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.
2.
Stocks
3.
Bonds
4.
Income-generating real estate
5.
Notes (IOUs)
6.
Royalties from intellectual property such as music, scripts, and patents
8.
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.
Sometimes I even start the company and take it public. Fortunes are made in new stock
issues, and I love the game. Many people are afraid of small-cap companies and call them
risky, and they are. But that risk is diminished if you love what the investment is, understand
it, and know the game. With small companies, my investment strategy is to be out of the stock
in a year. On the other hand, my real estate strategy is to start small and keep trading up for
bigger properties and, therefore, delay paying taxes on the gain. This allows the value to
increase dramatically. I generally hold real estate less than seven years.
For years, even while I was with the Marine Corps and Xerox, I did what my rich dad
recommended. I kept my day job, but I still minded my own business. I was active in my
asset column trading real estate and small stocks. Rich dad always stressed the importance
of financial literacy. The better I was at understanding the accounting and cash management,
the better I would be at analyzing investments and eventually starting and building my own
company.
I don’t encourage anyone to start a company unless they really want to. Knowing what I
know about running a company, I wouldn’t wish that task on anyone. There are times when
people can’t find employment and starting a company seems like the best solution. But the
odds are against success: Nine out of ten companies fail in five years. Of those that survive
the first five years, nine out of every ten of those eventually fail as well. So only if you
really have the desire to own your own company do I recommend it. Otherwise, keep your
day job and mind your own business.
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.
A true luxury is a reward for investing in and developing a real asset. For example, when my
wife Kim and I had extra money coming from our apartment houses, she went out and bought
her Mercedes. It didn’t take any extra work or risk on her part because the apartment house
bought the car. She did, however, have to wait four years while the real estate investment
portfolio grew and began generating enough extra cash flow to pay for the car. But the
luxury, the Mercedes, was a true reward because she proved she knew how to grow her
asset column. That car now means a lot more to her than simply another pretty car. It means
she used her financial intelligence to afford it.
Instead, most people impulsively go out and buy a new car, or some other luxury, on credit.
They may feel bored and just want a new toy. Buying a luxury on credit often causes a
person to eventually resent that luxury because the debt becomes a financial burden.
After you’ve taken the time and invested in and built your own business, you are now ready
to learn the biggest secret of the rich—the secret that puts the rich way ahead of the pack.
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