If you cannot get control of yourself, do not try to get rich. It makes no sense to invest, make money, and blow it. It is the lack of self-discipline that causes most lottery winners to go broke soon after winning millions. It is the lack of self-discipline that causes people who get a raise to immediately go out and buy a new car or take a cruise.
It is difficult to say which of the 10 steps is the most important. But of all the steps, this step is probably the most difficult to master if it is not already a part of your makeup. I would venture to say that personal self-discipline is the number-one delineating factor between the rich, the poor, and the middle class.
Simply put, people who have low self-esteem and low tolerance for financial pressure can never be rich. As I have said, a lesson learned from my rich dad was that the world will push you around. The world pushes people around, not because other people are bullies, but because the individual lacks internal control and discipline. People who lack internal fortitude often become victims of those who have self-discipline.
My intuition nudged at me a few months ago about a guy who made a ridiculous comment through a text message. So, I blocked him, but after going to a business where we have mutual business partners, he was there. I decided to unblock him and give him a chance — but after I caught him in a couple of lies and he tried throwing me under the bus by throwing a long-term business partnership in flames….I backed off.
Then there was an ignorant comment such as, “oh, I guess it didn’t feel good making less than ________ baht this month.”
First, never talk about a black man’s money.
Two, why would you even make a jaw-dropping, head-scratching ridiculous remark like that?
Three, Hold this BLOCK.
In this podcast, I talk about NEVER IGNORING THE INTUITION. If someone makes a comment straight off the back and something tells you “I don’t like this person,” that voice is your intuition and you should listen to it.
“The sky is falling! The sky is falling!” Most of us know the story of Chicken Little who ran around warning the barnyard of impending doom. We all know people who are that way. There’s a Chicken Little inside each of us.
As I stated earlier, the cynic is really a little chicken. We all get a little chicken when fear and doubt cloud our thoughts. All of us have doubts: “I’m not smart.” “I’m not good enough.” “So-and-so is better than me.” Our doubts often paralyze us. We play the “What if?” game. “What if the economy crashes right after I invest?” “What if I lose control and I can’t pay the money back?” “What if things don’t go as I planned?” Or we have friends or loved ones who will remind us of our shortcomings. They often say, “What makes you think you can do that?” “If it’s such a good idea, how come someone else hasn’t done it?” “That will never work. You don’t know what you’re talking about.” These words of doubt often get so loud that we fail to act. A horrible feeling builds in our stomach. Sometimes we can’t sleep. We fail to move forward. So we stay with what is safe, and opportunities pass us by. We watch life passing by as we sit immobilized with a cold knot in our body. We have all felt this at one time in our lives, some more than others.
When violence breaks out in a city, gun sales go up all over the country. A person dies from rare hamburger meat in the state of Washington, and the Arizona Health Department orders restaurants to have all beef cooked well-done. A drug company runs a TV commercial in February showing people catching the flu. Colds go up as well as sales of cold medicine.
Most people are poor because, when it comes to investing, the world is filled with Chicken Littles running around yelling, “The sky is falling! The sky is falling!” And Chicken Littles are effective, because every one of us is a little chicken. It often takes great courage to not let rumors and talk of doom and gloom affect your doubts and fears. But a savvy investor knows that the seemingly worst of times is actually the best of times to make money. When everyone else is too afraid to act, they pull the trigger and are rewarded.
In my own life, I’ve noticed that winning usually follows losing. Before I finally learned to ride a bike, I first fell down many times. I’ve never met a golfer who has never lost a golf ball. I’ve never met people who have fallen in love who have never had their heart broken. And I’ve never met someone rich who has never lost money.
Rich Dad Poor Dad
Riding a bike
Track & Field
Video Games (Blitz 2003)
“Texans don’t bury their failures. They get inspired by them. They take their failures and turn them into rallying cries. Failure inspires Texans to become winners. But that formula is not just the formula for Texans. It is the formula for all winners.”
“I always tried to turn every disaster into an opportunity.” John D. Rockefeller
If you hate losing, play it safe. If losing makes you weak, play it safe. Go with balanced investments. If you’re over 25 years old and are terrified of taking risks, don’t change. Play it safe, but start early. Start accumulating your nest egg early because it will take time.
But if you have dreams of freedom—of getting out of the Rat Race—the first question to ask yourself is, “How do I respond to failure?” If failure inspires you to win, maybe you should go for it—but only maybe. If failure makes you weak or causes you to throw temper tantrums—like spoiled brats who call attorneys to file lawsuits every time something doesn’t go their way—then play it safe. Keep your daytime job. Or buy bonds or mutual funds. But remember, there is risk in those financial instruments also, even though they may appear safe.
Once people have studied and become financially literate, they may
still face roadblocks to becoming financially independent. There are
five main reasons why financially literate people may still not develop
abundant asset columns that could produce a large cash flow. The five
I have never met anyone who really likes losing money. And in all
my years, I have never met a rich person who has never lost money.
But I have met a lot of poor people who have never lost a dime—
investing, that is.
The fear of losing money is real. Everyone has it. Even the rich. But it’s not having fear that is the problem. It’s how you handle fear. It’s how you handle losing. It’s how you handle failure that makes the difference in one’s life. The primary difference between a rich person and a poor person is how they manage that fear.
It’s okay to be fearful. It’s okay to be a coward when it comes
to money. You can still be rich. We’re all heroes at something, and
cowards at something else. My friend’s wife is an emergency-room
nurse. When she sees blood, she flies into action. When I mention
investing, she runs away. When I see blood, I don’t run. I pass out.
My rich dad understood phobias about money. “Some people are
terrified of snakes. Some people are terrified about losing money. Both
are phobias,” he would say. So his solution to the phobia of losing
money was this little rhyme: “If you hate risk and worry, start early.”
Great opportunities are not seen with your eyes. They are seen with your mind. Most people never get wealthy simply because they are not trained financially to recognize opportunities right in front of them.
Rich Dad Poor Dad
I love this. When it comes to money-making opportunities, they’re not seen with my eyes. I had to prime my mind to get the most out of it. I get a number of ideas on a routine basis that can propel my finances to even greater heights, simply by investing in my mind.
I look at money much like my game of tennis. I play hard, make
mistakes, correct, make more mistakes, correct, and get better. If
I lose the game, I reach across the net, shake my opponent’s hand,
smile, and say, “See you next Saturday.”
There are two kinds of investors:
The first and most common type is a person who buys a
packaged investment. They call a retail outlet, such as a real
estate company, a stockbroker, or a financial planner, and they
buy something. It could be a mutual fund, a REIT, a stock or
a bond. It is a clean and simple way of investing. An analogy
would be a shopper who goes to a computer store and buys a
computer right off the shelf.
The second type is an investor who creates investments.
This investor usually assembles a deal in the same way a
person who buys components builds a computer. I do not
know the first thing about putting components of a computer
together, but I do know how to put pieces of opportunities
together, or know people who know how.
It is this second type of investor who is the more professional
investor. Sometimes it may take years for all the pieces to come
together. And sometimes they never do. It’s this second type of investor
that my rich dad encouraged me to be. It is important to learn how to
put the pieces together, because that is where the huge wins reside, and
sometimes some huge losses if the tide goes against you.
If you want to be the second type of investor, you need to develop three main skills.
Find an opportunity that everyone else missed. You see with your mind what others miss with their eyes. For example, a friend bought this rundown old house. It was spooky to look at. Everyone wondered why he bought it. What he saw that we did not was that the house came with four extra empty lots. He discovered that after going to the title company. After buying the house, he tore the house down and sold the five lots to a builder for three times what he paid for the entire package. He made $75,000 for two months of work. It’s not a lot of money, but it sure beats minimum wage. And it’s not technically difficult.
Raise money. The average person only goes to the bank. This second type of investor needs to know how to raise capital, and there are many ways that don’t require a bank. To get started, I learned how to buy houses without a bank. It was the learned skill of raising money, more than the houses themselves, that was priceless. All too often I hear people say, “The bank won’t lend me money,” or “I don’t have the money to buy it.” If you want to be a type-two investor, you need to learn how to do that which stops most people. In other words, a majority of people let their lack of money stop them from making a deal. If you can avoid that obstacle, you will be millions ahead of those who don’t learn those skills. There have been many times I have bought a house, a stock, or an apartment building without a penny in the bank. I once bought an apartment house for $1.2 million. I did what is called “tying it up,” with a written contract between seller and buyer. I then raised the $100,000 deposit, which bought me 90 days to raise the rest of the money. Why did I do it? Simply because I knew it was worth $2 million. I never raised the money. Instead, the person who put up the $100,000 gave me $50,000 for finding the deal, took over my position, and I walked away. Total working time: three days. Again, it’s what you know more than what you buy. Investing is not buying. It’s more a case of knowing.
3. Organize smart people.
Intelligent people are those who work with or hire a person who is more intelligent than they are. When you need advice, make sure you choose your advisor wisely.
That is why I invest in my financial intelligence, developing the most powerful asset I have. I want to be with people moving boldly forward. I do not want to be with those left behind.
I will give you a simple example of creating money. In the early 1990s, the economy of Phoenix, Arizona, was horrible. I was watching a TV show when a financial planner came on and began forecasting doom and gloom. His advice was to save money. “Put $100 away every month,” he said. “In 40 years you will be a multimillionaire.”
Well, putting money away every month is a sound idea. It is one option—the option most people subscribe to. The problem is this: It blinds the person to what is really going on. It causes them to miss major opportunities for much more significant growth of their money. The world is passing them by.
As I said, the economy was terrible at that time. For investors, this is the perfect market condition. A chunk of my money was in the stock market and in apartment houses. I was short of cash. Because people were giving properties away, I was buying. I was not saving money. I was investing. Kim and I had more than a million dollars in cash working in a market that was rising fast. It was the best opportunity to invest. The economy was terrible. I just could not pass up these small deals.
Houses that were once $100,000 were now $75,000. But instead of shopping with local real estate agents, I began shopping at the bankruptcy attorney’s office, or the courthouse steps. In these shopping places, a $75,000 house could sometimes be bought for $20,000 or less. For $2,000, which was loaned to me from a friend for 90 days for $200, I gave an attorney a cashier’s check as a down payment. While the acquisition was being processed, I ran an ad advertising a $75,000 house for only $60,000 and no money down.
The phone rang hard and heavy. Prospective buyers were screened and once the property was legally mine, all the prospective buyers were allowed to look at the house. It was a feeding frenzy. The house sold in a few minutes. I asked for a $2,500 processing fee, which they gladly handed over, and the escrow and title company took over from there. I returned the $2,000 to my friend with an additional $200. He was happy, the home buyer was happy, the attorney was happy, and I was happy. I had sold a house for $60,000 that cost me $20,000. The $40,000 was created from money in my asset column in the form of a promissory note from the buyer. Total working time: five hours.
I remember in school being told the story of Robin Hood and his Merry Men. My teacher thought it was a wonderful story of a romantic hero who robbed from the rich and gave to the poor. My rich dad did not see Robin Hood as a hero. He called Robin Hood a crook.
Robin Hood may be long gone, but his followers live on. I often still hear people say, “Why don’t the rich pay for it?” or “The rich should pay more in taxes and give it to the poor.”
It is this Robin Hood fantasy, or taking from the rich to give to the poor, that has caused the most pain for the poor and the middle class. The reason the middle class is so heavily taxed is because of the Robin Hood ideal. The reality is that the rich are not taxed. It’s the middle class, especially the educated upper-income middle class, who pays for the poor.
Again, to understand fully how things happen, we need to look at the history of taxes. Although my highly educated dad was an expert on the history of education, my rich dad fashioned himself as an expert on the history of taxes.
So what kind of assets am I suggesting that you or your children acquire? In my world, real assets fall into the following categories:
Businesses that do not require my presence I own them, but they are managed or run by other people. If I have to work there, it’s not a business. It becomes my job.
Income-generating real estate
Royalties from intellectual property such as music, scripts, and patents
Anything else that has value, produces income or appreciates, and has a ready market
As a young boy, my educated dad encouraged me to find a safe job. But my rich dad encouraged me to begin acquiring assets that I loved. “If you don’t love it, you won’t take care of it.” I collect real estate simply because I love buildings and land. I love shopping for them, and I could look at them all day long. When problems arise, the problems aren’t so bad that it changes my love for real estate. For people who hate real estate, they shouldn’t buy it.
I also love stocks of small companies, especially start-ups, because I am an entrepreneur, not a corporate person. In my early years, I worked in large organizations, such as Standard Oil of California, the U.S. Marine Corps, and Xerox Corp. I enjoyed my time with those organizations and have fond memories, but I know deep down I am not a company man. I like starting companies, not running them. So my stock buys are usually of small companies.
Rich Dad Poor Dad
When I say mind your own business, I mean to build and keep
your asset column strong. Once a dollar goes into it, never let it come
out. Think of it this way: Once a dollar goes into your asset column, it
becomes your employee. The best thing about money is that it works
24 hours a day and can work for generations. Keep your day job, be a
great hardworking employee, but keep building that asset column.
As your cash flow grows, you can indulge in some luxuries. An important distinction is that rich people buy luxuries last, while the poor and middle class tend to buy luxuries first. The poor and the middle class often buy luxury items like big houses, diamonds, furs, jewelry, or boats because they want to look rich. They look rich, but in reality they just get deeper in debt on credit. The old-money people, the long-term rich, build their asset column first. Then the income generated from the asset column buys their luxuries. The poor and middle class buy luxuries with their own sweat, blood, and children’s inheritance.
In 1974, Ray Kroc, the founder of McDonald’s, was asked to speak to the MBA class at the University of Texas at Austin. A friend of mine was a student in that MBA class. After a powerful and inspiring talk, the class adjourned and the students asked Ray if he would join them at their favorite hangout to have a few beers. Ray graciously accepted.
“What business am I in?” Ray asked, once the group had all their beers in hand.
“Everyone laughed,” my friend said. “Most of the MBA students thought Ray was just fooling around.”
No one answered, so Ray asked again, “What business do you think I’m in?”
The students laughed again, and finally one brave soul yelled out, “Ray, who in the world doesn’t know that you’re in the hamburger business?”
Ray chuckled. “That’s what I thought you would say.” He paused and then quickly added, “Ladies and gentlemen, I’m not in the hamburger business. My business is real estate.”
Rich Dad Poor Dad
As my friend tells the story, Ray spent a good amount of time
explaining his viewpoint. In his business plan, Ray knew that the
primary business focus was to sell hamburger franchises, but what
he never lost sight of was the location of each franchise. He knew
that the land and its location were the most significant factors in
the success of each franchise. Basically, the person who bought the
franchise was also buying the real estate under the franchise for Ray
Today, McDonald’s is the largest single owner of real estate in
the world, owning even more than the Catholic church. McDonald’s
owns some of the most valuable intersections and street corners in
America and around the globe.
My friend considers this as one of the most important lessons in
his life. Today he owns car washes, but his business is the real estate
under those car washes.
The previous chapter presented diagrams illustrating that most people work for everyone but themselves. They work first for the owners of the company, then for the government through taxes, and finally for the bank that owns their mortgage.
When I was a young boy, we did not have a McDonald’s nearby. Yet my rich dad was responsible for teaching Mike and me the same lesson that Ray Kroc talked about at the University of Texas. It is secret number three of the rich. That secret is: Mind your own business. Financial struggle is often directly the result of people working all their lives for someone else. Many people will simply have nothing at the end of their working days to show for their efforts.
Our current educational system focuses on preparing today’s youth to get good jobs by developing scholastic skills. Their lives will revolve around their wages or, as described earlier, their income column. Many will study further to become engineers, scientists, cooks, police officers, artists, writers, and so on. These professional skills allow them to enter the workforce and work for money.