditional education was strong.His other family members included somehighly educated relatives who had beengreat students and grown up to becomedoctors—so his mother longed for Robert tofollow in their footsteps. And this is whereRobert’s story takes a left turn—he was nota good student, he struggled to make C’sin his classes, and he couldn’t nd a wayto meet the expectations of his family whilealso remaining at peace with himself. Luckily, he had a friend whose father

was quite the opposite of his own—theman was a highly dedicated entrepreneur.Over a period of several years, this manmentored his own son and Robert to act andthink from an entrepreneur’s viewpoint. Thatprocess changed the course of Robert’s lifeand it is how the story in Rich Dad, PoorDad was born.

From his “rich dad,” Robert learned thelessons of entrepreneurship, and at a youngage, began investing in business ventures.From his “poor dad,” Robert saw rst-handhow the system and the government would


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was his seeming inability to do well in school. We all want toplease our parents, particularly when we are young, and it must

have been very confusing to him to know what was expected butfeel inadequate to rise to the occasion. There is a lesson in this foreach of us: sometimes the most painful experiences in life can bringus tremendous growth and benet after we have gone through them.

Robert’s story is not one of instant success without hardship. Hehad no roadmap to guide him. What he did have was a deeplyingrained commitment to his beliefs. He and his wife, Kim, havespent much of their adult lives working to create a roadmap forothers. They have written many books, created strategic allianceswith professionals who are here to help you, and they have coachedthousands of people to live the life of their dreams. Hopefully, this book will help you move more easily throughthe process that Robert found himself going through at a youngage. As he asked himself these questions, this book will walk youthrough the same process and you will nd yourself asking: “What

do I believe about wealth accumulation?”, “What are my nancialgoals?”, “What do I need to learn and to change in order to reachmy goals?”, and, “How do I sort through the information from mypast and the new nancial knowledge of my present?”

These are all questions we will help you ask, and we willmentor you through the process as you nd your own answers.In addition, we encourage you to ask yourself, “Are there deeplyembedded beliefs that have been handed down from my family,

friends, and society that are not working for me?”, and, “Whatwould it mean for me to re-dene those beliefs?” Finally, you willconsider the value of a mentor as you ask yourself, “If I have amentor to walk me through the process, do I have the courage tomake the changes that will move me towards nancial freedom?”

Our hope is that you do—and we will be with you every


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step of the way as you evaluate and rene your beliefs about money, wealth, nancial

freedom, and nancial intelligence. So,let’s get started because dening yourunderstanding about money and yourcore beliefs will either move you towardswealth—or away from it.

Rich Dad Education


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CHAPTEONE

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ne of the rst decisionsRobert needed to make

as he began evaluating how to seeknancial freedom was how he wantedto earn his money—as an employee,a specialist or small business owner,as a big business owner, or as aninvestor. The following chart showsthe four quadrants from which wealthcan be created. It is important tounderstand, from the beginning ofthis discussion, that there is no “right”

or “wrong” answer here; rather, it issimply a question of how much wealth you want to create and how hard youwant to work to create it.As well, there are typical attitudes,internal conversations, and strong

belief systems that are associated witheach of the four areas. This diagramis what Robert calls The CASHFLOWQuadrant® , and it represents the wayspeople get cash to ow from their workto their checkbooks. Some of the people reading thisbook will already be very familiarwith this image, while others may be

O

A QuickIntroduction To

Rich Dad Philosop

YOU’VE BEEN PROGRAMChapter On

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you will nd that your current and corebeliefs are rmly embedded—and those

beliefs begin working overtime as you beginto make different choices! For example,

your programming and beliefs are probablyin line with you purchasing a single familyhome in a working class neighborhood torent out because the price will be fairly lowand the programming in our society is aimedtoward you avoiding risk and seeking safetyand security. However, one house doesn’tcreate enough wealth for you to have thefreedom to retire.

The conict begins when you decide toshift your actions and become rich—when

you move towards investing in real estatefor the purpose of becoming nancially free,

rather than having a little investment on theside to keep you busy. It is the differencebetween security and freedom—a smallrental house to bring in $100 a month cashow while you continue to work, versus a60 unit apartment complex that will net$8,000 a month so you can leave your jobfor life!

Your programming and comfort level inthe portion of the CASHFLOW Quadrant®

that you currently earn money from willbegin to throw up all kinds of red ags as

you make this move. Your internal questionsmight very well be, “What am I thinking?I’m going into DEBT! I’m going into a

seeing it for the rst time. We encourageall of you to see and think about it with fresh

eyes. If this is not new information, but youare still earning your money from a part ofthe quadrant that you do not choose to bein, it is imperative to do this exercise.

Now, this may be a little early for thismentoring tip, so buckle your seat belt andstay with us: “On a nancial level, you areexactly where you have chosen to be up tothis moment in your life, and you have chosento be there because that is the belief systemthat currently drives your behavior.” You maythink you have already made the decisionto change, and that is why you are readingthis book and taking your rst training, butexperience has taught us that those deeply

held core beliefs are not easily cast aside.However, having walked thousands ofstudents through the process of changing theirattitudes, beliefs, and behaviors, we assure

you that there is still much to think about, actupon, and learn. The purpose of this bookis to help you blend your new context (beliefsystem) with the content you will be obtaining

as a real estate investor. Our objective is tohelp you earn your money from the portionof the CASHFLOW Quadrant® of yourchoosing—and that is typically from the rightside—either as a B or an I.

As you begin your investing career orexpand it to include larger real estate deals,


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property that is worth $4 million and my payments are going tobe $15 thousand a month, just for principal and interest! I can’t

make that amount of money—oh my goodness, I’m going to gobankrupt!” At that exact moment, your brain has begun a new cyclecalled, “Fear and desperation!” You’ve forgotten all about thepositive side of investing—leverage, cash ow, equity build up,and tax write-offs to investors. All you can see or hear are thecrashing waves of fear that are programmed into both the “E” and“S” quadrants. The desire for nancial freedom caused you to signup for your real estate training, but until you can consciously choosebeliefs that will get you to the level of wealth that you want to build,and act upon them, your old programming will continually throw uproadblocks to keep you where you already are.

THE MINDSET OF AN EMPLOYEE

From the perspective of an employee, what are your beliefsabout your ability to create wealth? What drives an employee’s

behavior? And, what are the goals of an employee?

BELIEFS ABOUT WEALTH: ____________________________________________________________________________________

_____________________________________________________ _____________________________________________________

WHAT DRIVES EMPLOYEES’ BEHAVIOR? ___________________ _____________________________________________________ _____________________________________________________ _____________________________________________________

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programmed into a culture of dependencyand somewhere along the way in life, they

bought into the belief that the world was toofrightening for them to be on their own andcreate their own nancial destiny.

To be an employee does not necessarilymean that people have low incomes. TheCEO of a Fortune 100 company is still anemployee. The question is why someoneearning as much as $4 million a year (andbeing taxed at a very high rate) wouldchoose to build wealth for someone elsewhen typically they have the knowledge andexpertise to create a destiny (and dynasty) oftheir own? Employees must have a job—and theyfeel completely out of control if their job goes

away. They are highly taxed and they realizeit, but they would rather pay more in taxesthan feel the pressure of self-reliance whichcomes from having to create income on theirown. In short, many don’t believe they arecapable of making it on their own. They havebeen programmed to go to school, get a job,and live with the consequences of having

too little money because they have verylittle control over their income possibilities.The only way for them to increase the cashow that comes into their accounts is to workmore hours—but there are only 24 hours ina day, so the feeling of being at the mercy oftheir employer is tremendous.

WHAT ARE AN EMPLOYEE’S GOALS?__________________________________

__________________________________ __________________________________ __________________________________ __________________________________ HOW IS AN EMPLOYEE’S BACKAGAINST THE WALL? ________________ __________________________________ __________________________________ __________________________________ __________________________________

WHAT OBSTACLES HOLD EMPLOYEESBACK OR KEEP THEM STUCK IN THISPORTION OF THE QUADRANT? WHAT

DO THEY NEED TO DO TO OVERCOMETHESE OBSTACLES? (Hint: Money is notholding them back.) __________________ __________________________________ __________________________________ __________________________________ __________________________________

Employees are driven by their internallonging for safety and security, and they willexchange freedom to get it. They want to feelthat they will be taken care of, whether thatmeans a paycheck on Friday or a retirementplan when they are 65. They have been


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Particularly in today’s economic crisis, the employee is at highrisk—what their parents could do (get a job, stay on the job for 40

years, and retire) is much less likely in our new world. Employeeshave always been motivated by a longing for security, and Roberttells us that there is a huge difference between freedom and security.The longing for security is fear based, but today, that fear has grownbecause, even when employees have jobs, they no longer have theillusion of feeling safe or secure.

Employees trade money (wealth) for this feeling of security—andthey will make tremendous sacrices to gain it—less money, morehours, demanding physical labor, whatever it takes to ease the fearof the unknown.

THE MINDSET OF A SPECIALIST

What are the beliefs about creating wealth if someone

is a specialist (doctor, attorney, engineer, etc.)? What drivesa specialist’s behavior? What are the goals of a specialist? Whatdoes a specialist believe about the value of traditional education?Many specialists are wealthy—and they have enough money to beable to make it “big.” Why do you think they continue to operateat the specialist level, since money is seldom what is holding themback? BELIEFS ABOUT WEALTH: _______________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________

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SINCE MANY SPECIALISTS ARE HIGHLYTRAINED AND HIGHLY PAID, WHY DO

YOU THINK THEY RESIST THE IDEA OFGOING BIG IN THEIR BUSINESSES? ___ __________________________________ __________________________________ __________________________________ __________________________________ __________________________________

HOW IS A SPECIALIST’S BACK AGAINSTTHE WALL?_______________________________________________________________________________________________________________________________________________________________________________

___________________________________

THE MINDSET OF ASELF-EMPLOYED OR SMALLBUSINESS OWNER

What does the small business owner/self-employed person believe about

his or her ability to create wealth? Whatdrives a small business owner’s behavior?

WHAT DRIVES THEIR BEHAVIOR:_______ __________________________________

__________________________________ __________________________________ __________________________________ __________________________________

WHAT ARE A SPECIALIST’S GOALS?WHAT DOES A SPECIALIST BELIEVEABOUT THE VALUE OF TRADITIONALEDUCATION? ______________________ __________________________________ __________________________________ __________________________________ __________________________________ __________________________________

WHAT BELIEFS WOULD A SPECIALISTNEED TO CHANGE TO BREAK OUTOF THESE VALUE-BASED BELIEFS ANDOPERATE HIS OR HER BUSINESS AS ABIG BUSINESS? __________________________________ __________________________________ __________________________________

__________________________________ __________________________________ __________________________________


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What are the primary or pervasive goals of a small business owner?And nally, what is the small business owner’s game plan when it

comes to retirement? BELIEFS ABOUT WEALTH: _______________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________

WHAT DRIVES THEIR BEHAVIOR:__________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________

WHAT ARE A SMALL BUSINESS OWNER’S GOALS? ________ _____________________________________________________ _____________________________________________________

_____________________________________________________

WHAT PLAN IS IN PLACE FOR A SMALL BUSINESS OWNER’SRETIREMENT?__________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________

HOW IS A SMALL BUSINESS OWNER’S BACK AGAINST THEWALL? ________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________


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This perfectionism is inherent in the “S’s”nature and that is why we hire them. Robert

actually uses the example of a brain surgeonin one of his books when discussing the “S.”If you are going to have brain surgery, there’snothing better than having a highly skilledperfectionist perform the surgery. However,if you’re the brain surgeon, you can onlyoperate on one person at a time—and intoday’s world, insurance companies dictatehow much you will make for performingthat operation. Often, when the small business persondoes train someone else to carry part of theload, they sabotage themselves. They chooseother highly motivated people because theysee themselves, and are more comfortable in

trusting him or her to get the job done.That creates a system that engendersdistrust; a common complaint of S’s is thatevery time they train someone else to do ajob, the person leaves and becomes theircompetition! This keeps them working harderand harder to do it all on their own. Likethe E, but in a different context, they are

operating from a spirit of scarcity. Many small business owners ndthemselves in a horrible situation when itcomes time for retirement. The business isbuilt around them—both their name and theirreputation. That makes it pretty hard to sell

A specialist is driven by a belief thateducation will protect him or her from

destitution and poverty. The fear is similar tothat of an employee because the specialistis once again seeking security—but witha little more control than the employee.The other difference is that the specialist orsmall business owner has attempted to “takecontrol” of the situation and try to earn his orincome independent of an employer.

Typically, the “S” still expects towork hard (often harder than the “E”),but expects to be paid to do it. They feelmore in control of their earning ability eventhough it is still tied to the number of hoursavailable in one day. For the price of theirindependence, they are typically expected

to earn a higher “per hour” salary whenthey calculate it. What they fail to recognizeis the number of hours they spend thinkingabout, worrying about, and dwelling ontheir work. The motto of an “S” is, “If you wantsomething done right, do it yourself!” andthey are rugged individualists who will often

describe themselves as perfectionists. Theseare the A students in the classroom. They aresmart, independent, and focused—but theyare seldom team players, and work hard tomake it happen on their own. It is very hardfor them to trust others to do a job and doit well.


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Henry Ford was the quintessentialindustrialist “B.” A famous quote by him

illustrates the mindset of a “B”: “Thinkingis the hardest work there is. That is why sofew people engage in it.” The true “B”is a creator—he or she is always thinkingabout the next step, the next endeavor,the next asset, and the next way to createwealth. They are leaders who are committedto bringing out the best in others, andthey are masters at building teams andsystems that can run their business andfree up their time for other things. They seethe big picture and it is a mural, not aminiature. Their behavior and goals arebased upon freedom rather than security.

It is not that they don’t feel the fear ofloss. They simply use fear to move themtoward ever-expanding horizons that willprovide them with new avenues of wealth.Work becomes a game to them, a wayto exercise their creativity and a way toexpand their ideas into a reality that isseldom even imagined by others.

They also view risk differently than the“S’s” or the “E’s.” It is not that they ignorerisks—they balance the potential risk withthe potential reward of an endeavor andif the reward outweighs the risk, they lookfor ways to minimize their liability and then

__________________________________ __________________________________

__________________________________

HOW WOULD YOUR LIFE CHANGE IFYOU OWNED A BIG BUSINESS? _____ __________________________________ __________________________________ __________________________________ __________________________________

HOW WOULD YOUR FAMILY & FRIENDSFEEL ABOUT YOU BECOMING RICH? __________________________________ __________________________________ __________________________________ __________________________________

__________________________________

A “B,” or Big Business Owner, is nearlythe opposite of an “S.” True entrepreneurs(the “B’s”) surround themselves with smart,hard-working people from all of the otherportions of the quadrant. They are mastersat delegation and training others to be the

best they can be; it either comes naturallyto them, or they train themselves to learn thisskill so they can have freedom over theirtime. The “B” type person does not live towork hard—they live to make money andhave the free time to enjoy it!


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they move forward. They don’t see life as potentially defeating—they see life as challenging and exciting.

Because the “B” type business owner creates jobs for manyothers, they are also rewarded with tremendous tax advantages.This means that they keep more of the money they make rather thanconsistently paying most of their earnings to the government.

THE MINDSET OF AN INVESTOR

What are your beliefs about creating wealth if someone isan investor who lives off his or her interest income? What

drives an investor’s behavior? What are the goals of an investor?How would your life change if your investments generated enoughfor you to live the life of your dreams?

WHAT ARE AN INVESTOR’S BELIEFS ABOUT WEALTH? ______ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________

WHAT DRIVES AN INVESTOR’S BEHAVIOR? ________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________

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THE B-I TRIANGLE

One of the qualities of a “B” type businessowner is his or her ability to incorporatesystems into their businesses. These systemsallow the owner to utilize a power teamof professionals so that their time is freedup to pursue new initiatives and goals and

so that they can focus on the bottom line—cash ow.

Robert repeatedly points out that cashow and assets are the bottom-line focus of atrue professional business owner’s concern:how much cash is being generated andwhether or not the asset base is expanding.In the case of a real estate investor, thesystems could put people into positions tocomplete the steps of a deal so the ownercould then pursue new streams of incomeand other types of deals. Robert’s B-I Triangle (RIGHT) willillustrate this point with a wholesale realestate transaction example.

As we discussed earlier, one of themain differences between an “S” and a “B”business owner is the ability to build strongteams and the commitment to develop hisor her leadership skills. If the team has beentrained to nd potential deals, negotiate,draw up contracts, and nd a buyer, then

WHAT ARE AN INVESTOR’S GOALS? __________________________________

__________________________________ __________________________________ __________________________________ __________________________________

HOW WOULD YOUR LIFE CHANGEIF YOUR INVESTMENTS GENERATEDENOUGH FOR YOU TO LIVE THE LIFE OFYOUR DREAMS? __________________________________ __________________________________ __________________________________ __________________________________ __________________________________

WHAT LEGACY COULD YOU LEAVEFUTURE GENERATIONS OF YOURFAMILY IF YOU BUILT THIS LEVEL OFWEALTH? _________________________ __________________________________ __________________________________ __________________________________ __________________________________

WHAT GOOD WOULD YOU DO WHILEYOU WERE STILL LIVING? ____________ __________________________________ __________________________________ __________________________________ __________________________________


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the business runs smoothly no matter where the owner happens to

be at the time. His or her time is free. How would you like to have deals being processed while youare on the beach in Maui? Would your cash ow be coming in?The product (in this example, a wholesale deal) is being deliveredefciently and safely. Once you can do the business safely, you cando it quickly, over and over again! What does all of this mean to you, the real estate investor?It simply relates to your ability to continually rene and build newsystems for your business(es). In doing so, you are able to produceenough cash ow to move to the “I” portion (the investor portion)of the CASHFLOW Quadrant® . Investors are people who havemoney that makes money for them. This is often done via interest

payments (instead of the investor borrowingmoney from a bank, the investor is

the bank) which can be accomplished

by way of seller nance deals,investment in tax liens, through

portfolio or paper income ofany kind.

The “I” portion of thequadrant is for the rich—

those who make moneywith their money.

Robert Kiyosaki’s

B-I Triangle

Product

Legal

Systems

CommunicationsCash Flow


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you would learn more than if you simply read a book and tried toexecute it on your own?

The Cone of Learning illustrates that point, and all of Robert’strainings are based upon creating experiential learning models asa result of this information. We only retain about 10% of whatwe read and about 20% of what we hear. Imagine that a brainsurgeon who was going to operate on your brain had read manybooks on the topic but never attempted to actually perform brainsurgery! Not a very reassuring situation, to say the least. So, throughout this book, do the exercises and then nd afriend or partner to discuss what you have read and learned fromthe exercises, as well as how that has altered the way you thinkabout that topic. We retain much more information simply byhaving a discussion or simulating the real thing (such as playingThe CASHFLOW Game). Then, with the changes in your thinkingand the higher level of knowledge you have gained, you are betterprepared to enter into a business endeavor with gusto!

One of the problems with traditional learning systems and theaccepted education process in place in American society todayis that students listen, read, and view slides illustrating a lecturepoint, but they are absorbing and storing only a small portion ofthe information. Yet we have been programmed to believe thatis what the learning process should look like—students listen andteachers teach. The word “educate” actually comes from a Latin term which

means “to draw out.” Yet, what is easier and more efcient fora teacher: to lecture or to engage students in an active learningprocess? This is only one of the ways that our programming isfaulty at best. We have been programmed to expect things to looka certain way, not because it is best for us, but because it is easieror better for the “comfort” of the leader or the group.


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Take a few minutes to reect and writeabout the power of training others through

an interactive approach. Jot down somememories about how your education hasfailed you in the past due to the static natureof your learning process. ____________________________________________________________________

__________________________________ __________________________________ __________________________________ __________________________________ __________________________________ __________________________________ __________________________________ __________________________________ __________________________________

__________________________________ __________________________________ __________________________________ __________________________________

This rst chapter of the book has given you much to think about: the way you learn,how people earn money, and the mindset

and conditioning (programming) that oursociety utilizes to create a system that keepsmoney owing. Hopefully, you also spentsome time thinking and writing about where

you want to generate income from in theCASHFLOW Quadrant® diagram.

To compound the problem, we havealso been conditioned to be lazy—yes, I

said lazy—and have someone do the workfor us. We are used to having someonetells us what to think. There will be a largepercentage of people who read this bookwho tell themselves, “I don’t need to actuallydo these exercises—I read it, I get it, I’mgoing to move on.”

Lasting change will probably nottake place for those people because theyhave not made the information their ownand they haven’t truly taken advantageof the opportunity to think and grow. Fewteachers and mentors have expected andtaught students to do either. So, they’ll movethrough the materials more quickly, but they

will close this book for the last time foolingthemselves—thinking that their beliefs havechanged (or that they already know all this)when in reality the only thing that changedwas the time of day. A big part of the lesson here is how, asa “B” type business owner, you will integratethis information into your business and train

your team through participation, rather thanverbal direction. Since this is where activeand usable knowledge can be applied,this is one of the ways that big businessessucceed.


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__________________________________ __________________________________

__________________________________

What do you think your friends andfamily will have to say about your desire

to change?_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ Do you have strong feelings or beliefsabout how much responsibility comes with

nancial freedom?_________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________ _________________________________

_________________________________What would it mean to you to becomerich?____________________________________________________________________________________________________________

______________________________________________________________________

______________________________________________________________________

Fear of the unknown?________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ The idea of becoming rich?___________________________________

_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

What feelings arise when you consider thepossibility of becoming rich?__________________________________

__________________________________ __________________________________ __________________________________


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y the end of Chapter One, wehad begun to look at the

ways we had been conditioned tothink about money, education, wealthaccumulation, and becoming rich.This chapter continues that study,but before we move on, there is animportant distinction to understand.There are many times we know things

and believe in them on a consciouslevel, but the true test of what we knowis almost always reected in what wedo. Here is the dilemma we face: ouractions, in large part, are dictated byour subconscious beliefs. Far below

our level of awareness, there is a littlevoice that is calling many of the shotsin our lives. And the consequenceof this is that we do things that on aconscious level we wish we hadn’t/wouldn’t do. We think we “get it,” wethink we are in control, and we thinkwe believe “this,” but our actions area reection of an entirely different set

of beliefs. You see, most of the time we takeaction based on our sub-consciousbeliefs—and many times those beliefsare not a part of our consciousprocess. That is why so many people

B

What HasYour Programming

Conditioned YouTo Create?

PHILOSOPHY OF CASH FChapter Tw

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The power of your sub-consciousprogramming cannot be stressed enough,

because, if you want to be rich, you willhave to nd and expand upon ways toaccess your whole brain instead of just part

of it! The following illustrationrepresents the parts of your

brain that you use to becreative, and the part

of your brain that you use to makerational decisions.The diagram also

illustrates the partof your brain where

your subconscious beliefsreside. Take a moment to look at

the illustration and reect on the implicationsat this concept. By the time you were ve or six yearsold, much of your belief system was inplace—about money, people, the world,what you deserved, what you could expect,and how to accomplish your goals. Fromthat point, this information became a part

of your subconscious belief system. Now,here you are, many years later, and for themost part, you are still operating from thosechildhood tapes and stories about life. Nowonder we make so many mistakes when itcomes to wealth accumulation and nancial

say they want to build wealth and nancialfreedom, but do not act in ways that help

them reach their goals.Here’s one example: if you polled

1,000 people and asked every one ofthem if they should use credit cardsto purchase depreciatinggoods and services (suchas dinners out on Fridaynight, or a new outt thatcosts more than theycan afford to spend),it’s a safe bet that100% of them wouldprovide you with aresounding, “Of coursenot!” Yet, if you then re-polled that same group andasked them if they were carrying any creditcard debt that they had charged when theyknew (consciously) that they shouldn’t havedone so, most of them would have to tell

you, yes, they were. How is this possible? Their pro-gramming has conditioned them to go after

consumable goods—and for as many yearsas they are old, that conditioning has comeat them in the form of billboards, televisionads, friends, radio spots, and newspaperadvertisements. “If you have this or do this,

you will be happy!” So, they bought.

SUBCONSCIOUS MIND

LEFT SIDE

rationalwords

RIGHTSIDEcreativecolor


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decisions! If we believe the world is a scary place and there willnever be enough ___________________________ (you can ll in

the blank with anything from food to money!), of course you will buyinto any programming that makes you feel better, more secure, ormore in control. In addition, as a potential “B” type business owner, youwant to be extremely creative as you make business decisions andevaluate potential on a deal or endeavor. Yet, if you look at thediagram above, you can see that only about 10% of your brain istypically utilized in making rational decisions, and only about 10%is used in the creative process. That leaves 80% control to a forcethat directs your behavior from old programming and conditioning—from below your level of consciousness! The goal as we study and discuss this diagram is to uncoverthose subconscious beliefs, evaluate them, and then either chooseto keep them if they are working for you or change them if they arenot. Then, whole brain learning can take place from a more healthy

perspective. You can access your entire brain’s ability to processinformation knowing that the sub-conscious beliefs are in alignmentwith your conscious desires. To further illustrate this lesson, consider how much of your pasteducation has focused on nancial intelligence, how to improvethe quality of your nancial information, and how to leverage yourbusiness ability. Probably very little, if you are like the majority of ourpopulation. So where do you begin as you attempt to uncover and

understand your true motivation in regards to money and wealth?Let’s begin on the left side of your brain—with your rational mind... Some of your earliest lessons as a child focused on beingcareful, not getting hurt, and not stepping off that curb withoutlooking both ways—and the lesson was so powerfully deliveredthat you weren’t taught to look once, you were probably taught to


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get another job—and then they re-enter thejob market and compete with their children

who are in their 20’s and 30’s! That isn’t justcrazy, it’s insane! Why do they continue toput their trust in an employer and a job whenall the evidence stacks up and tells them it isa mistake to do so? Their programming. It isso strong, so prevailing, and so ingrained,that it’s the only thing they feel safe doing! As well, the fear of loss—the fear oflosing what they’ve worked so hard to get—is an overwhelmingly compelling messagethat plays and replays twenty-four hours aday. This is a middle class mantra that neverstops running for millions of Americans whohave no nancial education and no abilityto generate money out of little more than

their knowledge and belief in themselves.This fear is fairly understandablewhen viewed through middle-class eyes.If you have to work day and night, scrimpand save, or worry and fret over buying anew car, of course the fear of losing it couldbe enormous. However, the solution is not totry and hold on to it with all your might—the

solution for the rich is to gure out a way tomake it easier to buy.

One of the big issues for the poor andmiddle class is that they don’t understandhow to generate income—and they seetheir possessions as hard to get and hard to

look three times! On top of these cautionarylessons (that admittedly saved your life

many times, back then), your parents wereeither a product of the Great Depressionor had parents who were products of theGreat Depression. What do you think theirprogramming was in terms of always beingcareful? And that has been passed downfrom their generation to yours. As well, those same parents livedand grew up in the Industrial Age and theirworking careers were a product of a historythat included pension plans, not 401K’s. Itis no wonder that their programming was toget a good job and keep it until they retired.If they followed that advice, then they wouldbe taken care of for the rest of their lives—

back then, that system worked fairly well (aslong as their expectations remained middle-class expectations). However, in today’s world, we havea new reality and there is no longer the jobsecurity of the past—not to mention the lackof pensions in today’s world. Do you knowanyone who has been with a company,

been a great employee (not just a goodone), and after ten, fteen, or even twenty

years, they are let go? And what do thosepeople do? Many go out and look foranother job—they even go back to schooland get new training so they can go out and


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keep. There’s an old adage from the Industrial Age along the linesof, “The only people in the middle class who have no fear are the

ones who have nothing to lose. The ones who are comfortable canbe controlled.” Corporations across American learned that all theyhad to do was gure out exactly how much to pay workers to keepthem comfortable, without paying them enough to be able to leave. From this lack of knowledge comes the need for the middleclass to budget and live below their means. Think about it: if Robertwants a new car or a vacation home, he has the ability (knowledge)to invest in an asset (such as real estate) and increase his cash owto pay for it. If an employee wants either of these things, there’sa huge hurdle to overcome—how to get the money to make thepurchase. Budgeting is all about cutting back, holding on, makingdo, and living lean. That’s pretty close to the opposite of creatingcash in the form of a new stream of income, isn’t it? So, the rich create while the middle class budgets and saves.And the saving part is a dollar at a time—which gets extremely

frustrating since they know good and well that just before they getthe last dollar saved something unexpected is going to happen todefeat them and they’ll have to start all over again. It is no wonderthat they succumb to the temptation to just charge it. It is no wonderthey have such a fear of losing what they’ve got since by the timethey get it paid for they had to work three times harder to buy it thanthe rich had to work (if not more). What’s the answer to this? Know what the rich know—

never depend upon one stream of income for all your needs andunderstand that cash always ows—from the E’s and the S’s to theB’s & the I’s. Begin to do what the rich are doing and nd a way tolearn what the rich already know! The rule for the rich is to invest theirmoney in assets. That begins with turning your mind into an asset.


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Speaking of assets, the rich denethem as something that produces cash

ow. That, in itself, is a re-denition forthe middle class since they typically seean asset as something that has value andthat can be sold—such as their home.Robert sees a personal residence as aliability since it doesn’t produce income(cash ow) and costs money to maintain.If there is a mortgage on your home, itis the bank’s asset, not yours, since it isproducing income for the bank, not for you.

THE FOUR ASSET CLASSES–THE FOUR TYPES OFINCOME PRODUCTION

There are four classes of assets or incomeproduction, and a true entrepreneur willprobably want to have investments (andknowledge!) in all four. They are as follows:

BUSINESS—Whether it is a servicebusiness (such as a property

management company), or a retail business(one example could be a dog groomingshop), or even a business that managesthe distribution and sale of books you havewritten (such as your upcoming bestseller),a business must bring in cash ow to be aviable entity.

PAPER ASSETS—stocks, bonds,mutual funds, savings, hard money

lending, seller nancing, etc. Most E’s andS’s have most of their investment money intheir 401K’s and the problem with this typeof investment strategy is that they do not havethe knowledge to control these investments.Consequently, month after month, and yearafter year, they continue to put money intotheir accounts and hope that someone else(whether it is their nancial planner or theirretirement fund manager), knows what toinvest in, when to get in, and when to get out.A nancially educated entrepreneur doesnot continually pour money into somethingthat he or she does not understand and justhope for the best.

COMMODITIES—Gold, silver, preciousmetals, oil and gas.

REAL ESTATE—Robert says that this isthe best time to get back into the

market. The key for Robert and Kim is thatthey purchase rental properties that have

cash ow. Remember, an asset is somethingthat puts money in your pocket! Let’s continue our discussion aboutreal estate for a little while... As you mayalready be aware, Robert and Kim areheavily invested in real estate—partially due


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to the fact that it produces rental income. But another big reasonis because it is one of the easiest ways to borrow money to invest.

That means they have the power of leverage. In other words, theycan use debt to purchase property that then has a mortgage, whichsomeone else pays off (via the rents) and still have money left overat the end of the month.

It is very important to understand, from the beginning, that if you are going to use debt, you have to be highly educated andnancially literate. Having said that, let’s look at an example ofhow the rich get richer, while the poor and middle class continue tostruggle (aka budget).

$5,000,000 Apartment Complex $1,000,000 Down Payment $4,000,000 Mortgage

The investor now controls $5,000,000 worth of property, collects

the rents on $5,000,000 worth of property, and has tax deductions(both in depreciation allowances and interest expenses) on top ofthe cash ow. AND, as the property increases in value over timedue to appreciation on the complex, ve years later the investorcan sell that same piece of property for $8,000,000, possibly rollthe money at closing into a 1031 tax exchange, possibly pay NOtaxes at the time of the sale, and purchase an even larger complexwhich he or she again goes to a bank to borrow money and buy!

A smart investor doesn’t invest for just cash ow, or invest just forcapital gains (appreciation). They invest for the benets of both! Now, I can just hear you thinking...“How would I ever beable to buy a $5,000,000 complex?” or, “Where would I everget a $1,000,000 down payment?” “I can’t do that!” Kim’s rstreal estate deal, done in 1989, was a two bedroom one bath


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How do you currently accumulateenough cash to pay for the ner things

in life— things like a new car, a wonderfulvacation, or your child’s wedding? Does itcause stress in your life as you work to getthe money together?________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

List some of the ideas that have cometo mind in terms of you thinking like

an “E” or an “S” that you now understandare detrimental to you moving to the rightside of the CASHFLOW Quadrant®. Whatthoughts might hold you back from becomingnancially free?_________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________________________________________________________________

house. She put down a $5,000 downpayment (which was borrowed money,)

and from there she learned, did her nextinvestment, and then her next investment,and now, in 2010, twenty-one years later,they regularly do deals that are at the multi-million dollar level. They started with nothingexcept their nancial education, and madea commitment to their futures and theirnancial freedom. Do you think they everfelt any fear as they grew into bigger andbigger deals? Of course. But did they allowthat fear to keep them from creating the lifeof their dreams? Never!

What is your denition of security? Howdoes that denition differ from freedom?

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________________________________________________________________

1

2

3


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What attitudes and beliefs are so deeply ingrained in yourthought processes that you hardly realize they are not working

for you? Which of these concepts have you bought into at a deeplevel—and continue to exercise in your life even as you see theyare not relevant or working for you? “Go to school and get a goodjob?” “Work hard and you will have a good retirement?” “Save

your money so you are prepared to handle unexpected expenses?”“Live below your means?” “Stay out of debt?”______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

What (or who) has held you back in the past and kept youfrom becoming rich? List as many reasons and excuses that

you can think of.

______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Explain, in your own words, the difference between budgetingto make ends meet and creating to generate cash ow.

______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

4

5

6


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This chapter is not a particularly longone—a few pages that have enough thought-

provoking information to keep your mindoccupied for at least a month (or a year).What have you learned about yourself?Your core beliefs? The messages andprogramming that has driven your behaviorfor your entire adult life? Be certain to sharethis information with your spouse, partner, ora friend. What does it mean to you? Whatwill you do to overcome that programming?

Take a few minutes and consider theemphasis that was placed on you to

make good grades and do well in school.What was the message about who youwere as a person if your grades were“good,” and who you were as a person if

your grades were “bad.”_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Consider the validity of Robert’sstatement that “your home is not an

asset because it costs you money to maintainand doesn’t generate income.” How doesthis denition differ from what you havebeen programmed to believe?____________________________________________________________________________________________________________________________________________

_________________________________________________________________________________________________________

8

7


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LET’S BEGIN WITH A PICTURE OF THE FINANCIAL STATEMENT THAT IS A PART OF TH

PlayerProfession

Goal: To get out of the Rat Race and onto the Fast Track by building up your Passive Income to be greater than your Total Expenses.

Income AuditorPerson On Your Right

Description Cash FlowSalary:__________________________________ ___________Interest:__________________________________ ___________Dividends:__________________________________ ___________ Real Estate: ________________________ _____________________________________________ _____________________________________________ _____________________________________________ ___________ Businesses: ________________________ _____________________________________________ ___________

Expenses

Taxes:_______________________________________________Home Mortgage:_______________________________________________School Loan Payment:_______________________________________________Car Payment:_______________________________________________Credit Card Payment:_______________________________________________Retail Payment:_______________________________________________Other Expenses:_______________________________________________Child Expenses:_______________________________________________Bank Loan Payment:______________________________________________________________________________________________

Passive Income=________________(Cash Flows from Interest + Dividends +Real Estate + Businesses)

TotalIncome:________

Number ofChildren:_____________(Begin game with 0 Children)

Per ChildExpense:_____________

TotalIncome:________

Assets Liablities

Savings:_______________________________________________Stocks/Mutual’s/CDs No.of Shares Cost/Share_____________________________________________________________________________________________________________________________________________Real Estate: Down Pay: Cost:___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________Business: Down Pay: Cost:______________________________________________________________________________________________

Home Mortgage:_____________________________________________School Loans:_____________________________________________Car Loans:_____________________________________________Credit Cards:_____________________________________________Retail Debt:_____________________________________________RE Mortgage:_______________________________________________________________________________________________________________________________________Liability: (Business)_____________________________________________ _____________________________________________Bank Loan:

Source: CASHFLOW BOARD GAME, Rich Dad Operating Co., LLC.


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PHILOSOPHY OF CASH FChapter Thre

Using a pencil, follow the instructions listed below, and ll in thenancial statement as you read the instructions and explanations:

1. Under “Profession,” write down your current job title.2. Under “Player,” write your name.3. Under “Salary,” write down your current monthly

take home pay.4. Under “Expenses,” list your current monthly expenses, and,

using the blank lines, add in any additional payments thatdo not have listings or categories.

5. Under “Assets,” ll in the blanks in that section, using yourcurrent nancial information.

6. Under “Liabilities,” ll in the blanks to record existing loanbalances.

7. Under “Auditor,” write down the name of your accountant.8. Under “Passive Income,” record any recurring monthly

income that comes to you in the form of business revenue(other than your paycheck), rental income (that comes to you

in the form of rent), etc.9. Adding together your “Salary” and your Passive Income, llin the TOTAL INCOME you receive each month.

10. Under “Number of Children,” write down the number ofdependents you currently support and Under “Per ChildExpense,” multiply the number of children you support x$400 apiece.

11. Under “Total Expenses,” add together all your monthly

payments from the left hand side of the Expense sectionand the total amount of money you came up with fordependent children. That is your TOTAL EXPENSES gure.

12. Now, subtract your TOTAL EXPENSES from YOUR TOTALINCOME and record that number under “MONTHLY CASHFLOW.”


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Is it now more important than ever tobecome conscious of your program-

ming and commit to reprogramming yourclosely held beliefs?__________________________________________________________________________________________________________________________________________________________________________________________________________________

How will you nd the resources to gainnancial knowledge, increase your

cash ow, and begin to invest in one of theasset classes we discussed in Chapter Two?________________________________________________________________________

____________________________________________________________________________________________________________________________________________________________________________________

NOW, LET’S WORK ON THE BOTTOMPORTION OF THE WORKSHEET:

Under “Savings,” write down theamount of cash you currently have

sitting in the bank. This is money you currentlyhave access to for bills, emergencies, andinvestments.

Before going any further, are you in apositive cash ow situation each month?

How much is left over after expenses? Isthat number adequate to meet your nancialneeds and does it allow you to move intoinvestments in one of the ASSET CLASSES wediscussed in Chapter Two? The top portion of the Cashow Gameworksheet is the equivalent of an income andexpense portion of a nancial statement. Takea few moments and study this section of theworksheet to see what insights you gain fromseeing your personal nancial information inprint form, sitting on the desk or table in frontof you.

After seeing this worksheet, think back

to the programming and core beliefs that you have operated under and consciouslyidentied in Chapters One and Two. Whatnew insights do you now have about thatprogramming as you evaluate your incomeand expenses?________________________________________________________________________

________________________________________________________________________________________________________________________________________________________________________________________________________________________


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Under “Assets,” list any real estate, stocks, or businesses youhave an interest in and ll in the blanks regarding the cost,

down payment, and number of shares.

Under “Liabilities,” list the outstanding loan balance totals in theappropriate categories.

NOW, LET’S EVALUATE THE BALANCE SHEET PORTION OF THE WORKSHEET:

Total all your asset amounts, and then subtract the total assetsfrom the total liabilities. Is your number a positive one or a

negative one? ___________________________________________

This number represents your net worth. How do you feel aboutthe number? Is it as high as you need it to be to keep you on

track for retirement? ______________________________________

_____________________________________________________________________________________________________________________________________________________________________

What have you learned about your nancial situation aftercompleting this exercise? ____________________________

______________________________________________________________________________________________________________

_______________________________________________________

In the real world, you no longer live by your report card or grade pointaverage. Your nancial statement is your new report card and it is areection of your nancial literacy. There is a key distinction betweennancial intelligence and nancial I.Q. Financial intelligence is that


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part of our mental intelligence we use tosolve our nancial problems. Financial I.Q.

is the measurement of that intelligence. Inother words, it is how well we are solvingthose problems!

For instance, if I make $100,000 a year in income, and pay 20% in taxes dueto my investment strategies and my abilityto shelter my income through legal taxdeductible expenses, my nancial I.Q. ishigher than another person who earns thesame amount of money but pays as much as50% in taxes.

There are several other ways to measure your Financial I.Q. and I have listed thembelow:

MAKING MORE MONEY: MostAmericans have the ability to earn

money. Those of us who can dictate theamount we choose to make and leverageour ability to increase our income have ahigher Financial I.Q. than those who are atthe mercy of the number of hours in a dayor the amount an employer is willing to pay

us to work for a certain period of time. So,those who have the ability to make higherearnings than others will typically have ahigher Financial IQ.

PROTECTING YOUR MONEY: Usingthe example above, the person who

has the ability to earn a higher amount ofmoney and shelter it from high levels of taxwill have a higher Financial I.Q. than aperson who has little or no control over theamount of money owed to the government.

BUDGETING YOUR MONEY: Robertteaches us that budgeting your money

takes a certain level of nancial intelligence(remember, we are solving problems withnancial intelligence).

Now comes the distinction betweenthe two: some people budget like a poorperson—with a sense of scarcity and witha goal of holding onto something or of

cutting back on our spending. Those witha higher nancial IQ will budget by livingon a portion of the money they earn forthe purpose of having some of their moneyset aside for investments. This is calledbudgeting for a surplus and it requires ahigh level of nancial intelligence.

LEVERAGING YOUR MONEY: This isthe ability to not only budget for a

surplus, but to then leverage your ability toinvest that surplus to maximize your return onthe investment. Once again, a real estateexample will serve us well in gaining a


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deeper understanding of this concept. Let’s say you have budgeteda surplus and have $40,000 to invest. One thing you could do

is take that money and purchase a certicate of deposit—whichcould earn you, at most, about 2% interest. However, you havenot leveraged your money in any way since you cannot typicallyborrow additional funds to buy a CD that is worth more than theoriginal $40,000.

However, let’s take the same $40,000 and apply for a loanon a piece of real estate that is valued at $260,000. Although itsvalue is $260,000, you had the knowledge to nd and negotiatewith a distressed seller, so you were able to buy it for $200,000.You buy the building and pay $40,000 down, leaving you with a$160,000 mortgage. Now, you lease that building out on a three

year lease option and over the next 36 months, it brings in $200 permonth in positive cash ow. At the end of the three years, the leaseepurchases it from you at the current fair market value of $300,800.(reecting an annual appreciation rate in that area of 5%).

Your mortgage balance is now $157,400, and after closingcosts you walk away with a check in your hand for $125,000!Added to this amount is the $200 per month x 36 months whichequals another $18,000, and the capital gains tax on your sale istaxed at only 15% under current tax laws! On the other hand, the person who invested the money in a CD@ 2% interest cashes out after three years and realizes a total gainof $2,448.32—which is then taxed at his or her earned income

rate of 32%! Which investor has the highest Financial IQ?

IMPROVING YOUR FINANCIAL INFORMATION: Thisprinciple actually precedes the power of learning to leverage

your money. The reason that so many people invest in what theyconsider to be low risk strategies (such as mutual funds, certicates


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UNDERSTANDING

HOW CASH FLOWS

Now that we’ve learned about theCASHFLOW Quadrant® and the parts of anancial statement, as well as Financial I.Q. #1, Making More Money, we can beginto put some of the pieces to your nancial

future together. The rst concept, “MakingMore Money” can be tied to the principlesof the CASHFLOW Quadrant® and thenancial statement of income and balancesheet. So, let’s put it all together in a pictureso you can see it more clearly:

E/SIncome StatementIncome

Expense

Job

Assets Liabilities

Balance Sheet

of deposit, and other paper instruments) isdue to their lack of understanding about

nancial aspects of investing, so they attemptto play it safe by turning their money over tothe “experts.”

The problem with this is you don’t learn,and you don’t increase your understandingof money, leverage, or evaluation of returnon investment because someone else ishandling your money for you. You will haveto “grow into these shoes” and it won’thappen overnight—but avoiding the lessonsrewards others for their nancial intelligenceand it rewards them handsomely in the formof commissions and management fees!

You must start wherever you are, as thesaying goes—but just start. One of the best

ways to begin is by doing the exercise on your nancial statement and taking the timeto evaluate it and understand it. Throwing

your hands in the air and announcing, “I’mconfused!” won’t help you. Ask a mentor tosit down with you and explain it. Practicelling in the blanks, one blank at a time. Dowhatever it takes, but as the Nike ad says,

“Just do it!”


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What lessons did your parents teach you about investing in one or more

of the Asset Classes (Business, Real Estate,Paper Instruments, or Commodities)? _____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

By example, rather than words, whatlessons did you learn from your

family about setting goals and focusing onincreasing your assets each year? ______

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

___________________________________

want to make as you become an entrepreneur.Take some time to go back through the

information and ask yourself the followingquestions:

How has my programming left meunprepared to increase my Financial

I.Q.? ______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Was there any education or emphasisplaced on the Balance Sheet portionor the nancial statement, or was the focuson “How much can you make?” Was thereeither a direct or indirect conversation in

your home that “Money is hard to comeby?” and “There is never enough money!”?___________________________________

_____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________


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Take a few minutes and write about either the abundance orthe lack of nancial education you received as you were

growing up. Are there holes in your knowledge base that need tobe lled? ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

And nally, spend some time with someone you care aboutdeeply (a spouse or a partner if you are in a relationship) and

share the information you have gotten from this chapter. Put it in yourown words and work towards explaining the importance of the twoof you working together to build a life of nancial freedom. ___________________________________________________________________________________________________________________

___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________


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_____________________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________


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n previous chapters, we learnedthe denitions of both Financial

Intelligence and Financial IQ. As well,we learned about the three parts of ourbrain’s ability to process information.

We are reprinting the diagram youstudied earlier so you can begin totake this knowledge and see how itapplies to the lessons in Chapter Four. To recap those denitions, Finan-cial intelligence is that part of ourmental intelligence we use to solveour nancial problems. To go one stepfurther, although it takes the rationalside of our brain to execute andcalculate, for the most part, we areusing the creative, right side of yourbrain as we engage in this problemsolving activity.

Financial I.Q. is the measurementof that intelligence. In other words,it is the evaluation of how well weare solving our nancial problems.To understand this at a deeper level,

realize that the left side, or rationalside of our brain has the capacity tomeasure our success. In this chapter, there is a new termthat will be of tremendous importance.Emotional Intelligence is the abilityto control your emotions, particularlygreed and fear, and the ability touse your emotions to make your lifebetter. To clarify this denition a littlemore, realize that the subconsciousportion of our brain is where ouremotions originate. Robert tells usthat, “Financial intelligence is directly

I

How The RichHave Programmed

Their Minds

PHILOSOPHY OF CASHFChapter Fou

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did you monitor the level of fear and moveforward anyway? Describe what happened

in the space below. _______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Thoughts Emotions

Emotions Beliefs

Beliefs Words

Words Actions

Actions Character

Character Destiny

From Thoughts To Destiny...

Robert believes that Emotional Intelligence isthe foundation of Financial I.Q. because itis through our emotions that we either moveforward towards our nancial goals or westop ourselves because of our fears. The

ability to control our emotions and chooseto access or create emotions that move ustowards our goals is a skill that the rich havetypically mastered.

related to emotional intelligence. Emotionalintelligence is how well we control that nag-

ging little voice in our subconscious mind.”

EMOTIONAL I.Q.

Just as Emotional Intelligence is directlyrelated to Financial Intelligence, Emotional

I.Q. is directly related to Financial I.Q.—itis the measurement of how you’re doing interms of Emotional Intelligence. If your goalis to raise your Financial I.Q., it is importantto constantly measure your ability to control

your thoughts and emotions and be certain you have learned to use your emotions tomake your life better.

WHAT DOES THISLESSON MEAN TO YOU?

Take a moment to measure your EmotionalIntelligence. Take the Emotional I.Q. test!

Think back on a time when you weregoing to make a change in your

nancial life, and fear crept in. Did youback away from your original decision or


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PHILOSOPHY OF CASHFChapter Fou

57

Human beings are emotionally driven animals—but they often(mistakenly) believe that they are at the mercy of emotion. In other

words, they believe that emotions just happen to them and they donot have the capacity to control or change them. Let’s evaluate howemotions are created: we have a thought and then we begin todwell on it. Next, we begin to expand on the thought and often webegin the process of predicting the future. The following exampleillustrates the powerful effect that our thoughts have on the outcomeof our lives: EXAMPLE: Bill nds his rst big real estate deal He runs thenumbers and evaluates the property and cash ow (left brain,rational thinking activities). He negotiates with the motivated sellers,nding a way to create a win/win situation for everyone (rightbrain, creativity) and gets the building under contract. Everythinglooks good and he applies for a loan; for his down payment heintends to pull $200,000 out of some mutual fund investments thathe has earmarked as a part of his retirement package. The mutual

funds have lost nearly $50,000 in value over the past two years butduring the last six months, he has regained about $6,000 of thatamount. That night, Bill goes home and after his wife, Sophie, and thekids (Susie, age 6, and Jimmie,13 months,) are asleep he lies in bedand begins the process of going back over the deal. This property’spurchase price is $1,000,000 and Bill has never, ever signed fora loan bigger than his home’s mortgage—which is $233,000.

Bill starts asking himself some important questions, “What if thetenants move out and I have to make the monthly payments?” “Whatif the air conditioning system goes out? That’s going to cost at least$20,000 to replace!” “What are my family members going to saywhen they nd out that I’m now over ONE MILLION DOLLARS INDEBT??????????” “How in the world am I ever going to be able


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as you read it. However, most of us haveengaged in this kind of activity hundreds, if

not thousands, of times during our lifetimes.And, it is internal conversations like thesethat keep us in the exact same nancialsituation that we’ve been in our entire adultlives! We go to work, we avoid risk likewe’d avoid the bubonic plague, and we dowhat our friends, family, and co-workers aredoing. If they’re all doing the same thing,they must be right and we must be wrong! Let’s go back and analyze what justhappened as Bill was lying in bed. Hebegan thinking thoughts that generatedan increasingly higher level of fear eachmoment. As he began to dwell on what mightgo wrong (thoughts), the fear (emotions)

increased and the rational side of his mindclamped shut tighter than a bank vault atve p.m.! His old programming kicked in:the fears about what other people wouldthink, his insecurity about where he belongson the nancial spectrum emerged(beliefs),and he began to generate emotions thatwere based upon what I call, “What if’s?”

(words). Whenever we engage in “whatif” thinking or words, we are typicallyprojecting into the future and attempting topredict a reality that has not yet happened,a realty that might never happen. As the fearescalates, we begin to create increasingly

to send Susie to college and pay her tuitionif I’m on the hook for over ONE MILLION

DOLLARS? We’re going to lose our house,we’re going to end up going bankrupt, andSophie is going to kill me! I’m going to loseall my money—which took me the past 10

years to save, and I’m never going to beable to retire!”

“Our credit will be ruined, just like it waswhen we rst graduated from college andwe had all those student loans to pay backand no income to make the payments! Ittook ve long years—some of the best yearsof my life—to x that mess and get our creditrepaired! I don’t ever want to have to gothrough that again!” Bill jumps out of bed, calls his realtor on

the phone (it’s 2 a.m.), and can’t get throughto her. “Oh, great! I’m in this all alone, Idon’t know what I’m doing, and I don’t evenknow the name of a good air conditioningrepairman—not that I’d trust a repairman totell me the truth anyway! What in the worldwas I thinking when I signed that contract?The last thing I need is more stress in my

life—we’re doing okay—we don’t need a10 unit apartment building and 10 tenantsto worry about. I’ve got to get out of thisdeal!” Now, I hope that this conversation hasbeen a source of some amusement to you


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he thinks it’s likely to be before it needs to bereplaced.”)

Let’s analyze how emotions are created.First, we have a thought. Depending onthe thought, we begin to generate eitherpositive or negative steam (emotion). Fromthat steam, we begin to feel a certain way.From that feeling, we begin to project intothe future, make state

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