By Robert T Kiyosaki
- Decide which of the three you want in what order: to be secure, to be comfortable, to be rich and make plans accordingly
- Basic Rule #1 : know what kind of income you are working for
- Earned: salary or wage
- Portfolio: paper assets like stocks and bonds
- Passive: real estate or business investments
- Basic Rule #2: convert earned income into portfolio or passive income as efficiently as possible
- Basic Rule #3: Keep arned income secure by purchasing a security that helps you convert earned income into passive or portfolio income. What is a security? Something that you hope will keep your money secure. The secret is to know which are liabilities and which are assets: If it makes money, it’s an asset. If it loses money, it’s a liability. It’s about perception.
- Basic Rule #4: The investor is the real asset or liability.
- Basic Rule #5: True investors are prepared for whatever happens, vs someone who tries to predict.
- Basic Rule #6: If you are prepared by education and experience, when you recognize a good deal, money will find you or you will find it.
- Basic Rule #7: Be able to evaluate risk vs reward.
- When you are truly rich, you will be able to invest at the “rich level” of investing, which takes:
- Excessive cash so that you can learn from failures
Be financially literate:
- The direction that cash flows is what determines if something is an asset or liability in the moment. An asset puts money in your pocket. A liability takes money out.
- It takes at least two statements to see the whole picture – remember that your expense is someone else’s income. People out of control of their finances make the other people rich.
The 90/10 Riddle: how do you create an asset without spending money to acquire it? That is how 10% of people have 90% of the money. (Create a business.)
- Financial ratios:
- Gross Margin Percentage = Sales – Cost of Goods Sold/Sales
- If gross isn’t there, there’ll be no net.
- Net Operating Margin Percentage = Earnings Before Interest and Taxes/Sales
- The higher, the stronger the business
- Operating Leverage = Contribution (Gross Margin)/Fixed Costs
- Higher than 1
- Financial Leverage = Total Capital Employed (Debt & Equity)/Shareholders’ Equity
- Total Leverage = Operating x Financial leverages
- Keep it under 5
- Debt to Equity Ratio = Total liabilities/Total Equity
- 1 to 1 or lower
- Return on Equity = Net Income/Average Share holders’ Equity
- Real Estate Ratios:
- Cash oN Cash Return = Positive Net Cashflow / Down Payment