ROBERT KIYOSAKI 6 BASIC RULES FOR INVESTING
Investing in any venture requires understanding and mastering the game so that you can experience the desired result. Unfortunately, most people never learn the simple basics of investing before investing their hard-earned money.
The following are the 6 basics of investing, according to Robert Kiyosaki, needed to shape your context before you take that first step.
Rule number 1- Types of Income
Most people think only of making money. They don’t realize that there are different kinds of money to work for and invest with. According to Robert there are three kinds of income:
Ordinary earned income: Generally earned from a job via a paycheck. It’s the highest-taxed income, and thus, the hardest to build wealth with.
Portfolio income: Generally derived from paper assets such as stocks, bonds, and mutual funds.
Passive income: Generally derived from real estate, royalties, and distributions. It is the lowest-taxed income, with many tax benefits, and it’s the easiest income to build wealth with.
If you’re going to begin investing, take a look at what kind of income your investments will generate. It makes a difference.
Robert suggest that, “If you want to be rich, work for passive income.”
Rule Number 2 – Education
Most people try to predict what and when things will happen. But a true investor is prepared for anything to happen whether the economy goes up or down. Robert says, “If you are not prepared with education and experience, a good opportunity will pass you by.”
Once you decide what type of investing you’re passionate about, there are so many ways to get going with your education. You can take online courses, attend local workshops, and/or attend seminars.
Reach out to people in the industry and pick their brains. We all have to start somewhere; ask help from mentors too. If they’re good people, and they have the time, they’ll be happy to talk with you on getting get started.
Next is the crux of getting financially educated: Take action. You can take all the classes you want, listen to all the speakers, talk to mentors, and attend all the seminars you want. Your education will never truly take hold unless you apply what you’ve learned.
Get out there and look at the deals. Make offers. Sign that contract. Only then will your education be truly underway.
Rule number 3- Cash Flow
Most people start their life out by making ordinary earned income as an employee. The path to building wealth starts by converting your earned income into the other types of income as efficiently as possible.
Save a portion of your earned income from your job (pay yourself first), get educated on a specific investment vehicle, then put that money into an investment.
“That, in a nutshell,” says Robert, “is all an investor is supposed to do. It’s as basic as it can get.”
Rule number 4 – Risk Management
Many people think investing is risky. Laziness is risky.
How much research do people do when buying a car? They research the brands, the different body styles, colors, features, fuel economy, etc. After they have spent a lot of time narrowing down what they want, they spend countless hours on Craigslist or Autotrader trying to find the “perfect car.” How many cars do they actually call on? How many do they test drive? I’d wager more than one or two—probably at least six or seven.
It’s a lot of work! People go through all of that work because they want a solid, good-looking car that will last them a long time. They don’t want a lemon. When it comes to investing though, most people just pick mutual fund option 1, 2, or 3, and then forget about it. That is, until their ROI (Returns on Investment) is crap. Then, they say it’s risky.
To mitigate the risk of an investment, you must get educated. Talk with mentors, do the research, make the calls, and view the properties. Most importantly, you need to take a “test drive” on a small investment and actually learn what makes up a good investment or not.
Rule number 5 – Raise Capital
One of my big concerns as a beginning investor was how I would raise money. Most people will say, “It takes money to make money.” I hate hearing that. It couldn’t be further from the truth. Saying that shuts down your creative brain and your ambition to get out and create your future.
Robert says, “If you are prepared, which means you have education and experience, and you find a good deal, you will find the money.”
So, don’t shut down your creative brain and your ambition by saying, “It takes money to make money.” That’s the biggest load of crap.
Rule number 6 – Evaluate
As you get into being an investor, you must quickly learn to evaluate risk and reward. Rich dad (Robert’s Mentor) used the example of a nephew building a burger stand.
“If you had a nephew with an idea for a burger stand and he needed $25,000, would that be a good investment?”
“No,” Robert answered. “There is too much risk for too little reward.”
“Very good,” said rich dad, “but what if I told you that this nephew has been working for a major burger chain for the past 15 years, has been a vice-president of every important aspect in the business, and is ready to go out on his own and build a worldwide burger chain? And what if you could buy 5 percent of the company with $25,000? Would that be of interest to you?”
“Yes,” Robert said. “Definitely because there is more reward for the same amount of risk.”
Whether it is an investment in the stock of a company or purchase of real estate, always analyze the financial statements. You can determine how profitable a business is by looking at its financial statements and calculating financial ratios.
Related: Kiyosaki Top 10 Rules for Success
For a real estate investment, you calculate what the cash-on-cash return will be, based on the amount of cash you need to spend for the down payment.
We have just gone over a very high level of what it takes to get into the investing game. It’s not rocket science. It just requires some effort and putting yourself out there.
The great part about investing is you can start in your spare time. And, in spite of what most people say, you don’t need money to make money.
You just need to put yourself out there and get going