Rich Dad’s Retire Young, Retire Rich
by Robert T. Kiyosaki
Why David Met Goliath
David and Goliath was one of rich dad’s favorite stories. I suspect he may have seen himself as David, a man who started with nothing, yet rose to compete against the giants of business. Rich dad said, “David could beat Goliath because David knew how to use the power of leverage. A young boy and a simple slingshot were far more powerful than the feared giant, Goliath. That is the power of leverage.” My previous books were on the power of cash flow. Rich dad said, “Cash flow is the most important word in the world of money. The second most important word is leverage.” He also said, “Leverage is the reason some people become rich and others do not become rich.” Rich dad went on to explain that leverage was power and that power can work in your favor or against you. Because leverage is power, some use it, some abuse it, and others fear it. He said, “The reason less than 5 percent of all Americans are rich is because only 5 percent know how to use the power of leverage. Many who want to become rich, fail to become rich because they abuse the power. And most people do not become rich because they fear the power of leverage.”
There Are Many Forms of Leverage
Leverage comes in many forms. One of the recognized forms of leverage is the leverage of borrowing money. Today we are aware of the severe problem of people abusing this powerful form of leverage. Millions of people struggle financially because the power of debt leverage is used against them. Because of the consequences of the abuse of debt leverage, many people now fear this form of leverage, saying, “Cut up your credit cards, pay off your mortgage, and get out of debt.” My rich dad would chuckle and say, “Cutting up your credit cards won’t make you rich. Cutting up my credit cards only makes me miserable.” Nonetheless, rich dad agreed that if you were abusive with the power of debt leverage, you definitely should cut up your credit cards, pay off your mortgage, and get out of debt. He said, “Giving a credit card to some people is like giving a loaded gun to a drunk. Anyone who is near the drunk is in danger, including the drunk.” Instead of teaching us to fear the power of debt leverage, rich dad taught his son and me how to use the power of debt leverage in our favor. That is why he often said, “There is good debt and bad debt. Good debt makes you rich and bad debt makes you poor.” Most people are loaded down with bad debt and many others live in fear of debt and are proud to be debt free… even to the point of being free of any good debt. In this book, you will find out how my wife, Kim, and I retired young and retired rich because we were deeply in debt, deeply in debt with good debt, debt that made us rich and financially free. In other words, we used the power of leverage, we did not abuse the power, nor do we live in fear of its power. Instead we respect the power of leverage and use it wisely and cautiously.
Can Everyone Be Rich?
During the hundreds of interviews I have given after the release of the first Rich Dad book I am asked this question: “Do you think everyone can be rich?”
I reply, “Yes. I believe everyone has the potential to be rich.”
At that point, I am often asked, “If everyone has the potential to be rich, why do so few actually become rich?”
My usual reply is, “I don’t have the time today to answer that question.” If they insist, I may say, “Many of the answers are found in my first four books in the Rich Dad series.”
If the interviewer is persistent they may ask something like, “When will you give us all the answers?”
I reply, “I don’t know if anyone has all the answers.”
Even though I do not have all the answers, I am very happy to be finally bringing this book, book number five in the Rich Dad series, to you. This book will definitely explain why I believe all of us already have the power and the potential to be very rich… and I do mean all of us, not just some of us. It will also explain how my wife, Kim, and I could retire young and retire rich, even though we started without any money. And it will also explain why some people are rich and why others are poor even though we all have the power and the potential to be very rich and retire young. It’s all a matter of leverage.
The first four books in the Rich Dad series were primarily about the power of cash flow. This book is about leverage. Why one entire book? The reason is because leverage is a very big word, encompassing and touching virtually everything in our lives. This book will focus on three important forms of leverage. They are:
SECTION I: THE LEVERAGE OF YOUR MIND
This is the most important section of the book. In this section, you will find out why money does not make you rich. In this section, you will find out that the most powerful form of leverage in the world, your mind, has the power to make you rich or make you poor. Just as someone can use, abuse, or fear the power of debt leverage, the same is true when it comes to your brain, a very powerful form of leverage.
Words Are Leverage
You will find out the power of words. Rich dad always said, “Words are leverage. Words are powerful tools… tools for the brain. But just as you can use debt to make you rich or poor, words can be used to make you rich or poor. In this section, you will find out about the power of words and how rich people use rich words and poor people use poor words. Rich dad often said, “Your brain can be your most powerful asset or it can be your most powerful liability. If you use the right words in your brain you will become very rich. If you use the wrong words, your brain will make you poor.” In this section you will find out about rich words and poor words… slow words and fast words. You will find out why rich dad said, “It does not take money to make money.” He said, “Getting rich begins with your words and words are free.” In Rich Dad Poor Dad, you may have read that rich dad forbade his son and me from saying, “I can’t afford it.” Rich dad said, “The difference between rich people and poor people is that poor people say ‘I can’t afford it’ more often than rich people. That is the primary difference.”
Why Investing Is Not Risky
In this book, you will find out why people who say “Investing is risky” are some of the biggest losers in the investment markets. Again it goes back to words. You will find out that what you think is real becomes your reality. You will find out why people who think investing is risky invest in the riskiest of all investments. It’s caused by their reality. In this book, you will find out why investing does not have to be risky. In order to find safer, higher yielding investments, people must first begin by changing their words.
As stated earlier, the power of leverage can be used, abused, or feared. In this section, you will find out how to use the leverage of your brain in your financial favor, rather than use it against you. Rich dad said, “Most people take the most powerful leverage in the world, their brain, and use that power to make them poor. That is not the use of that power. It’s abuse. Every time you say, ‘I can’t afford it’ or ‘I can’t do that’ or ‘Investing is risky’ or ‘I’ll never be rich,’ you are using the most powerful form of leverage you have… using it to abuse yourself.”
If you want to retire young and retire rich, you will need to use your brain in your favor, not against you. If you cannot do that, the two other sections of this book will not be possible for you, even though they are easy to do. If you can gain control over your most powerful form of leverage, the next two sections will be easy because they are easy.
SECTION II: THE LEVERAGE OF YOUR PLAN
In book number three, Rich Dad’s Guide to Investing, I wrote that “investing was a plan.” In order for Kim and me to retire young, we had to have a plan… a plan that started with nothing, because we had nothing. The plan had an end or an exit and it also had a time limit. Our time limit was ten years or less. It took us nine years, retiring in 1994. I was forty-seven and Kim was thirty-seven. Although we started with nothing we exited with approximately $85,000 to $120,000 a year in income, depending upon the market, without working. Our income was now coming solely from our investments. Even though it may not have been a lot of money, we were financially free because our expenses were less than $50,000 a year.
We Retired Young in Order to Get Rich
One of the advantages of retiring young is that we now had the free time to get rich. By the way, Forbes magazine defines rich as $1 million or more a year in income. In other words, according to Forbes, we were not yet rich when we retired. Knowing that, one of the reasons for retiring young was so that we would have the time to get rich. After retiring, our plan was to spend time investing and building businesses. Today, not only do we have substantial real estate holdings, we have built a publishing company, a mining company, a technology company, and an oil company, as well as investments in the stock market. As rich dad often said, “The problem with having a job is that it gets in the way of getting rich.” In other words, we retired young so that we would have the time to become rich. Today, our income per year from our investments and businesses is in the millions and is climbing steadily, even after the stock market crashed.
Everything is going according to plan.
In book number three, Rich Dad’s Guide to Investing, I wrote that most people have a plan to be poor. That is why so many people say, “When I retire, my income will go down.” In other words, they are saying, “I plan on working hard all my life and then I will become poorer after I retire.” That may have been an okay plan in the Industrial Age, but that is a very poor plan in the Information Age.
Millions of workers are now counting on their retirement plans, plans such as a 401k, IRA, Superannuation plans of Australia, RRSP plans of Canada, and other plans to be there when they retire. These plans are what I call Information Age retirement plans. I call them that because in the Information Age, employees are now responsible for their retirement. In the Industrial Age, it was the company or the government that would take care of your financial needs once your working days were over. There is one tragic flaw in these Information Age retirement plans. The flaw is that most of these plans are indexed to the stock market, and as you may have noticed, stock markets go up and stock markets go down. It shocks me to realize that millions and millions of hardworking people are now betting their financial future and their financial security on a stock market. What will happen to these workers if, for example, they are eighty-five years old and their retirement plan is wiped out, either by depletion, theft, or market crash? Are you going to say to them, “Get a job and begin saving for retirement?” That is why I am concerned and why I write and why I teach. I believe we need to better educate and better prepare people for the Information Age, the age where we all need to know a lot more about money. The age where we all need to be more financially responsible and depend less on a company or government to take care of us when our working days are over.
Just look at the numbers. By the year 2010 the first of 75 million baby boomers will begin to retire. Over the years, let’s say that each of these 75 million begins to collect just $1,000 per month from the promised government retirement plan that they have contributed to, and another $1,000 per month from the financial markets. If my math is correct, 75 million × $1,000 comes to $75 billion per month from the government program and another $75 billion from the financial markets. Seventy-five billion dollars per month coming out of the government and from the financial markets will have a dramatic impact on both institutions. What will the government do? Increase taxes? What will the financial markets do when $75 billion comes out of the market instead of going in? Advise you to “Buy and hold, invest for the long term, and de-worsify your portfolio?” Will the financial advisors continue to say, “The stock market on average has always gone up?” I don’t have a crystal ball and I do not pretend to predict the future. But I can say this much. A combined $150 billion coming out of these two large institutions instead of going in will cause a few ripples in the economy.
The old plans from the old economy will cause millions of people financial hardship once their working days are over. Millions in America do not have a company retirement plan or personal retirement plan. What will they do? Look for a job? Work all their lives? Move in with their kids or grandkids? Planning to work hard all your life is a poor plan. In spite of this plan being a poor plan, millions of people have this plan, even some people who are making a lot of money today. They are working hard today but have nothing set aside for tomorrow. For many baby boomers, time, our most important asset, is running out.
Then I hear people say, “I won’t need much money after I retire. My house will be debt free and my living expenses will go down.” While it is true that your living expenses may go down, what goes up are your medical expenses. Already medicine, health, and dental care are too expensive for many working people. What will happen when the medical industry is faced with millions of retirees who need health care to live, but have no money to pay? And if you believe in Medicare saving you, then you probably believe in the Easter Bunny also.
Maybe this is why Alan Greenspan, chairman of the Federal Reserve Board, recently said on television, “We need to start teaching financial literacy in our schools.” We need to start teaching our kids to take care of themselves financially, rather than teaching them to expect the government or the company they work for to take care of them after they retire.
If you want to retire young and retire rich, you will need a better plan than most people have. Section 2 is about the very important leverage of having a plan on how to retire young and retire rich.
SECTION III: THE LEVERAGE OF YOUR ACTIONS
There is an overused story about three birds sitting on a fence. The question is, “If two birds decide to fly away, how many birds are left?” The answer is, “Three birds are left.” The lesson is, just because you decide to do something does not mean you will do what you decide to do. In the real world less than 5 percent of the U.S. population is rich because 95 percent of the population may want to be rich but only 5 percent takes any action.
In book number four, Rich Kid Smart Kid, I write about how our school system punishes kids for making mistakes. Yet, if you look at how we learn, we learn from our mistakes. Most of us learn to ride a bicycle only by falling off a few times. We learn to walk by falling a few times. Then we get to school and we are taught not to fall. We are taught that people who fall are stupid people. We are taught that smart people are people who sit like the three birds on the fence and memorize the right answers. It’s a small wonder why only 5 percent of America’s people become rich. If you look at some of the richest people in the world, people such as Bill Gates, founder of Microsoft, Michael Dell, founder of Dell Computer Corporation, Ted Turner, founder of CNN, Henry Ford, founder of Ford Motor Company, and Thomas Edison, founder of General Electric, they all did not finish school.
I am not saying that school is bad. In the Information Age, school and education are more important than ever before. I am saying that sometimes to be successful we need to learn to not do what we have been taught to do. If you want to be more successful, simply watch how kids learn and copy them. One of the things I had to learn was how to overcome the fear of making mistakes, the fear of failing, and the fear of being embarrassed. Most young kids know how to do that naturally, but then we teach them not to do it in school. If I had not been able to learn how to make mistakes, learn how to fail, learn how to overcome my embarrassment, I would not have been able to retire young and retire rich.
Three Easy Things Everyone Can Do to Become Rich
I have always said that what you have to do to become rich is simple and easy. Almost everyone can do it. I am happy to share this book because Sections 1 and 2 prepare you to do the simple things you need to do, if you want to retire young and retire rich. In Section 3, I will go into simple and easy things most of us can do to become rich. I will go into the three main assets that make people rich and allow them to retire young. The three assets are:
1. Real estate
2. Paper assets
In Section 3, you will find out what you can do to begin acquiring these three vitally important assets. The reason Kim and I could retire young and retire rich is because we spent our time acquiring assets rather than working for money.
If you can read this book, you can do the simple action steps to begin acquiring these three important assets, the assets that the rich 5 percent of the population acquires. I promise you that you can do the action steps, but you will need to read the first two sections of this book. If you do not read the first two sections, you may not be able to do the action steps, even if they are easy to do. As rich dad said to me years ago, “Getting rich begins with the right mind-set, the right words, the right plan. After you have that, the action steps are easy.”
So why did David meet Goliath? Rich dad’s answer to this was, “David met Goliath so he could meet the giant inside of himself.” He also said, “Inside each of us is a David and a Goliath. Many people are unsuccessful in life because they run when they meet Goliath. Without Goliath, David would never have become a giant of a man.” Rich dad used this story to inspire his son and me to become financial giants. In other words, instead of killing the giant, rich dad inspired us to become giants.
This book is about becoming financially free. Kim and I achieved that freedom by acquiring or building assets… assets that worked hard so we did not have to work. Once we were free, we simply continued to build our portfolio of the three asset classes, which are businesses, paper assets, and real estate, into giant portfolios. We retired young and became richer and richer by using all the leverage we could to build these assets. Today those assets produce more and more income while we work less and less. If you would like to do the same, this book is for you. This book is written to assist you in finding your own financial freedom… freedom from the drudgery of earning a living. In closing, David became a giant by using all the leverage he could. You can do the same. This book is about bringing out the giant in you.
Robert T.Kiyosaki – From The Book ‘Rich Dad’s Retire Young, Retire Rich’