Chapter 1
The rules have changed
We live in troubled times. The last few years have brought
us a steady parade of fear and panic in the headlines, boardrooms, and kitchen
tables across America. Globalization, outsourcing, downsizing, foreclosures,
subprime mortgage and credit default swaps, ponzi schemes, Wall Street
fiascoes, recession … its one piece of bad news after another.
During the first few months of 2009, U.S. company layoffs
reached about a quarter-million per month. As I write this in late 2009,
unemployment is at 10.2 percent and still rising, and underemployment (where
your job stays in place but your hours and pay are drastically cut back) is
even worse. The rampant decline in gainful employment is a ravaging epidemic to
which few are immune. From executives and middle managers to administration
employees and blue-collar workers, from bankers to retail clerks, all are at
risk. Even the healthcare industry, until recently considered a job-safe zone,
is trimming away significant chunks of its workforce.
IN A 2009 USA TODAY
SURVEY, 60 PERCENT OF AMERICANS POLLED SAID THEY SEE TODAY’S ECONOMIC SITUATION
AS THE BIGGEST CRISIS IN THEIR LIFETIME.
In the fall of 2008, a lot of people’s retirement portfolios
suddenly lost half their value – or more. Real estate crashed. What people thought
were their solid, reliable assets turned out to be about as solid as water
vapor. Job security is gone, a thing of the past. In a 2009 USA Today survey,
60 percent of Americans polled said they see today’s economic situation as the
biggest crisis in their lifetime. Or course, you already know all this. But
here’s what you may not know: None of this is really news. Sure, it took a
major economic crisis for people to start waking up to the fact that their
livelihoods were at risk. But your income didn’t become at risk overnight – it
was always at risk.
Most of the U.S. population has been living for years on the
knife-edge precipice between solvence and ruin, relying on the next paycheck or
two to meet each month’s expenses, typically with only a very thin cushion of
cash savings – or more often, no cushion at all. That paycheck is called
“trading your time for money,” and during a recession, it is the least reliable
source of income there is. Why? Because when the number of employed people
starts dropping, there is less disposable income in circulation to pay for your
time.
I TOLD YOU SO
Not to be an I-told-you-so, but … I told you so. I’ve been
saying this for years: there is no longer such a thing as a safe and secure
job. Corporate America is a 20th-century dinosaur, trembling on the
edge of extinction, and the only way for you to have a genuinely secure future
is for you to take control of that future. Here’s what I wrote in 2001, in a
book titled The Business School for People Who like Helping People.
In my opinion, the United States and many Western nations
have a financial disaster coming, caused by our educational system’s failure to
adequately provide a realistic financial education program for students.
That same year, in an interview for Nightingale-Conant, I
said:
If you think mutual funds are going to be there for you, if
you want to bet your life on the ups and downs of the stock market, that’s your
retirement you’re betting on. What happens if the stock market goes up and then
comes crashing down again when you’re 85 years old? You have no control. I’m
not saying mutual funds are bad. I’m just saying they’re not safe and they’re
not smart, and I wouldn’t bet my financial future on them. Never before in the
history of the world have so many people bet their retirement on the stock
market. That is insane. Do you think Social Security is going to be there to
take care of you? Then you also believe in the Easter Bunny.
And in an interview I did in March 2005, I said this:
The No. 1 strength of a paper asset is its liquidity – and
that is also in No. 1 weakness. We all know there’s going to be another market
crash and we’re going to be wiped out again. Why would you do that?
So what just happened? There was another market crash and
many people got wiped out again. Why? Because our habits and mindset caught up
with us. In 1971, the American economy went off the gold standard. This
happened without the approval of Congress, by the way, but the important thing
is that it happened. Why is that significant? Because it cleared the way for us
to start printing more and more money, as much as we likes, without it being
tied to any actual, hard, real value.
This shift away from reality opened the gates for the
biggest economic boom in history. Over the next three and a half decades, the
American middle class exploded. As the dollar devalued and the on-the-books
value of real estate and other assets inflated, ordinary people became
millionaires. Suddenly credit was available to anyone, anytime, anywhere, and credit
cards began popping up like mushrooms after a spring rain. To pay off those
credit cards, Americans started using their homes as ATMs, refinancing and
borrowing, borrowing and refinancing.
After all, real estate always keeps going up in value,
right?
Wrong. By 2007 we had pumped as much hot air into this
financial balloon as it could take – and the fantasy came crashing down to
earth again. And it wasn’t just Lehman Brothers and Bear Stearns that
collapsed. Millions lost their 401 (k)s, their pensions, and their jobs.
THE NUMBER OF PEOPLE
LIVING OFFICIALLY BELOW THE POVERTY LINE IS RISING RAPIDLY. THE NUMBER OF
PEOPLE WHO ARE WORKING BEYOND THE AGE OF 64 IS INCREASING.
In the 1950s, when General Motors was the most powerful
corporation in America, the press picked up a statement by BM’s president and
turned it into a slogan that carried for decades: “As GM goes, so goes the
nation.” Well, folks, that may not be all good news, because where GM went in
2009 was into bankruptcy, and by that same summer, the state of California was
paying its bills with IOUs instead of cash.
Right now, the percentage of Americans who own their homes
is dropping. Mortgage foreclosures are at an all-time high. The number of
middle-class families is dropping. Savings accounts are smaller, if they exist
at all, and family debt is greater. The number of people living officially
below the poverty line is rising rapidly. The number of people who are working beyond
the age of 65 is increasing. The number of new bankruptcies is going through
the roof. And many Americans do not have enough to retire – not even close. Has
all this bad news got your attention? Sure it has, and you’re not alone.
Americans everywhere have finally stopped rolling over and hitting the Snooze
button. Great! Now you’re awake to what’s going on, and it isn’t pretty. So
let’s take a deeper look and see what it really means – and what there are you
can do about it.
IT’S A NEW CENTURY
When I was a kid, my parents taught me the same formula for
success that probably learned: Go to school, study hard, and get good grades so
you can get a secure, high-paying job with benefits – and your job will take
care of you. But that’s Industrial – Age thinking, and we’re not in the
Industrial Age anymore. Your job is not going
to take care of you. The government will not take care of you. Nobody’s going
to take care of you. It’s a new century, and the rules have changed.
My parents believed in job security, company pensions,
Social Security, and Medicare. These are all worn-out, obsolete ideas left over
from an age gone by. Today job security is a joke, and the very idea of
lifetime employment with a single company – an ideal so proudly championed by
IBM in its heyday – is a anachronistic as a manual typewriter.
Many thought their 401(k) retirement plans were safe. Hey,
they were backed by blue-chip stocks and mutual funds, what could go wrong? As
it turned out, everything could go wrong. The reason these once-sacred cows no
longer give any milk is that they are all obsolete: pensions, job security, and
retirement security – it’s all Industrial-age thinking. We’re in the
Information Age now, and we need to use Information Age thinking.
Fortunately, people are starting to listen and learn. It’s a
shame that it takes suffering and hardship to bring the lesson home, but at
least the lessons are hitting home. Every time we experience a major crisis –
the dot-com bust, the economic aftermath of 9/11, the financial panic of ’80,
and recession of ’09 – more people realize that the old safety nets just won’t
hold up anymore.
The corporate myth is over. If you’ve spent years climbing
the corporate ladder, have you ever stopped to notice the view? What view, you
ask? The rear end of the person in front of you. That’s what you get to look
forward to. If that’s the way you want to view the rest of your life, then this
book probably isn’t for you. But if you are sick and tired of looking at
someone else’s behind, then read on.
Don’t be fooled again
As I write this, unemployment is still on the rise. By the
time you read these words, who knows? The situation may have changed. Don’t be
fooled. When employment and real estate values turn around and credit loosens
up again, as they inevitably will, don’t be lulled into that same-old sense of
false security that got you and the rest of the world into this mess in the
first place.
In the summer of 2008, gas prices were soaring over $4 a
gallon. SUV sales sank like a stone, and suddenly everyone was on the
small-car-and-hybrid bandwagon. But look what happened next. By 2009, gas
prices had fallen back down below $2 – and so help me, people started buying
SUVs again!
What? Do we really think fuel prices are going to stay nice
and low? The gas prices are down for good now, and therefore gas-guzzlers make
perfect sense to buy? Can we really be that shortsighted? (I’m trying to be
nice there. The word I was going to use was “stupid.”)
Unfortunately, the answer is yes. We aren’t just fooled
once: we let ourselves be fooled over and over again. We all grew up hearing
the fable of the ant and the grasshopper, but the overwhelming majority of us
keep living with the foresight of a grasshopper anyway.
Don’t be distracted by the headlines. There is always some
idiotic buzz going on that tries to pull your attention away from the serious
business of building your life. It’s just noise. Whether it’s terrorism,
recession, or the latest election-cycle scandals, it’s not nothing to do with
what you need to be doing today to build your future.
During the Great Depression, there were people who made
fortunes. And during the greatest boom times, like the real estate surge of the
‘80’s, there were millions and millions of people who neglected to take charge
of their future –who ignored everything I’m going to share with you in this
book – and ended up struggling or broke. Most of them, in fact, are still
struggling or broke today.
The economy is not the issue. The issue is you.
Are you angry at the corruption in the corporate world? At
Wall Street and the big banks that let this happen? At the government for not
doing enough, or for doing too much, or for doing too much of the wrong things
and not enough of the right things? Are you angry at yourself for not taking
control sooner? Life is tough. The question is, what are you going to do about
it? Moaning and groaning won’t secure your future. Neither will blaming Wall
Street, the big bankers, corporate America, or the government. If you want a
solid future, you need to create it. You can take charge of your future only
when you take control of your income source. You need your own business!!!
Chapter 7
IT’S TIME TO TAKE
CONTROL!
It was 1985 and my wife, Kim, and I were homeless. We were
unemployed and had little money left from savings; our credit cards were
exhausted and we lived in an old brown Toyota with reclining seats that serve
as beds. At the end of a week of sleeping in our car, the harsh reality of who
we were, what we were doing, and where we were headed began to sink in.
After a friend realized our desperate situation, she offered
us a room in her basement. When friends and family were informed of our plight,
the first question was always, “why don’t you just get a job?” At first we
attempted to explain, but we had a hard time clarifying our reasons to our
well-meaning inquisitors. When you’re talking to someone who values having a
job, it is difficult to explain why you might not want a job.
We occasionally earned a few dollars doing a few odd jobs
here and there. But we did that only to keep food in our stomachs and gas in
our house – I mean, our car.
I must admit that during moments of deep personal doubt, the
idea of a sate, secure job with a paycheck was appealing. But because job
security was not what we were looking for, we kept pushing on, living day to
day on the brink of the financial abyss. We knew we could always find a safe,
secure, high-paying job. Both of us were college graduates with good job skills
and a solid work ethic. But we weren’t going for job security. We were going
for financial freedom.
By 1989, we were millionaires.
I often hear people say, “it takes money to make money.”
That’s B.S. – and I don’t mean a Bachelor of Science degree! Our journey from
homelessness to being millionaires in four years, and then on to genuine
financial freedom in another five years, did not take money. We had no money
when we started – in fact, we were in debt – and nobody gave us anything along
the way, either.
It also does not take a good formal education. A college
education is important for traditional professions, but not for people looking
to build wealth. If it doesn’t take money to make money and it doesn’t take
money to make money, and it doesn’t take a formal education to learn how to
become financially free, then what does it take? It takes a dream, a lot of
determination, a willingness to learn quickly, and an understanding of which
sector of the cash flow quadrant you’re operating in.
HARD WORK WILL NOT MAKE YOU RICH.
There is this strange idea in our culture that says, “If you
work really hard, you’ll be okay.” What a pile of baloney! And what’s so tragic
about it is that most people have been brainwashed to believe it, and they do
believe it, even though we’re all surrounded by tons of evidence to the
contrary.
What evidence? Just look around you. Do you know anyone who
has worked really hard his entire life, only to end up living a life that
hovers just above – or just below – the indignity and heartbreak called
“subsistence level?”
Of course you do. We all do. The world is full of people who
work hard and are most definitely not okay. And perhaps the worst part about it
is that many of these unfortunates come to the conclusion that it was their
fault, their personal failing. They did all the right things, right? But it
still didn’t work. Maybe they just not cut out for success.
Nonsense. The problem is that the hard-work myth is just
that: a myth. Now, don’t get me wrong. I’m not saying that building wealth and
financial freedom doesn’t take hard work; it does, and lots of it. I hope
you’re not naïve enough to believe the idiots who will tell you they can show a
way to wealth that’s easy, that’s quick, or that’s painless. Because if you are,
I know a bridge, you can buy real cheap – and an entire system of subprime
mortgages and credit-default swaps that might be just right for you.
No, it takes hard work, all right. The question is, hard
work doing what? I can already hear you thinking, “Doing what?! Making money,
of course!” But not so fast, because here’s the cold, hard truth lurking behind
that sad error of our culture’s thinking:
Working hard at making money will never create wealth.
People who work for income work harder and harder, only to
be taxed more and more. Forget working hard at making money: all you will do is
spend it, and then have to work hard all over again.
You might be asking, “Okay, so what do I do?” You take control.
Take control of what? After all, most things in life you cannot control, no
matter how hard you try. You can’t control the market. You can’t control
employees. You can’t control the economy. What can you control? You can control
the source of your income.
The Problem
Building a business is the way most of the very rich became
rich. Bill Gates built Microsoft; Michael Dell created Dell Computers in his
dormitory room. Still, historically, there have been very, very few people who
have truly lived in the B quadrant. The B quadrant is the best place to begin
generating genuine wealth, but at the same, there are some barriers to entry
that have kept most people out.
For one thing, most people don’t have the cash it takes to
start their own business. Today it cost an average of $5 million to start your
own business. And for another thing, building your own business from scratch
remains the riskiest of all ways to become rich. The failures rates for new
business is about 90 percent in the first five years – and if your new venture
fails, guess who just lost $5 million? In my early years of starting business,
I failed twice, and while it never pushed me into bankruptcy, (and I never got
any government bailouts!), it did cost me millions of dollars.
Typically when you start your own business, you have to make
sure your rent, utilities, and the rest of your overhead are paid, your
employees are paid, and your suppliers are paid, or you’re out of business. So
guess who doesn’t get paid? You! In the course of starting a new business j-
and I’m talking here about a successful business – you can easily go five to
ten years without taking a pay check.
Remember Kim and me, sleeping in our beat-up Toyota? It
wasn’t fun. We could have taken jobs that would have immediately put a roof
over our heads, but as miserable as it was (and believe me, it was), we chose homelessness
over employment because we believed in our dream of being business owners and
living in the B quadrant.
Most people do not have the mental, emotional, physical, or
financial stamina to handle these conditions. It can be brutal, and usually is.
……to be continued. The above post
was taken from the book entitled “The business of 21ST CENTURY”
by Robert Kiyosaki. You can get your copy now. Contact us today on: 0208520993,
0268840773, 0273767823.
Thank you.
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