Get The Golden Egg

Dear Reader,

 

When explaining the differences between capital gains and cash flow to a young person, I often use Aesop’s fairytale of The Goose that Laid the Golden Eggs. 

A person who invests for capital gains will sell the goose. A person who invests for cash flow, on the other hand, will nurture and take care of the goose, and sell the golden eggs.

The irony is that you pay much lower taxes, sometimes zero percent, with golden eggs. You pay a higher percentage in taxes eating roast goose.

Since most financial experts are sales people, not real investors, they sell geese. 

And since most adults do not know the difference between the word’s capital gains and cash flow, they believe investing is buying and selling geese. Most do not know how to invest for golden eggs. The irony is that it’s likely an investor will pay lower taxes, sometimes zero percent, on the sale of golden eggs. They retain the production (the goose) that delivers a steady stream of products (the golden eggs) for sale.  

How Do You Tell Good Advice from Bad Advice?

You are bombarded with information every day from numerous sources. It’s up to you to decide what’s important and what’s not, especially when it comes to your financial education. To do this, every time you hear some news, ask yourself:

“What does this mean to me?” 

Relate the information to your specific goals and dreams. 

Question everything you are learning.

I repeat, you must question everything.

Once you determine if a new piece of financial information is wise or foolish, then you can decide whether or not you want to implement it into your financial well-being. 

And if you don’t know, it’s time to learn more about the subject matter. 

While you can delve into books, the Internet, videos, events, and more to find information, a trusted advisor (with vast experience and knowledge in a particular subject) can provide answers and give you a completely different perspective on an issue.

The Grand Financial Plan

It’s always been surprising to me that, when it comes to money, most people are waiting to be told what to do. I’ve come to believe it’s because they received no financial education in school. This is exactly what the big banks and financial services industry wants. Your financial ignorance is part of their grand financial plan.

Most people seek financial advice from brokers and salespeople such as stock, real estate, and insurance brokers as well as financial planners—people who profit from giving financial advice rather than financial education.

That is why my rich dad often said, “The reason they are called brokers is because they are broker than you.” 

Warren Buffett says, “Wall Street is the only place that people ride to in a Rolls Royce to get advice from people who take the subway.”

I have been highly critical of the standard financial planning advice — “work hard, save money, get out of debt, invest for the long term, and diversify” — for a long time. Such guidance is often more a financial advisor’s (subway rider’s) sales pitch than a solid investment guide.

The problem is, most investors don’t know how bad the standard investment advice is. This mantra of “work hard, save money, get out of debt, invest for the long term, and diversify” is followed by millions of investors — who lost $7 trillion to $9 trillion between 2000 and 2004. Many are still following this bad advice today.

Not only did millions of investors lose trillions of dollars, many also missed the boom in real estate, oil, gas, and precious metals. Furthermore, despite investors’ huge losses, Wall Street paid out some of its biggest bonuses in history.

However, investors should realize it’s “buyer beware.” Investing is different from shopping. If I go to Sears and don’t like the tool or shirt I purchased, I can generally get my money back. When we go shopping, we expect value for our money. But when we invest, we do so in the hopes of making more money — and knowing that we risk making losses. What would happen to the financial industry if brokers were sued every time a client lost money? The wheels of world commerce would grind to a halt.

My point is: The world is filled with honest people handing out bad advice. An example of honest bad investment advice is the standard one of “work hard, save money, get out of debt, invest for the long term, and diversify.”

Believe it or not, it takes two years to get a license in massage therapy. It takes about two months to become a financial advisor.

 

The Seven Words of Money

The good news is that the seven basic, most important words of money are ones that may already be familiar to you. The words are:

Income: There are three basic types of income: ordinary, portfolio, and passive. This is an example of how your financial vocabulary will grow from learning and understanding the basic words.

Expense: Expenses, or liabilities, take money from your pocket. The number one expense for most people is taxes. Other typical expenses are housing, food, clothing, medical care, education and entertainment.

Assets: Assets put money in your pocket. 

Liabilities: Simply said, liabilities, such as a mortgage, school loan, credit card debt, and car payments, take money from your pocket on a regular basis. Most people acquire liabilities that cost them money.

Debt: Debt can be a liability. Debt can also be an asset. If I lend someone $10 at 5 percent interest, that debt is my asset and the borrower’s liability. 

Cash flow: According to rich dad, the words cash and flow are the most important financial words of all. Until you learn to see cash flowing on a financial statement, you may have a difficult time determining assets from liabilities, and expenses from income.

Capital Gains: Capital gains occur when the value of an asset increases in value. For example, if a stock you purchased for $10 a share is trading at $15 a share when you sell it, there is a capital gain of $5 per share, which is taxed at the capital gains tax rate.

Regards,

Robert Kiyosaki

Robert Kiyosaki
Editor, Rich Dad Poor Dad Daily

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Two-Minute Reminder

Money doesn’t make you rich, your mindset does. It’s the dividing line between those who are successful in life and those who are not. In reality, you have the power to cultivate your own qualities. Everyone will have different talents, interests, and abilities but anyone can change and grow through application and experience.

Robert Kiyosaki

Robert Kiyosaki, author of bestseller Rich Dad Poor Dad as well as 25 others financial guide books, has spent his career working as a financial educator, entrepreneur, successful investor, real estate mogul, and motivational speaker, all while running the Rich Dad Company.

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