In typical
Kiyosaki fashion, he
prognosticated an impending financial collapse and wrote this book to explain how investor's can avoid the disaster. In the Introduction, he claimed that the book had six basic messages: "to remind all of us to be vigilant . . . about the flaw of
ERISA . . . to see the world
today with a true financial perspective . . . to ask yourself if you're truly ready for the future . . . to offer some ideas on what you can do to prepare for the biggest stock market crash in history . . . to let you know that you may have up to the year 2010 to become prepared . . . to let you know that you will probably be better off financially, if you actively prepare" (pp. 6-7).
ERISA, according to the author, caused employees with 401(k), 403(b), and other plans to plot their own financial future and rely on the vagaries of the stock market, fluctuating from business cycles.
ERISA resulted in the change from DB plans, defined benefit, to DC, defined contribution, plans. The first, defined benefit plans, specified the amount an employee would receive from the length of employment and the term of service. Although not related to a company and regulated by the government, social security conforms to the definition of a defined benefit plan. In contrast, the DC plan returns to employees the amount of contributions, if any, that they have made to the plan. Companies can switch from DB to DC plans, forcing retirees to adjust to the transition. Many workers have not made contributions to their DC plans and, therefore, face a lifetime of employment.
The second lesson, that of the flaws of
ERISA, applied to the requirements of the law. It mandates that participants begin making withdrawals to their accounts at the age of seventy, a mass divestiture of funds, which will depress the stock market. Another flaw concerns the source of education of investors--the financial community itself.
Kiyosaki concluded that "financial education today is really a sales pitch" (p. 63). The final flaw entails the tax
penalties that retirees will incur from early withdrawals from a 401(k). "Portfolio income is primarily from capital gains, which is typically the type of income you will earn from investments. The maximum capital gains rate for investments held for one year is 20 percent. The rate decreases to 18 percent for investments held for five or more years . . . If you hold your investments outside of a 401(k), the tax rate on gains would be 18 percent-20 percent. If, however, you hold these same investments inside a 401(k), . . that withdrawn income is ordinary income, taxed at the highest rate. That means a 401(k) plan doubles your tax rate from the capital gains rate (18-20 percent) to the ordinary tax rate (38 percent).
The author predicted that when retirees start to divest their assets, according to the plan, they will panic and transfer their wealth into cash, with a subsequent decline in the stock market. As an
antidote to the impending crisis,
Kiyosaki offered his prescription for the future.
He used the Noah's ark analogy in describing a plan of "taking control of the ark" (p. 145). The plan contained three elements, cash flow, leverage, and control. To understand how how his cash flowed,
Kiyosaki completed a financial statement every month. He suggested that before a person invests or starts a business, he or she develop and review their financial statement. He recommended that every person, who seeks control of their ark, (1) compile and analyze his or her financial statement, "find a bookkeeper or accountant . . . make an appointment with an accountant or bookkeeper to review your financial statements to make sure you have completed them properly . . . analyze where you are today and what changes you need to make in your investing habits" (p. 153).
Kiyosaki based his system on accounting, which began with four quadrants of E (employee), B (big business), S (self-employed or small business owner), and I (investor). These designations divided the four ways people make money. To educate individuals in each of the quadrants,
Kiyosaki illustrated the two fundamental statements of accounting, the income statement and the balance sheet. Contrary to most accounting principles,
Kiyosaki defined financial terms as follows: "Assets cash flow money into the income column . . . Liabilities cash flow money into and out of the expense column" (p. 176). He offered this lesson, "the relationship of cash flow between an income statement and a balance sheet that tells if something is an asset or a liability" (p. 176). Therefore, what a person perceives as an asset can become a liability.
Similar to the distinction between assets and liabilities,
Kiyosaki distinguished good debt from bad and good interest from bad. Good debt created wealth; bad debt purchased a car. Good interest generates tax-free income; bad interest penalizes the individual with taxable interest.
Businesses start small and grow large.
Kiyosaki invests in
PREPs (private real
estate partnerships, a private partnership that is formed to buy a large real estate investment, such as a storage warehouse) and in triple net lease real estate ("triple net means that in addition to their lease payment, the tenant pays for the maintenance of the building, the insurance, the taxes, and structural repairs").
Kiyosaki warned that these investments necessitate large down payments and do not provide a commission for brokers, who seldom recommend them.
Kiyosaki urged readers, who sincerely want to control their ark to do the following:
"Challenge yourself to find a minimum of five hours a week to devote to building your ark . . .
"Visit a real estate broker to inquire about investment properties. Spend dinner one night a week discussing new business ideas. Attend franchise
shows in your area. Attend local
seminars on real estate, building
businesses, or investing in the stock market. Decide
which asset class you want to start with: business, real estate, or investing in stocks and/or options" (p. 226).
Vigilance means constant attentiveness. An attentive person remains true to his or her word; he or she will "keep an open mind and . . . ears tuned for change . . . learn to read financial statements . . . use technology . . . watch for bigness . . . watch for changes in the laws . . . watch for inflation . . . pay close attention to government's handling of its social programs (pp. 224-226).
To build the ark, perform the following tasks:
Grow your own companyName your business
Begin to seek funding sources
Search for outside
advisersSelect your business entity and form it
Obtain any necessary licenses and permits
Set up a
relationship with you banker
Protect proprietary information
Write a business plan
Select your location
Form your service procedures
Plan ahead for bookkeeping, accounting, and office systems
Decide on pricing strategies
Determine employee needs
Prepare your marketing plan
Seek insurance coverage
Address legal issues
Fine-tune your cash flow budget
Set up your office
Hire employees
Announce your business
Buy a companyBuy a franchiseJoin network marketing Entry cost is low and there are training programs to help you succeed. The companies are typically based on direct sales with home-business opportunities
Invest in Small Real Estate PropertiesKiyosaki suggests that investors
strategize to become rich, according to his definition of rich, protect themselves from extreme market
gyrations and crashes, and diversity. For adequate leadership, he instructed investors to have a team of
advisers, to meet with them regularly, to ask questions and make decisions, to learn from mistakes. As to areas for meaningful self-advancements,
Kiyosaki advised investors to "Invest some time finding the long- and short-term reasons why you want to learn something . . . Invest sometime in learning the technical knowledge required to achieve your goals . . . invest some time learning via real-life trial and error" (pp. 263-264). "Stock options investing . . . sales and sales training . . . real estate investing . . . building a business . . . raising capital" (p. 265).
