RICH DAD'S guide to investing

PHILOSOPHY

Wealth is a way of thinking and not a money amount.

The Industrial Age with its promise of job security for life, pensions and social security is finished.

A person's business can afford to buy assets (pre-tax) that the individual cannot.

Words are the most powerful device we have because they affect how we think and that creates our reality.

Poverty is caused by a lack of education and so it is a learned condition.

You have to understand business before you can invest in stocks because buying a share is buying part of a business.

Most people invest as individuals and not as businesses.

90/10 rule. 90% of the wealth is owned by 10% of the population. Many of these people created their own assets.

Most people are gamblers or speculators rather than investors, living in fear of a market crash. But a true investor makes money if the market goes up or down. The average investor makes no money in the market, gaining but then losing.

What makes the 90/10 different: they take risk; the focus rather than diversify; they increase their debt; they increase their expenses to make themselves richer; they creat jobs; they work less and less to create more.

You need a deep desire to be more than an average investor.

Five phases of development:• Mental prep• What type of investor do you want to become?• How to build a strong business• Who is a sophisticated investor• Giving it back

As a starting out entrepreneur you still need a job to pay the bills but never take a job for the money only, take it for the long term life skills it will bring you e.g. sales. If you cannot sell you cannot be an entrepreneur.

Goals have to be clear, simple and written down and reviewed daily. If they are not reviewed daily, they are wishes, not goals.

"Until one is committed there is hesitancy the chance to drawback always ineffectiveness. concerning all acts of initiative and creation there is one elementary truth the ignorance of which kills countless dreams and splendid plans: at the moment one definitely commits oneself then providence moves too...whatever you can do or dream you can, begin it. boldness has genius power and magic in it. Begin it now." Goethe.

When you get nervous, trust in that power bigger than yourself and step over the edge.

A persons reality is defined by their self-confidence. You need to be willing to do the uncomfortable and go blindly with faith in order to move your reality.

PHASE 1 MENTAL PREPARATION

The first million is the hardest.

The governments prevent the most lucrative deals (and riskiest/most complicated) being offered to the average public. These deals often have 35% to unlimited returns eg IPOs, start ups.

A sophisticated investor knows The Three Es: • Education• Experience• Excess Cash

You can get the education but without having practical experience you won't get the cash. Excess cash means you can lose it all and be upset but survive and know that you will earn it all back v. soon. Then you can invest in the stock market mentally risk free.

You will know you have enough experience when you have excess cash! Like riding a bicycle, you just need to do it.

Great wealth will be created in the Information Revolution as it was during the Industrial Revolution.

The only reason you build a business is so that it can buy you assets, otherwise you wouldn't be able to afford them.

Have to make a decision to follow a difficult path, to feel uncomfortable and to spend many hours studying difficult topics. But that is preferable to clinging to job security. The rich don't work for money, they make their money work.

You make that choice, to be rich, every single day.

The Choice: All 3 are important but you must choose their priority1. Secure2. Comfortable3. Rich

Most choose job security first, then focus on getting a salary to make them comfortable then rich is a distant third. They just dream about it.

Unless you take steps towards it every day, a goal is just a dream.

People are often uncomfortable about becoming rich or about the path required to become it. They either make excuses that they wouldn't want to be rich or they find it more comfortable to indulge in get rich quick schemes rather than study.

Why do you have to choose between being happy or being rich? That's not the actual choice that is available in life. People mean they would rather feel comfortable and unchallenged than rich.

No matter your disposition, it is hard to be happy living in a tiny, decrepit flat, heavily indebted without any spare money to get yourself out of the situation or provide your family with a quality of life.

Isn't it more immoral to live off debt or buy-now-pay-later finance deals or credit cards than it is to make an asset that generates actual wealth? Isn't it immoral to not use your God-given intelligence to the best of your ability?

The World of too much Money

Don't let not having money be an excuse for not getting what you want.

There are only two kinds of money problem: not enough or too much.

Money is only an idea. Therefore, what you think about it becomes true. If you think there's not enough then there isn't (for you). That's why lottery winners lose all their money quickly, their ideas don't change so their reality reverts to normal.

Pay attention to your words and thoughts about money. Replace 'I can't afford it' with 'how can I afford it?' and you will see the other side of the coin. You need to learn what goes on inside a rich persons mind, not just how much they earn.

When you panic and start to fear a return to poverty ask yourself this: there are 2 kinds of money problem which one do I want? Calm yourself down then ask your mind to find solutions. Most people allow their panic and their emotions to make their decisions.

Emotions such as fear and doubt lead to low self-esteem and confidence. Most people worry about the info that will never happen anyway. Donald Trump: worrying is a waste of time, it gets in my way of working to solve these problems.

Writing a financial plan now for when you have money will prevent you losing it e.g. what types of investments you will make with your money.

Investing is confusing because it means different things to different people. We should not be interested in stories of sudden gains in particular stocks. Hot tips are not real investing. And there is little value on following popular trends because real investors would already have got their money out.

Investing is a plan not a product or procedure.

An investment vehicle gets you from A to B. Your plan should get you from where you are to where you want to be in a desired time frame. Write the plan and it will dictate the best vehicles.

Trading is not investing, most people focus on a product (stocks) then a procedure (trading) but all without a plan. Trading is trading, it's a profession.

Don't get too attached to one particular vehicle or product or procedure. Your plan should have multiples e.g. to go to Hawaii you need a car to go the airport then a plane or a boat then a taxi. You also don't have to like the vehicle to use it.

Words are essential. You can tell a persons past, present and future by the words and phrases they use, it reveals their thought patterns which then affect their realities. The difference between a rich person and a poor person is their vocabulary, increase their financial vocabulary and they will become richer both because their thoughts are changed and because they will be more comfortable in getting involved with the financial world.

Nosy people plan on being poor when they retire. They think that mortgage and most bills will have finished, children left home and that they can afford to live off their pension in a lower tax bracket (hence the appeal of long term investing financial advisers always assume you will be a lower rate tax payer upon maturity). Very dangerous. Anything could go wrong, full time nursing care is

ruinously expensive especially if you want to stay together in a non-council home. Do you really want to plan to be frugal when you need money and security the most? Is that successful investing?

Plan for well beyond retirement, 3 generations beyond..... If you don't have a plan for your money before you depart this earth, your government does.

Most people think investing should be like they see on TV, very exciting and adrenaline filled. That is not investing, that is a profession called trading, in the S sector. Best to make your investment decisions away from the noise of the crowd, news feeds, ups and downs of stocks etc.

It should be a dull, boring almost mechanical plan. It doesn't have to be risky and dangerous, it should be made up of strategies and formulas that almost guarantee success. Most people don't have the slight edge discipline to stick with a dull plan and they get more involved to make it more interesting or look for an exciting get rich quick scheme. In reality, simple is better than complicated.

Monopoly provides a simple strategy for wealth. Buy four green houses then exchange for a hotel.

It has been proven that a mechanical or passive system of investing will outperform fund managers. 80% of fund managers are routinely beaten by the S&P 500. Therefore, knowing nothing about stocks, you could invest in a low cost market tracker fund and beat most expensive fund managers (as recommended by Buffett). We are not rational and instead of fats we invest on emotion or what the crowd is doing.

Rich Dad's formula has created the richest individuals over the last 200 years: build businesses and have the businesses buy real estate and paper assets.

Stories about rapid and instant wealth on stocks that suddenly jumped are irrelevant and annoying, it shows someone doesn't have a plan and is instead relying on hot tips.

How to come up with your plan:

1. Take days or weeks to quietly think 'what do I want?'2. Don't consult with anyone during this stage: the biggest killer of inner dreams is family and

friends saying don't be silly. 3. All investment plans start with a financial plan so consult an advisor. Keep trying others until

you find one you are happy with. As you develop you may outgrow a particular advisor.

Begin with a coach/mentor/advisor who has already done what you want to do. Interview several. Investing is a team sport and you will eventually need to build up a team of professionals bankers etc as if you were hiring business partners.

Set realistic goals and recognise they will change as you do.

Mind your own business, keep making progress every day, take your time and eventually the plan that works best for you will appear.

Life is a cruel teacher, it punishes you first and then tells you the lesson.

Write three financial plans:• For lifetime financial security, should be dull and boring, just providing enough money to pay

mortgage etc and get rid of money worries

• To be financially comfortable, a little more aggressive. Will need to speak to different advisors and will need to be clear on what you want. Tricky to decide exactly what you want to buy for the rest of your life.

People have been conditioned to love below their means, to save for a rainy day and so they never expand their minds to discover what may be possible. They inevitably splurge on big expenses and feel guilty. Wouldn't be necessary with a proper financial plan for comfort. Be financially limited is not being financially smart, it shows up on people's faces after a lifetime of worry. Making money can become an art and a passion and keep you feeling young. An artist doesn't just stop once they become successful. The more you find out what might be possible in this tremendous gift called life the younger at heart you become.

• Plan to be rich. You need secure and comfortable in place first. There is a tremendous price difference with the plan to be rich. The price is measured in time. Of time and money, time is the most precious asset. (As an aside, think of the opportunity cost of spending additional time negotiating to save a few pounds when you could be running your business instead). Most people complain that they don't have the time to learn to invest, think of Eric Thomas. There is nothing more risky than someone who plans to become rich but without the other 2 plans in place, they often end up broke and there is nothing scarier than seeing someone out of time and money. Once those 2 plans are in place of course you are allowed to speculate on a hot tip but you should realise that it is not true investing.

You can invest to be secure or comfortable using an automatic system and just continue to work whilst handing your money to professional money managers. This is best for most people, who are not willing to invest the time and effort to learn. It should be possible to become a millionaire over time following the comfortable plan.

Poor people value money more than time. Because they don't have money they cling to it, there are many poor people with lots of money. They cling to money as if it is magical. Money is just an idea, a medium of exchange and has no actual value. As soon as you get money you should exchange it for something that actually has value.

Investing is not risky if you have controls in place and you become an 'insider' ie you know what's going on and what you're doing. Secure and comfortable levels invest from the outsiders using professional money managers whom they presume is closer to the inside than them. To become rich, you need to get closer than those professionals.

Make the I quadrant the ultimate, most important quadrant so that you don't have to work if you don't want to or if you aren't able to. When it comes to teaching children, teach them to be investors so that they can choose to do any profession they want for pleasure. Start an investment portfolio with them when they are young.

Investing is not a race and you are not competing with anyone except yourself. Competing often leads to financial ups and downs. Of course you will always compare and compete a little but just focus every day on learning more and gaining more experience.

The basics of investing

Basic lessons are important, just like when starting in golf.

1) Always know what kind of income you are working for. Ordinary earned income (highest tax), portfolio, passive (real estate or patents)

2) Convert ordinary earned income into passive or portfolio income as efficiently as possible. 3) Keep your ordinary earned income as secure as possible by purchasing a security you hope

will turn it into passive/portfolio income.

A security is something you hope will keep your money secure, like stock or s property, but not all securities are assets (according to the rich dad definition of an asset). Many professionals confuse the two definitions. You must determine whether a security is an asset or liability (and it may change over time).

4) It is the investor who is really the asset or liability. A good investor loves to follow behind a riskier/bad investors mistakes in order to find a bargain. Don't listen to stories of quick wealth, if a stock has already made lots of money the party is probably already over. Aim to buy securities that are liabilities and turn them into assets (or wait for someone else to do it for you). 5) A true investor is prepared for whatever happens, a non-investor tries to predict. Most good opportunities are only available for a short period of time. Must be prepared with education, experience and excess cash. Attend classes on the asset class you are interested in so that your brain is trained to Know what to look for. Although, if you accept a world of abundance you know that another deal will come along. An investor can make more in a market crash than in a rise, the market drops quicker than it rises. If you don't cover both possibilities then you are risky not the investment. 6) If you are prepared with education and experience but lack the money and a good deal comes along the money will find the deal.7) The ability to evaluate risk and reward. Security of the capital invested versus return on investment. If the deal can't be explained in 2 min In plain English so that you fully understand it then something is wrong, either way pass. Keep it simple (assuming that you are developed enough as an investor and are not simply failing to understand).

Excess cash means you can afford to lose it all and be upset but it won't actually affect your ability to pay the bills and you know you will soon build up some more savings. You will also profit from the loss (in experience, like a good expense or good debt).

Reducing RiskThe number one control is control over yourself and your emotions. You mustn't let the ups and downs of the stock market run your life. Too much stress and emotion involved and your desire for security and comfort will overwhelm you. A true investor doesn't care which way the the market goes up or down.

Must do lots and lots of study. Must learn basics of business. You have to be able to talk fluently to lawyers and accountants etc. If you become a successful B, or know what he knows, you can either create your own B or analyse a businesses stock as a B. Furthermore, people want to invest in a good B. This is the basis of fundamental investing.

Building a business is one of the best investments you can make: 80% of the rich started businesses. Most people just work for business owners and help them become rich. Poor and middle class value money itself but a business builder will give up money to hopefully create an asset.

Since money is constantly losing value, a true investor must constantly seek assets to turn that money into that will increase in value and produce their own debased money.

Should invest in business, real estate (passive), stocks (portfolio) plus commodities for insurance.

To be a good businessman must develop a thick skin, be good at selling and marketing, develop charm and overcome shyness and fear of rejection. Selling is s very necessary skill to become rich.

Financial literacy is crucial to fundamental investing: looking at financial statements. The stock price and the P/E are outsiders indications.

Looking at a financial statement does 3 things:• Can see into the numbers and so look into the company, is it being run well, is it growing etc.• Can overlay it onto personal financial statement and plan. Would this Investment get you where

you want to go? Can you afford it?• Can determine if the investment is safe and will make money or will do once something is fixed

Never start an investment with the intention to lose money and claim a tax refund. If you are not financially independent by 45 you are failing.

You should invest for one reason only - to make money i.e. to acquire an asset that turns ordinary earned income into passive/portfolio income. Investing to pay off debts or hoping to buy a bigger home or car is a fools path. If you dream only of the house you will never acquire it, dream instead of the business.

To find the best investment opportunities you must be financially literate, understand tax law, accounting, business law etc. The average investor just looks at price.

Financial literacyThe relationship between the income statement and the balance sheet is crucial. Just because something is listed on the asset/liability side does not make it so. How can you tell what an asset or liability really is without the income or expenses statement?

People and businesses struggle because they have poor control of their cash flow. The technical accounting can be left to the experts but you need to be able to 'see' the cash flow from a financial statement.

1) Look for the direction of cash flow. Confusion can occur with conventional accounting which allows assets and liabilities to be listed under the asset column. (A future capital gain upon selling may well turn a liability into as asset but that is gambling). Laws and tax rules can and do change which may mean that your future-planned profit may never come to fruition. Cashflow generating assets may require more work to find but they are more secure. If you've been investing for less than 20 years and/or never been thru a major market correction you are new. A professional investor prepares now and doesn't bank on a future event or a future asset price.

If you don't have control over your personal financial statement you will get deeper and deeper into financial servitude. Each pound of debt will make someone else richer. Simply making more money will not solve your problems if you cannot control your expenses - the average person spends what they earn and more. Is that more moral than a desire to be financially independent?

2) it takes 2 financial statements to see the big picture. Who are you making rich? Your expense is someone else's income. Your home IS an asset but it is your bankers asset! An investor should acquire an asset that someone else pays for e.g. the tenant will pay off your mortgage and still generate a cash flow.

Must read financial statements, annual report and prospectuses to get used to them. A professional investor has deal flow - a continuous stream of potential investments that need analysing. It is slow to read them at first but you get faster. Remember Kiyosaki studied 100 real estate deals before actually embarking on one.

The art of making a mistake:Each time you make a mistake you should be happier, wiser and more determined, left richer by the experience. Avoiding mistakes, avoiding confronting weaknesses, not doing something you're afraid of: it's all failure.

After each mistake, first you become upset, then you find out who you really are:

A. The liar - I didn't knowB. The blamer - I would be rich if it wasn't for you kidsC. The justifier - I just don't have the timeD. The quitter - I told you it would never workE. The denier - nah, it'll be alright, no mistake

You must get your rational mind to take over from this initial response and seek the lesson: that is wisdom.

Instead of fear and resentment there should be excitement. An upset is life's way of saying pay attention here's something you should learn. Always take responsibility for a problem, count to ten, calm down, never blame the other person. Be willing to take risks, accepting that failures will happen but being grateful that you will have the opportunity to learn. Just because you fail doesn't make you a failure.

Winston Churchill: success is the ability to go from one failure to another with no loss of enthusiasm.

The price of becoming rich:Give first what you want to receive. If you are lacking smiles in your life, give and you shall receive.The same with punches or money!

By running a successful business you are serving lots of people and improving their lives. An E or S can only serve one person at a time and can also only make more money by working longer or asking for higher salary.

Rich Dads definition of rich: 1m dollars in consistent passive income, 5m dollars in assets. Also, a real investor should be able to maintain a consistent 20% return on investment.

Must have a plan and be focused:• Dream• Dedication• Drive• Data• Dollars

Be careful that your hesitation doesn't manifest itself as stalling and a desire for more data.

It doesn't take money to make money. You should constantly challenge yourself as to how you can create assets without money. Doesn't matter how crazy the idea, just train your brain to think creatively. Is your investment plan likely to put you in the 90/10 league or is it an average investment plan? Billionaires don't get rich by getting a job and putting some money away to invest. You have to be creative, it's a way of thinking that creates assets e.g. But a large piece of land with a house, sell off some of the land for building to repay your loan and then get some cash flow.

Also, another test of an asset is whether you can hand it on to your children. Building a company can do that. Starting a franchise or network marketing company for little money or risk can turn into a big asset that then buys other assets.

PHASE TWO - WHAT TYPE OF INVESTOR?

You need to buy assets and create assets.

Nothing kills ideas quicker than small minded people who say it 'can't' be done either because they can't or it highlights that they didn't do it or because they just don't understand.

Great spirits have always encountered violent opposition from mediocre minds - Einstein. Note that the mediocre mind might be your own, your inner voice.

It doesn't take a great idea to become rich but it does take a great person. You must be of strong spirit and strong in your convictions to withstand the doubt of those around you.

This doesn't meant that you plot on blindly ignoring all advice and warnings. We're not talking about discerning good advice from mind. We are talking about determining your own future, about the spirit and the will to go on when filled with doubt and out of money and good ideas.

Your entrepreneurial spirit is more important than the product, it will turn ordinary ideas into great fortunes.

10 investor controls:1. Yourself (covered in part 1)2. Income/expense ratio and asset/liability ratio3. Management of the investment4. Taxes5. When to buy/sell6. Brokerage transactions7. ETC (entity, timing, characteristics)8. Terms and conditions of the agreement9. Access to information10. Enticing it back, philanthropyInvesting is not risky if you can master these controls.

5 types of investor

1. Accredited investor. High salary/net worth2. Qualified investor. Knows fundamental and technical investing (outside investor).3. Sophisticated investor. Understands investing plus the law.4. Inside investor. Creates the investment.5. Ultimate investor. Becomes the selling shareholder.

Start as an insider i.e. build a business that will give you excess cash to become an I.

Many high paid Es and Ss can be accredited investors with no knowledge and are therefore exposed to higher risk investments without any understanding.

If not interested in building a business then focus on becoming a sophisticated investor (encompassing accredited and qualified). Understand tax, corporate and securities law to protect investment. Able to see the other side of the coin. The other side of the coin is not black and white it is shades of grey. Don't invest on your own on this side, need a team.

Note a 'business' may just be a single piece of real estate.

A way to great wealth is to be a selling shareholder (IPO) but note that any director or general partner of the business will be considered an accredited investor regardless of their income. Therefore a non- high net worth individual can take a company public and make a fortune.

A qualified investors technical analysis will ensure that they invest with insurance from catastrophic loss.

Both fundamental and technical skills are important. For example, most amateurs are purely technical analysts (but without mush skill or knowledge or even the ability to ensure against loss) and will be easily tricked into a late bull market by the rising prices. A true technical investor is excited by market crashes i.e. qualified investors often hedge their positions with put options etc. They will wait for a market panic and buy at lower prices using fundamental analysis.

Bear markets are likely to move faster in the digital age as communication is faster and more money can be moved more quickly and more amateurs are involved in day trading.

Must have an exit strategy. When most amateurs are excitedly buying a popular stock there is someone who is excitedly selling it to you. Know what will happen if the investment goes well or if it goes bad.

P/E = price per share / net income per share

Different industries will have very different PE levels for successful companies. High growth industries will have higher PEs to reflect future earnings growth. The future PE is more important than the current figure. Compare with other companies in same industry and compare over last few years to assess growth.

Day traders are not necessarily qualified investors, their time frame focus is too short. Highly competitive S quadrant activity.

The sophisticated investor

Qualified investor plus familiar with tax, corporate and securities law. Can often gain higher returns for lower risk by using the laws. Their strategy will be based on law as much as on the individual product and potential gains.

Investors control, everyone else gambles.

Able to use advantages of ETC:ENTITY is control over the choice of business structure. The plan should precede the product. A limited company is useful over sole proprietorship because of its separate legal identity, therefore reduces your legal exposure. You do not want to do business or own anything as a private citizen. You need to be as poor as possible on paper. Steve Jobs' salary was $1 a year! Ignore the middle class desire for 'pride of ownership'. Don't own anything but control everything via corporations and companies.

Proper financial planning necessary through use of insurance, trusts, limited companies etc. will protect the individual family from being sued etc.

But companies are double taxed? Then either increase salaries to wipe out company profits or decrease salary to £1 or retain company profits for expansion or marketing following year. Different corporate structures have different benefits or flexibility depending upon their intended use.

TIMING is control over when profits are declared and tax paid i.e. the financial year.

CHARACTER OF INCOME eg ordinary earned, passive or portfolio.

Many accredited and qualified investors are not sophisticated, relying instead on advisors. Sophisticated investors are separated from inside investors by their lack of (sometimes through choice) controlling interests in companies, relying purely on publicly available information.

A sophisticated investor also understands good debt, good expenses and good losses, all of which create cash flow. For example, the expense of a solicitor can save thousands in the future or the paper loss of a company can save on taxes.

The inside investor

Don't need a lot of income but need an officers or directors lost or a significant controlling amount of shares. Significantly reduces risk because you have access to the whole picture and can control it. Aim normally to build an asset to sell or take public.

Most high returns are found in micro-caps. Little trading volume so bid-offer spread normally large.

The ultimate investor

Builds a business that becomes so valuable it can be sold. This can be very profitable and could also give you control over the final investor control: philanthropy, like Bill Gates. Also, almost by definition, a company that has become this successful has value for people and has improved their lives.

The purpose of a business is to buy assets with pre-tax income. Pre tax means that you then have more cash available to invest.

If you need more money, working harder or even taking a second job won't help long term. Keep your job and start a part time business; franchises or network marketing companies are simple and offer training.

Remember, the world is filled with great products and ideas but not with great business people. Ideas are a dime a dozen. The purpose of starting a business in this case is not to develop a product you love but to teach you how to be a business person. Don't worry about failing, of course you'll fail at something at some time. Just start it, it's exciting and challenging. Great spirits have always encountered violent opposition from mediocre minds.

Dream of a bigger payday. Don't dream of a £200,000 salary. If that's your dream, stay as an employee, the risks are too great. Dream of millions.

PHASE THREE - HOW TO BUILD A STRONG BUSINESS

Three reasons to start a business: - excess cash flow - sell it - take it public

You only have to be right once.

You need:• Vision• Courage• Creativity• A thick skin to withstand criticism• The ability to delay gratification

The BI triangle:

Building a business according to this model is high risk but the earning potential is unlimited. When your first one fails, you are not a failure. Keep practice building them. Once you become good at taking an idea and building a BI triangle around it, people will come to you with money. Must be 'lazy' enough to build multiple businesses ie can't be too hands on, the systems must work without you.

1. Structure

a) mission: A business needs both a spiritual mission and a business mission, they need to be clear and strong. Often a large, successful company forgets its mission or that mission is no longer needed as times change.

Just to make money is not a strong enough mission, it doesn't provide enough fire or passion. Must fulfil a customers needs. Can also be to help people or to provide jobs for employees.

b) team: business and investment is a team sport. Every day is test day and it is essential to confer! Many people nowadays try to invest as individuals eg day trading, but they are competing against well organised teams. You need a team of good advisors, and more than one in each category eg bankers or accountants. You make a decision with your teams advice.

Most small business people dream of boats or planes. You should dream of having a team of solicitors and accountants working just on your business. Think of James Lord and how he would never be able to concentrate on your business. You can afford to pay them through a company. As a bonus, you will also get an excellent education from your team of advisers.

A tetrahedron is one of the strongest structures in nature, a triangular based pyramid. It has 4 points, 3 defining the bottom plus the peak; the number 4 is strong. It should feature in your business structure eg a pyramid of business owner at the peak supported by employees, specialist and investors.

When looking at a business with a view to investing as an outsider, look at the team, who is on it and what experience they have. If they have none they are essentially trying to pitch you the business. If, on top, their projected salaries are high then they are not looking to build a business so much as looking to create their own high paying job with your money. Investors invest in management and look for experience, passion and commitment.

Money follows management so if you are building a business but don't have the money to hire experienced people ask them to come on board as an advisor with promises of future commissions and future full positions in the company.

c) leadership: most businesses fail from the inside due to poor leadership. Either slight edge discipline or financial education or leadership. A leaders main quality should be trust and to bring the best out in people. Don't want to be the smartest one on your team. To get leadership experience, volunteer more, in any environment eg church projects. Then it will be essential to accept and act upon criticism. Don't let your ego stop you growing. Leaders are willing to train themselves. Know when to listen to others.

Must be visionary, cheerleader and pit bull. The unique ability to take decisive action whilst maintaining focus on the ultimate mission.

With the right mission, team and leader in place you are ready to attract outside investment.

2. Internals

a) cash flow:

Fundamental and essential. Many successful businesses go broke. There is actual cash flow and phantom cash flow.

No purchase should be made for a business if it is not first justified by an increase in sales.

A good cash flow manager will review cash flow position daily planning ahead for the days, a week and a month at least.

Tips:• Delay taking a salary until your business is generating cash flow from sales.• Keep your job but start a part time business• Invoice customers quickly• Payment up front until credit established• If credit granted (after checking references), have minimum order• Establish and enforce late payment penalties• Pay your bills promptly asking for extended payment terms• Keep overheads to a minimum so investors money focused on direct operations• Have an investment plan for surplus cash• Establish line of credit with bank before need it• Keep eye on current assets/liabilities (at least 2:1) and quick ratios (liquid assets/liabilities) (over

1:1).• Good internal cash handling controls (see page 314)

TEAM LEADERSHIP

MISSION

Product Legal Systems Team Communication Leadership Cash Flow

Mission

Essential not to lose sight of cash management once have become large company.

b) Communications:

The better at communicating and the more communicating with people you do the better your cash flow.

First need to be good at human psychology. The world is filled with good products but the money goes to the best communicators. Just because something makes you excited doesn't mean it will do the same for someone else. Learn to push their buttons.

There is a 6 week connection between stopping communicating and it affecting cash flow.

Attend one training course on communication per year.

At the start of a business the entrepreneur should always be driving money in through sales, investment, direct marketing etc. Before the system is established must keep the cash flowing.

Must be able to communicate according to the language of all 4 quadrants.

Must be good at sales and need a thick skin for sales. Get through your fears and the world will open up. Must overcome fears of selling and rejection and public speaking. All great leader are great public speakers. Must be able to speak to a large group of people and keep them interested.

Successful people find their weaknesses and make them into strengths. Your physical appearance often communicates more than words. 55% communication, 35% voice tone.

Strong and convincing marketing, sales will follow. Sales is done 1 on 1, marketing is sales done via a system.

Identify a NEED, provide a SOLUTION, answer 'what's in it for me' with a SPECIAL OFFER, give sense of URGENCY.

Customer service is vital because word of mouth advertising is very powerful.

A franchise already has a sales and marketing system with proven material in place which gives a tremendous head start.

c) systems management:

Specific individuals must be responsible for each of the systems with a general overall director.

A real estate investment is a great starting point because it is inert and slow and gives an investor time to look at and study all the systems. Find someone who is a poor business manager and you will find a real estate bargain (but a bargain can be a nightmare!).

Investors don't like to invest in S quadrant businesses because the system is the person and is not replicable.

A CEO must monitor all systems and identify weaknesses before they turn into failures. As your systems get better the business gets less labour intensive. Then you have a saleable asset.

Even with a small business, define all the separate systems. The more formal, the more efficient. Draw up a procedures manual and streamline operations to make more saleable.

See page 331 for formal systems.

d) legal management:

In the Information Age your intellectual property solicitor and contract solicitor can be your most important advisers.

Intangible assets such as patents, trademarks and copyrights can be your most valuable assets. They can be the basis of an entire business. You can sell or licence your rights.

Legal fees may seem expensive but they are nothing compared to future lost earnings and the time to fight court cases of someone steals your idea or infringes your rights.

A franchise will have the legal protections drawn up and save the initial effort.

e) product management:

The product is the least important part of the business. The world is full of great products.

Remember:• Money follows management. Analyse each level to find weaknesses and hire someone to help

you fix it.• If the people that run the business aren't motivated to find weaknesses and fix them and instead

are defensive then walk away• The Internet makes the BI triangle available to everyone

You don't need to be an expert on every level, must be part of a team with a clear vision, a strong mission and an iron stomach.

PHASE FOUR - THE SOPHISTICATED INVESTOR

Start small. Even the tiniest business needs a BI triangle. Make mistakes and learn from them. The first million is the hardest!

Must learn 10 investor controls:1. Yourself2. Income/expense ratio and asset/liability ratio3. Management of the investment4. Taxes5. When you buy and when you sell6. Brokerage transactions7. ETC entity, timing, characteristics8. Terms and conditions of the agreement9. Access to information10. Giving it back, philanthropy

Investor Control 1 - yourself

The most important. Change your thinking and become financially literate. There are many right answers. Always thinking.

Investor Control 2 - ratios

The middle class accumulate more debt as they become more successful and get pay rises. Buy assets not liabilities. Personal expenses can be made deductible through a company.

Investor Control 3 - management of investment

Business skills will enable you to evaluate other investments. You have this control when you own a business or a controlling share of it.

Investor Control 4 - control over taxes

Minimise taxes paid and increase tax deferrals. For example, passive and portfolio income aren't subject to national insurance (in the USA at least), can pay for expenses with pre-tax income. Be prepared to move business affairs internationally as required.

Investor Control 5 - control over timing of buying and selling

Patience and delayed gratification. Don't take a salary, wait until profitable and can be sold.

Investor Control 6 - brokerage transactions

Not concerned with fees (be prepared to pay high fees to get the best brokers). More concerned with directing the broker when and how to buy and sell. Unsophisticated investors have to rely on brokers advice.

Investor Control 7 - ETC

Most important after self control. See page 358 for worked example of how corporate structure can reduce taxes. Protect your personal assets by having a corporation own them, will protect you against being sued for them. These structures can get very complicated and you need the best legal advice.

Investor Control 8 - control over terms and conditions

As an insider

Investor Control 9 - access to information

Be careful not to breach insider trading regulations

Investor Control 10 - philanthropy

Give it back. The social responsibility that comes with wealth. Either through charity or through capitalism, creating jobs etc.

Analysing investments:

Always analyse financial statements. For real estate look at cash-on-cash return.

a) financial ratios

Always consider at least 3 years. Look at directions and trends. Many company reports do not include these numbers. Learn to calculate them. Consider them in conjunction with analysis of the industry as a whole.

Gross margin % = gross margin (sales - cost of goods) / sales

Higher the better. Still then have to pay other cost and have a decent return left over.

Net operating margin %= EBIT / sales

Nets profitability of the operations side before taxes and cost of money. EBIT = earnings before interest and tax = sales - all costs (except capital eg Internet, dividend, taxes). High is good.

Operating leverage = contribution / fixed costs

% of fixed costs in a company's cost structure. Contribution = gross margin - variable costs. Higher the better. Operating leverage of 1 means there is just enough money left to pay the fixed costs giving zero return.

Financial leverage = total capital employed (debt+ shareholder equity) / shareholders equity

How much borrowed money is being used. Total capital employed = shareholders equity + numerical value of interest-bearing debt (ie no minus sign): therefore doesn't include liabilities for future payments of wages or returns of product etc, just loans. 50k debt + 50k equity / 50k equity = 2.

Total leverage = operating leverage x financial leverage

Total risk that a company carries. A well run publicly traded company should keep the figure under 5.

Debt to equity ratio = total liabilities / total equity

Proportion of business financed by outsiders to that financed by insiders. The lower the number, the more conservative. 1:1 or below is nice. Quick ratio = liquid assets / current liabilities

Current ratio = current assets / current liabilities

These two tell you if a company has enough assets or cash to pay its liabilities for the coming year.2:1 is good.

Return on equity = net income / average shareholders equity

Very important. Can compare to other investments.

b) financial ratios for real estate (see rich dad pdf on first investment property)- does it generate positive cash flow?- Have you done your due diligence?

Cash on cash return = positive net cash flow / deposit

Decide on corporate structure best suited for buying the investment.

List of due diligence questions on p. 373

The ultimate investor

Create an asset that can be taken public. Only a few select investors are allowed to invest in early stage start ups that have limitless upside. Start with small deals, get bigger and bigger, develop a reputation and later try to get on the inside of a company through a pre-IPO.

Front money investors (pre IPO) invest based on the strength and reputation of the management board. They receive shares instead of income and invest time and money. Their interests are directly aligned with that of the Company and shareholders. The rate of failure is very high hence the investors have to be accredited and warned about these 'all or nothing' investments.

When selling a business to the public consider:• Who on your team has experience of an IPO? Maybe bring in venture capitalists• Before you start the company have a solid exit plan. Selling? How much? To whom?• What is the size of the market and your potential for growth?• Does the business own any proprietary rights (that no one else does)?

Raising money:1) friends and family. Not recommended. Don't give children money it makes them weak and dependant. Teach them to be businessmen and how to raise money. 2) angel investors and private investors. 3) public investors ie stocks4) private placement memorandums. Start with a corporate solicitor.5) venture capitalists. Tough deals but act like a coach.6) investment banks, deal with public sale IPO.

selling is a vital skill. People are not successful financially because they cannot sell and they cannot sell because they lack self confidence.

Need to develop a think skin and get used to rejection or unreturned phone calls. Find a company with a sales training programme and stick with it for several years.

Why do rich people go bankrupt?

Those who suddenly come into money maintain old money habits and so lose it, thinking poor.

An aspiring entrepreneur will often create and then lose large amounts. This is a good thing though, although most people would be shocked at the ups and downs. The average entrepreneur loses 3 companies before thy make it. Most people have never lost a business that's why most people are not rich.

That's why around 10% of people control 90% of the money.

1) people who have not grown up with money don't know how to handle it.

Money doesn't make you rich. It has the power to make you rich or poor. Uneducated will lose it in bad investments or just stash it in the bank and spend it later. They will buy many liabilities and end up greatly in debt.

2) when people come into money they have an emotional euphoria

They think they are intelligent and that's what earned them the money. Many rich men buy a boat or jet, then go on safari then divorce and run off with a younger woman.

3) people can't say no when people they love ask for money

You have to develop the ability to say no to yourself and to others. Avoids dissipating your wealth. Buy assets not liabilities. Also, once you are rich banks will want to lend you money even though you don't need it. Too tempting to go further into debt.

4) the person with money suddenly thinks they are an investor but have no experience

You suddenly receive calls from brokers and you think you are intelligent. A broker is always broker than you! Brokers will often advise you to buy and sell regularly (churning), creating nice profits for him! Accredited investors (rich) do not necessarily know anything about investing. You are not an experienced investor until you have done at least 20 years and been through a bear market.

5) the fear of losing increases

Many people love with a poor persons attitude, terrified of becoming poor. You get what you fear. Many high-level investors have a psychologist on their team.

6) not knowing the difference between good and bad expenses.

By buying assets with pre-tax income (through a company) you can generate cashflow and use the cost of the asset as a tax write off. It is through our expenses that we become richer. Look at the expense column and you can predict future wealth. The average person has just bad expenses. You should create assets that buy other assets.

You need a plan on how to make money but you also need a plan on what to do once you have that money. Study real estate BEFORE you have money so that you will be able to invest once you do.

Seeing through the expense column is like looking at the other side of the coin. You should aim for low income and high expenses to become rich. Steve jobs' salary was $1. The average person uses their expenses to become poorer. You should have a plan to become rich and understand the tax laws. Poor people want high income and low expenses. If you don't make this switch in your head you will always be in fear of losing money and will try to be frugal. If your only source of money is your salary you will be fearful and trapped. Spending through your expenses can buy assets that will make you rich and free in the future.

What percentage of money going out your expense column ends up back in your income column in the same month?

Starting a small part time business is very important. It's not so much the money that you can make directly from the business it's how much you can invest with pre-tax income.

You can build a business to sell it later but then what are you going to do with the cash? Invest it in another start up and maybe lose it all! Don't forget to value the hidden value of the business in its ability to buy you assets with pre-tax income. Sophisticated investors aim to keep the business as long as possible and to buy as many assets as possible. Especially true if you use a multi-company strategy with professional advice.

PHASE 5 - GIVING IT BACK

investor control 10 - philanthropy

Phase 5 of rich dads plan is charity. To make money and hoard it was a misuse of the power of money. Carnegie, Ford, Rockefeller all created charitable foundations. Charity means love, the love of your fellow man.

There are greedy rich people but there are also greedy poor people. A well directed charitable foundation will continue to help people even after you are dead. Money gives you the ability to help

people, to aid your church, to assist political parties, to do good in society. Wealth in society increases health and life expectancy.

It no longer takes money to make money. The fall of the Berlin Wall marked the start of the Information Age. Never been easier to start an Internet business and be an insider (eg amazing selling machine) or any small franchise or network marketing company whilst keeping your day job (still got to pay the mortgage and eat).

The hardest thing to do is change an idea. Your parents are likely stuck in an old way of thinking and can't understand these concepts.

What is right for you today could be wrong tomorrow. Be ever vigilant and ever ready to change our ideas and way of doing things.

The very things that made old Industrial Age businesses successful hamper models businesses eg large real estate requirements. That is why Amazon is doing so well when compared to old retailers.

Old ideas that need to be challenged:• Be hard working and get to the top of your company. Be hard working for yourself in a part time company. There is no such things as job security any More.

• The rich are lazy. Those who work physically the hardest earn the least. The rich have their money work for them and they work mentally rather than physically.

• Go to school, get a job, retire at 65 because you're worn out People live longer and longer and most fear running our of money before they die. Pensions are dying out. Technology becomes obsolete every 18 months so school knowledge becomes less and less important. We are a self-learning society now rather than one which learns from our parents. Companies look for tech savvy and flexible young workers rather than senior workers.

Not so much a question of right or wrong as old and new. You have to get older physically but if you want to stay young mentally just keep learning new ideas.

Business ideas don't have to be new or unique, just better eg Starbucks reinvented coffee. And you have to be better at the BI Triangle than the other guy. A rich person is always looking for better ideas.

Your past success means nothing:

Those who do not risk failing will ultimately fail. When something that is a given changes, everything goes back to zero and your past success counts for nothing. Just because you work for a good company now does not mean it will remain that way.

The Information Age changed pension normals from defined-benefit to defined-contribution whilst annuities shrunk.

Moore's Law states that the power of technology will double every 24 months.

During any economic boom there are only 3 types of people:• Those that make things happen• Those who watch things happen• Those who say 'what happened?!'

Imagination is more important than knowledge.

With every business venture, success or not, your skills and personal development will increase.

The most important investment you can make is in an ongoing education and a search for new ideas. It is up to you whether you create a world of not enough or an abundance of money.

Have a plan for each level of investment: secure; comfortable or rich