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Dividend Growth investor... I hold a portfolio of dividend growth stocks. Portfolio: http://hellomoney.co/portfolio/3954df-alexander-dividend-income-growth-adig
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  • Take Aways From "Rich Dad Poor Dad": Be Your Own Dad! 5 comments
    Sep 1, 2013 1:17 AM

    So I was conversing with a friend who had just read Robert Kiyosaki's famous book - "Rich Dad Poor Dad" and I shared my two cent dividend on Robert's book with him.


    My brother had bought "Rich Dad Poor Dad" back in 2001 when I was in college and I had a chance to read it during that time. I must admit that this was the first book that got me looking at money, income and other elementary aspects of personal financial in a very different, unconventional way. I would recommend everyone to read this book to look at personal finance from an unconventional perspective and see the bigger picture in such an important aspect of one's life. There are various principles that will get you thinking in the right direction.

    Having said that, I do look at most things from a critical perspective. I believe that once someone familiarizes themselves with different aspects of personal finance and various schools of thought around it, it is best that they set their own goals and methodologies that work best for their personality and temperament over following someone else to the letter uncritically.

    Good points:

    1. Make money work for you instead of you working for money: This way of thinking caught my attention because we're all living in this rat race to "make money". And it's a never ending rat race once you have bills upon bills and various other expenses.
    2. Look at everything as an asset and liability: Robert defined assets as anything that brings you money or "cash flow" and liabilities as "anything that makes you loose money". Now this also opened my horizon to think at any big purchase in terms of an asset or a liability. So much so that even when I bought a car a few years ago when single, I bought a 2 year old used 2 door hatchback Hyundai Accent with 1 year warranty left on it all cash instead of the Dodge Charger or Camero I was eye balling since I was young, single and building up a cash reserve with low expenses. I figured that I would pay less cash on the initial purchase and subsequent maintenance if I started out low key. I haven't bought a house yet either because I'm living in a small apartment paying low rent instead of owning a house, paying off debt and having all sorts of one time initial set up expenses and monthly overhead expenses and annual property tax payments. Though his definition of assets is a good reminder on how to spend wisely, it should be noted from an accounting perspective that an "asset" is essentially anything with intrinsic value and it need not always produce cash flow. Eg A plot of land, a company stock, a wooden shelf made out of rosewood that might sell at a premium years later.

    Critiques:

    1. Too much focus on real estate: I felt there was a lot of emphasis on real estate which worked in the 90s and early 2000s but real estate, like any other asset class has its risks too. Many people followed his advise uncritically and even paid hundreds of dollars to attended Rich Dad Poor Dad seminars - they were flipping houses, taking loans and lost big during the housing collapse.
    2. Very critical of working a job: I got the impression that the book made it sound like working a job is not something that rich people do. However the reality is that many millionaires worked jobs. Former GE CEO Jack Welch and former HP CEO Carla Fione started working in their companies as low level employees and moved up the chain. I believe if you enjoy your work and have a steady income, it's something worth holding on to unless you feel you have a better working alternative and it shouldn't be looked down upon.
    3. A very material outlook towards being "rich": I also felt that there was a very material outlook towards wanting to be "rich" - make more money...and more money...and more money. I feel being happy, content and comfortable with your potential is an ideal goal that makes anyone "rich". One man's "poor" maybe another man's "rich".
    4. "Saving" is portrayed as a bad thing: I think a balance between saving and investing in assets that have potential for growth is a wise strategy. However, reading the book, you get the impression that people saving cash are losers. The main argument provided is that cash, doing nothing, will be lost to inflation. This is correct... however you should also realize that taking risky decisions with cash could also make you loose it. I believe a balanced approach would be to have enough cash for one year's worth of emergencies and an additional two to three months for immediate expenses incase you need a cushion due to some unforeseen event. It's only after the 2008 crisis that a lot of people realized that cash *can* be king.

    Conclusion:

    This is a great book to get your perspectives opened up to an unconventional way of looking at money and personal finance. However, readers should keep in mind that what worked for Robert Kiyosaki may not work for someone else and you have to read this book with the intention of learning and gaining a different perspective and then fine tune your short term and long term goals keeping your personality and temperament in mind while making financial decisions. Lots of people look for the easiest way to get rich and then end up getting burned (see this investigative report on people who paid for Rich Dad Poor Dad seminars).

    Until next time, happy investing!

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Comments (5)
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  • Alexander Alekhine
    , contributor
    Comments (1995) | Send Message
     
    I have heard of this book, but not read it; and now I don't need to! Great summary of the issues, and I agree with all your editorial comments.

     

    I do want to add a comment of my own: I don't recommend investing in real estate unless you are "handy" and prepared to spend a lot of time managing your investment, but I definitely DO recommend buying a house of your own to live in. There are all kinds of arguments for and against buying versus renting, but the simple fact is, for most people, owning your own home and gradually paying down your mortgage is an excellent forced savings plan.

     

    My wife and I paid off our home at age 55 (we are the same age), and we also paid off our second vacation home years earlier. Yes, the property taxes and other expenses can be a drag. But if we ever want to "cash in" and retire someplace else, we have two BIG real estate assets as a potential source of funds.
    22 Mar 2015, 02:13 PM Reply Like
  • financeminister
    , contributor
    Comments (1201) | Send Message
     
    Author’s reply » Thanks for chipping in. I share your thoughts on real estate and buying a house to live in - as an investment, it needs a hands on approach and time unless you have a competent real estate manager with legal muscle power. I've seen a lot of families get into rental investment as a side job only to be burned by bad tenants or maintenance jobs. The apartment bathroom I live in for rent needed a complete make over due to plumbing issues and moss build up between the walls. I suspect one year's worth of rent was lost with that maintance job. A while back, I checked up the property's value on zillow, did some estimates on taxes, community fees, maintainance, rental management fees and I came up with a net income after operational costs somewhere between 5% to 8% excluding property taxes if I remember correctly. Total return would come in with rental property appreciation to whatever that was. Rent increased for the first time by 7% last year and I assume regular increases will follow from now. It didn't seem worth it to me unless you had a bunch of properties to make up for any loss in income. The risk of bad tenants destroying your peace sounds like a very high risk probability. I decided that publicly traded REITs were a better alternative for a person of my mindset though I don't know which would have done better when it comes to total return.

     

    Considering my lack of real estate management competence, I see a house as a worthy emotional investment to raise family though it will be a pricier one. Currently we're renting because location and job wise we are not settled down and this will happen only in 2016 otherwise I would have bought a house in 2012. I don't like to spend too much money on rental expenses so we have a small one bedroom apartment that has a total cost of 700 bucks meeting all our needs. Anything more and we would feel that that money would have been better spent on a mortgage so we're keeping rental expenses to a bare minimum until we get a house. I see that operational expenses shoot up once you own a home... most folks just consider mortgage interest as the only additional expense and later realize additional overheads like property taxes, community fees, lawn maintenance, higher utility and water bills, maybe security monitoring and atleast one repair / maintenance activity every year. It's fine with a 10 to 15 year mortgage as long as you know what you're your paying for and for me, that's the emotional value of a home.

     

    BTW, are you an Alkehine fan? my favorite game was the one with Nimzowitsch (Alkehine gun) and then Alekhine vs Bogoljubov (http://bit.ly/1HxEN4m) though Alekhine lost spectacularly in this one.
    24 Mar 2015, 01:35 PM Reply Like
  • Alexander Alekhine
    , contributor
    Comments (1995) | Send Message
     
    I used to play chess, but not so much in recent years. I guess you could say I am a fan of Alekhine the chessplayer but maybe not so much Alekhine the man.

     

    I think you are doing the right thing by minimizing your rent expense now, which should bring the time sooner that you can afford a house.

     

    Not that you asked for any advice in home shopping, but I would suggest spending moderately on a house. Here's what I mean: get a house that stretches your finances initially, but will be easily affordable once you have settled in for a few years and your personal finances (hopefully) have made some progress.

     

    If you buy a house that requires that both spouses be not only employed but employed at the max of their earnings range, you may have trouble affording your house when those career bumps in the road come along. Or when you have children and one spouse needs to stay home for a while, perhaps for several years.

     

    I have had two or three brief stretches of unemployment over the years, and my earnings have bounced around. My wife has never had a very good job, and she stayed home when our kids were young. But because our house was not overly stretching our finances, we have always (so far) been able to pay our bills.

     

    Just a word to the wise.
    24 Mar 2015, 02:23 PM Reply Like
  • financeminister
    , contributor
    Comments (1201) | Send Message
     
    Author’s reply » ah okay... I knew he was a drunk. but same pinch here... I like his games. Never focused much on the person

     

    I appreciate any advise and experience. I like hearing other opinions. I'm on the same page regarding budgeting for a house. I've seen how houses end up being a money pit while other expenses stretch your budget so I've been very convinced on being careful here. I lived on rent with my cousin and his family in NY for a 1.5 years and could see how they were stretched thin on a 30 year mortgage. That kind of burned the long term picture in my mind. I guess housing is a household's biggest monthly expense unless they have other big ticket items which I guess would be kid's college or marriages.

     

    Since we didn't start with a house right away and lived on a budget, we've managed to save up enough to buy all cash if we wanted to though our assets are split between cash, IRAs and 401K. My plan is to put 20% down for a 15 year mortgage and have some stand by cash for 6 month expenses. The 401K is 25% of our investment assets while the IRAs are 10% of investments.

     

    Now I do have an unconventional plan on funding the home mortgage needs partially from our 401K. I can essentially borrow from myself and pay myself principal + interest. Between paying back principal and interest to a bank and myself, I prefer that myself. No origination fees and other service charges. You are allowed upto 50% of your 401K upto $100K whichever is less. So our housing loan needs could be split between a 15 year loan from a bank and 50K from our 401K. This wouldn't affect our retirement since we still intend to contribute our IRAs, payback the 401K and keep the taxable investments growing. The 401K house loan will only be an option if the markets are still up by then. Some say that you will miss out on market gains...but since we have 75% of the rest of our investments in the market, and the 401K holds only index funds, I see this as a good way of booking some profit after year's of a bull run and using it effectively to fund a needed asset.

     

    I think the important key to this plan is to have a good liquid buffer to soften unexpected events and you are financially stable. I see our loan repayments and monthly housing overheads being 20% to 30% of after tax income. So I think if you're financial house is in order, this is a great option for those who would prefer borrowing less from a bank. If liquidity is needed, one should be able to fall back on their income followed by a 6 month emergency fund followed by stocks in taxable accounts. So there's a long way before going broke in a worst case scenario.
    24 Mar 2015, 05:55 PM Reply Like
  • Alexander Alekhine
    , contributor
    Comments (1995) | Send Message
     
    Very clever! I like the borrowing from yourself! I never had enough money to loan myself anything. :-)
    24 Mar 2015, 08:19 PM Reply Like
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