Rich dad says : Take control of your own financial ark and buy or build assets that generate cash flow.
“Happily there is more than one way to get to financial heaven.” Warren Buffet
Years ago, rich dad said to me, “If you want to find true financial security, or even become financially rich, you must play your own game. Don’t play someone else’s game.” After ERISA passed into law, rich dad felt that millions of people would be forced to play Wall Street’s game. Rich dad said, “The problem with playing Wall Street’s game is that Wall Street is in control and you aren’t. Find your own game, become good at it, and then take control of your life.
If you want to have a rich ark, obviously you will need to dramatically commit to increasing your financial education. There is one thing a person who wants to become wealthy must understand … and that is in building a rich ark, many of their traditional middle-class and values will have to be expanded. For example, many people in the middle class think saving money, having a DC pension plan, and owning a home are the most intelligent financial decisions. While these are important to a person’s overall financial well being, the truth is that saving, DC pension plans, and a home are not cornerstones of a rich person’s ark. The rich know that buying or building assets that generate passive income is the real foundation needed for a rich ark.
Why the Middle Class Is Risky Even Though They Play It Safe?
The reason the middle class is taking a huge financial risk with a DC plan is because they invest a lot of money into the plan but they invest very little time learning to invest.
One of the reasons Kim and I use real estate is because with proper planning, we can reduce our taxes to 0 percent from our real estate income. That is why Dolf de Roos, my real estate advisor, states that the rich either made their money in real estate or hold their money in real estate. In other words, if you build a rich ark, income from real estate investments makes far more sense than income from a DC pension plan.
High Income—Lost Deductions
by Diane Kennedy, CPA
Rich Dad’s Advisor
Author of Loopholes of the Rich
If your income is over $137,300 in 2002, you might find a big surprise on
your tax return . . . lost deductions! And, of course, lost deductions means
you pay more tax.
Itemized deductions such as mortgage interest, state, local, and property taxes, and charitable donations phase out as income passes the designated threshold amount. For 2002, that designated threshold amount
for a married couple (filing jointly) is $137,300. For every dollar that your
income is more than that threshold, you lose 3% of most itemized deductions. (Medical expenses, investment interest, and casualty, theft, or wagering losses are not subject to this limitation.)
This comes as a big (and bad) tax surprise to many taxpayers who get
a raise and, following standard advice from their banker or accountant,
buy a bigger house for the added deductions. They actually end up losing
some of the mortgage interest deduction.
And, even more sad, those high income taxpayers who believe in
charitable giving will find that they lose a significant part of their charity
deduction as well. The government is cutting social programs from their
budget. This forces the charities to rely on individual contributors. But
the charities are losing contributors as the high income taxpayer loses the
tax benefit. This deduction phases out too!
This itemized deduction phase-out is in addition to the loss of medi-
cal expenses and miscellaneous deductions that are built into the system.
These deductions are limited based on a percentage of your income. For
example, your medical expenses are only deductible when they are more
than 7.5 percent of your adjusted gross income. As your income increases,
the 7.5 percent calculated exclusion increases and so you lose part of your
medical expenses deduction!
But wait! That’s not all! You also lose your exemptions as your income increases. For 2002, as your income increases over $206,000, you lose progressively more of the exemption deduction for yourself, your spouse, and
The rich also lose passive loss offsets from real estate losses against
other income (lost at $150,000 adjustable gross income) and the ability to
use strategies such as the ROTH IRA, which allows your money to grow
Sometimes it just costs more to be rich.
Rich dad stated that security and freedom were not the same words, in
fact they were almost opposite from each other. Rich dad said, “The more security you gain, the more freedom you lose.” He also said, “A person who
seeks security often gives up control over parts of their lives. The more control you give up, the less freedom you have.” Many people feel insecure
about their financial future and retirement because they have given up most
of the control over their financial future.
In Rich Dad Poor Dad, I stated that rich dad said the most important
word in business was cash flow. In Retire Young Retire Rich (book number
five in the Rich Dad series), I wrote that the second most important word
was leverage, the ability to do more and more with less and less. Although
rich dad never directly said it, if there was a third most important word in
his vocabulary, I believe it would be the word control.
Rich dad put his son and me through a similar program, beginning at the
age of nine. That is why he had us working in every aspect of his business. We
cleaned rooms, waited on tables, cleaned the grounds, picked up trash, hung
wallpaper, worked on construction of buildings, worked in accounts receivable and payable, accounting, sales, management, banking, human relations,
I meet many college kids coming out of their MBA programs today who
have great formal education but very little practical real-world education. For
many of them, the only job they had was working in a fast food restaurant
flipping burgers, as waiters, or clerks in retail stores. Upon graduation, many
of these young people are put into positions of management lacking in realworld people skills.
Because they are smart, some are promoted quickly before gaining those
real-world people skills. Instead of knowing what it feels like to be the janitor, the clerk, the warehouse foreman, the receptionist, in the company, all
they know is their fraternity or sorority friends who move up the corporate
ladder with them. Too many of these very bright students become captains
but lose touch with the workers, the real engine of business. When people
lose touch with their workers, then disasters like Enron happen. Did those
so-called well-educated leaders recommend that their employees buy shares
of the company while they were selling? It may not be technically illegal, but
to me, it is definitely unethical. The problem is, this practice of recommending a buy while in fact you are sellingis very common practice not only at Enron, but it is a common practice in business, especially the business of the
One thing both of my dads demanded of me was that I never lose touch
with people at all levels of society. My rich dad said, “Never lose your humanity. Always remember that each member of your business is a human being with a family, and your job as the leader of the business is to do your best
to protect their welfare and their well-being.” Rich dad reminded Mike and
me of this very often. That is why he had us work in every corner of the business, not only to learn that part of the business, but also to get to know the
people responsible for that part of the business.
If you are going to take control of your ark and maybe build a rich ark,
you must make it a habit of having at least monthly income statements and
balance sheet statements . . . the two documents that make up the basic financial statement. If you are to become richer and richer, regardless of the
storms ahead, you must constantly work on improving your financial literacy and the best place to start your real-life education is with your own personal, up-to-date, real-life financial statement—even if it has nothing in it.
I stress this point because I meet many people who read financial statements and annual reports of other companies, but they do not have financial statements on themselves. The most important financial statement of
all, if you are going to be in control of your ark, is your own personal financial statement.
to be continue…