Review of Rich Dad’s Guide to Investing Book

This is the third book in the Rich Dad’s series Robert Kiyosaki wrote after the hugely popular Rich Dad Poor Dad. Robert casual style of narration makes it both enjoyable and easy to digest the close to 400 pages book. I took about six weeks to complete the book.

This book focuses a great deal on the B-I side of the quadrant as well as the B-I Triangle. To become rich, we have to be both an investor and a business owner. To be a really great investor is to become an ultimate investor. A person who invests from the inside of the company, who takes the company public and sell the shares to outside investor. Robert also explained all the components of his B-I triangle, which Rich Dad taught him, to build a strong business dedicating one chapter for each component. If any of the component of the business is weak, the business will be in trouble and fail.

Although Robert gives very clear explanation to every concept, you still find his explanation open-ended, requiring you to figure out what is best for your own financial future. I have learnt many lessons from this book and summarized here below:

  1. The various investor controls needed
  2. Different level of investor e.g. accredited, sophisticated.
  3. Increase finanancial intelligence.
  4. The need to have 3 financial plans. One to be secure, one to be comfortable, one to be rich.
  5. Understand financial statements.
  6. The 90/10 rule of money.
  7. The tax benefits enjoyed by a business owner compared to an employee and self-employed.
  8. The difference between saving and investing.
  9. See the flip side of the coin for any investment.
  10. Living in the information age versus industrail age.
  11. What it takes and how fast to be a billionaire in the information age.
  12. and much more…

I like to recommend this book to those of you who wants to be a better business owner and investor. It would be better if you had read the first two books “Rich Dad Poor Dad” and “Rich Dad’s cash flow quadrant” as it builds on the fundamentals of the two earlier books.

Choosing a Business Opportunity – How Much to Invest and What to Consider

How Much Can You Afford to Spend on a Business Opportunity?

There are many things to consider when searching for the right home based business opportunity. One of the first questions that home business seeker asks themselves is how much money should they spend on the business. If you are seriously considering a home based business then you should ask yourself some important questions first. The first question you should ask yourself is NOT how much you should spend on a business but rather how much can you afford to spend? Remember, if you are quitting a steady job to pursue your home based business then you have to remember that you will still need to pay your rent or mortgage and various other living expenses. Many first time home based entrepreneurs make the mistake of underestimating their monthly expenses and overestimating how much profit their business will generate. Many businesses don’t actually show a profit for a year. For this reason you should have at least 6 months of living expenses saved in your bank to cover your bills. 

 What Are Your Expected Returns?

If you are considering the purchase of a home based business then you should certainly determine what your returns on investment will be. For example, if you are going to purchase an online business that sells marketing products to the general public and you are paying a total of $15,000 for your business then you need to ask yourself how long it will take for you to recoup your initial investment. If you are only going to make a total profit of $1,000 a month then it would take you a total of 15 months to recoup your investment. So it would take you over a year to begin making a real profit in your business. You must then ask yourself if you are prepared to wait an entire year to begin making a profit. Because of the long turn around time for a return on investment, many new home business buyers chose a business opportunity with a lower start up costs. On the other hand, if you only spent $1,500 to purchase your business and you made the same profit in your business of $1,000 a month then it would only take one and a half months to become a profitable business. Remember, that just because a business opportunity sounds great and promises you the world, chances are you will be the one doing most of the work. It may not make sense to you to work so hard at a business only to see most of your profits going back to pay for the cost of the business.

Consider Your Experience

When evaluating potential home business ideas you must seriously consider what your real business strengths and weaknesses are. You should carefully examine what experiences you have had working for other people and other companies. For example, if you are looking to purchase an auto repair business you should at least have some experience fixing cars and preferably management experience at an operating auto repair business similar to the one that you are purchasing. Unfortunately, much of the marketing for business opportunities minimizes the importance of your actual real world experience in whatever kind of industry they are promoting. There are many auto repair shop businesses who promise that you will not need any prior experience in that industry but studies have shown that experience helps. For this reason, make sure that you choose a business that will be relatively easy to operate and has a product or service that appeals to a wide variety of people.

How to Learn How to Invest

It may take some time and effort to learn how to invest successfully, but it can be done without too much sweat if you have a plan. Here are some ideas to make the learning experience easier for you.

Just between you and me, formal education in business is not the key to learning how to invest. It just makes the learning process easier because you’ve been introduced to financial terms and concepts in accounting, economics, and business in general. I had an MBA (Masters in Business Administration) at age 25, and knew virtually nothing about the real world of investments and investing when I hit the street looking for a job.

Start by concentrating on INVESTMENT basics and basic financial terms and concepts. For example, if you don’t understand terms like EARNINGS, YIELD, INFLATION and RETURN, you can’t get a real handle on stocks and bonds.

Then get familiar with investment characteristics like LIQUIDITY, GROWTH, and RISK so you can compare various investments and determine which are most appropriate for you.

Learn the basics about stocks and bonds, and get a handle on the money market and other or “alternative” investments.

Now you should easily be able to get your arms around mutual funds and function as a literate investor. These investor-friendly investment packages invest in stocks, bonds, money market securities, and other investments for you … and deal with all of the details. You don’t necessarily need to learn how to pick stocks or analyze bonds. You can be a successful investor if you just learn how to pick mutual funds that fit your requirements for growth, income, liquidity and safety.

Now you are ready to concentrate on the art of INVESTING, to manage your portfolio of mutual funds and/or other investments. ASSET ALLOCATION and PORTFOLIO BALANCE are the keys to your long term success as an investor! For example, what percent of your investment assets should be invested in stocks or stock funds vs. bond funds vs. money market funds?

It will all fall in line for you if you start by learning the basics first. In other words, you can’t start on page 47 of a 300-page novel without feeling clueless as to what the plot of the whole thing is.

That’s why I spent three years writing an investor guide for folks who feel clueless about investing.