Investor Lesson 11 - On Which Side Of The Table Do You Want To Sit

My rich dad said, “Working hard and saving money are important if you want to be secure and comfortable. But if you want to be rich, working hard and saving money will probably not get you there. On top of that, people who work hard and save money are often the same people that say, ‘Investing is risky.' ”

There were many reasons rich dad reminded Mike and me that working hard and saving money was not the way he got rich. He knew that working hard and saving money was good for the masses but not for anyone wanting to become rich.

There were three reasons why he recommended finding a different plan to becoming rich. These are the reasons.

1. He would say, “People who work hard and save money have a hard time getting rich because they pay more than their fair share of taxes. The government taxes people like this when they earn, when they save, when they spend, and when they die. If you want to be rich you will need greater financial sophistication than merely working hard and saving money.”

government has already taken its fair share out in taxes. So it might take $1,300 or more in earnings just to save $1,000. Then that $1, 000 is immediately being eaten away by inflation, so each year your $1,000 is worth less. The meager sum of interest you are paid is also eaten by inflation as well as taxes. So let's say your bank pays you 5% interest, and inflation runs at 4% and taxes run at 30% of the interest, your net result is a loss of money. That is why rich dad thought that working hard and saving money was a hard way to try and get rich.

2. The second reason was , “People who work hard and save often think investing is risky. People who think things are risky often also avoid learning something new .”

3. The third reason was, “People who believe in hard work, saving, and that investing is risky, rarely ever see the other side of the coin. ” This chapter covers some of the reasons why or how investing does not have to be risky.

Rich dad had a way of taking very complex subjects and simplifying them so almost everyone could understand at least the basics of what he was talking about. In Rich Dad Poor Dad, I shared the diagrams of the income statement and the balance sheet that he used to teach me the basics of accounting and financial literacy. In CASHFLOW Quadrant, I shared his diagram that explains the core emotional and educational differences between the people found in the four quadrants. In order for me to understand investing, I first needed to fully understand the lessons taught in those two books.

When I was between the ages of 12 and 15, rich dad would occasionally have me sit at his side while he interviewed people who were looking for a job. At 4:30 p.m. , which was the time he did all his interviews, I would sit behind a large brown wooden table in a chair next to rich dad. Across the table was a single wooden chair for the person being interviewed. One by one, his secretary would let the prospective employees into the large room and instruct each person to sit in the lone open chair.

I saw grown adults asking for jobs that paid $1. 00 an hour, with minimal benefits. Even though I was a young teenager, I knew that it was difficult to raise a family, much less get rich, on $8.00 a day. I also saw people with college degrees, even several with Ph.D .s asking rich dad for managerial or technical jobs that paid less than $500 a month.

After a while, the novelty of sitting behind the table on rich dad's side wore off . Rich dad never said anything to me before, during, or after these interviewing days. Finally, when I was 15 and bored of sitting behind the table, I asked him, “Why do you want me to sit here and watch people ask for jobs? I'm not learning anything and it's getting boring. Besides, it is painful to see grownups so needy for a job and money. Some of those people are really desperate. They can't afford to quit their present job unless you give them another job. I doubt some of them could last three months without a paycheck. And some of them are older than you and obviously have no money. What's happened to them? Why do you want me to see this? It hurts me every time I do this with you. I have no problem with them asking for a job, but it's the desperation for money I can see in their eyes that really bothers me.”

Rich dad sat still at the table for a moment, collecting his thoughts. “I've been waiting for you to ask this question, ” he said. “It hurts me too and that is why I wanted you to see this before you got much older .” Rich dad took his legal pad and drew the CASHFLOW Quadrant.

“You are just starting high school. You are soon going to be making some very important decisions about what you will be when you grow up, if you haven't already made them. I know your dad is encouraging you to go to college so you can get a high-paying job. If you listen to his advice, you will be going in this direction.” Rich dad then drew an arrow to the E and S side of the Quadrant.

“If you listen to me, you will be studying to become a person on this side of the Quadrant.” He then drew an arrow to the B and I side of the Quadrant.

“You've shown me this and told me this many times,” I replied quietly. “Why do you continue to go over it?”

“Because if you listen to your dad, you will soon find yourself sitting in that solitary wooden chair on the other side of the table. If you listen to me, you will be sitting in the wooden chair on my side of the table. That is the decision you are making, consciously or unconsciously, as you enter high school. I've had you sit on my side of the table because I wanted you to know that there is a difference in points of view. I'm not saying one side of the table is better than the other side. Each side has its pluses and minuses. I just want you to start choosing now which side you want to sit on because what you study from this day forward will determine which side of the table you wind up on. Will you wind up on the E and S side or the B and I side of the table?”

In 1973, rich dad reminded me of that discussion we had when I was 15 years old. “Do you remember me asking you which side of the table you want to sit on?” he asked.

I nodded and said, “Who could have predicted back then that my dad, the proponent for job security and lifelong employment, would be sitting on the other side of the table again, at the age of 50? He had everything going for him at 40, and it was all over just 10 years later.”

“Well, your dad is a very courageous man. Unfortunately, he did not plan for this happening to him and now he's getting into professional as well as financial trouble. It could get worse if he does not make some rapid changes. If he keeps going with his old beliefs about jobs and job security, I am afraid he will waste the last years of his life. I cannot help him right now but I can help guide you,” said rich dad.

“So you're saying choose which side of the table to sit on?” I replied. “You mean choose a job as a pilot with the airlines or make my own path?” “Not necessarily, ” said rich dad. “All I want to do in this lesson is point something out to you. ”

Quadrant. Most people are asked as children, “What do you want to be when you grow up?” If you notice, most children will reply such things as ‘a fireman,' or ‘a ballerina,' or ‘a doctor ,' or ‘a teacher .'”

“Yes,” said rich dad. “And the I quadrant, the investor quadrant, is an afterthought, if any thought is given to it at all. In many families, the only thought given to the ‘I' quadrant is when parents say, ‘Make sure the job you have has excellent benefits and a strong retirement plan. ' In other words, the idea is to let the company be responsible for your long-term investment needs. That is changing rapidly as we speak.”

companies to compete in the world, they need to get their costs down. And one of their major costs is employee compensation and employee retirement plan funding. You mark my words, in the next few years businesses will begin shifting the responsibility of investing for retirement to the employee.”

“You mean people will have to provide for their own pension instead of relying on their employer or the government?” I asked.

“Yes. The problem will be the worst for poor people, and they are who I worry about, ” said rich dad. “That is why I reminded you about sitting across the table from people whose only financial support was a job. By the time you are my age, what to do with people without financial and medical support when they are older will be a massive problem. And your generation, the Baby Boomer generation, will probably be tasked with solving that problem. The severity of this problem will be very prominent sometime around 2010. ”

“Make the ‘I' quadrant the most important quadrant, not the others. Choose to be an investor when you're grown up. You'll want to have your money working for you so you don't have to work if you don't want to, or cannot, work. You don't want to be like your dad at 50—starting all over again, trying to figure out which quadrant he can earn the most money from, and realizing he is trapped in the E quadrant, ” said rich dad.

“You want to learn how to operate from all quadrants. Being able to sit on both sides of the table allows you to see both sides of the coin,” rich dad said in summary, referring to his two-sided coin story.

Rich dad explained to me that one of the differences between rich people and poor people comes from what the parents teach their kids at home. He said, “Mike already had a personal investment portfolio of over $200,000 by the time he was

15. You had nothing. All you had was the idea of going to school so you could get a job with benefits. That is what your dad thought was important.” Rich dad reminded me that his son Mike knew how to be an investor before he left high school. “I never tried to influence him in his choice of careers,” said rich dad. “I wanted him to follow his interests, even if it meant he did not take over my business. But whether he chose to be a policeman, politician, or a poet, I wanted him to first be an investor. You'll become far richer if you learn to be an investor, regardless of what you do to earn the money along the way.”

Years later, as I met more and more people who came from well-to-do families, many of them said the same thing. Many of my wealthy friends said that their families started an investment portfolio for them when they were very young and then guided them in learning to be investors—before deciding what type of profession they wanted to enter .

In the Industrial Age, the rules of employment were that your company would employ you for life and take care of your investing needs once your working days were over. In 1980, the average length of retirement before death was only one year for men and two years for women. In other words, all you had to do was focus on the E quadrant and your employer would take care of the I quadrant. That message was very comforting, especially to my parents' generation, since they lived through a horrible world war, and the Great Depression. Those events had a tremendous impact upon their mental attitude and financial priorities. Many still live with that financial attitude and they often taught that same attitude to their children. Many people also continue to believe that their home is an asset and their most important investment. That idea is an Industrial Age way of thinking. In the Industrial Age, that was all a person needed to know about money management because the company or labor union and the government took care of the rest.

The rules have changed. In the Information Age of today, most of us need greater financial sophistication. We need to know the difference between an asset and a liability. We are living much longer and therefore need more financial stability for our retirement years. If your home is your biggest investment, then you're probably in financial trouble. Your financial portfolio needs to be a much bigger investment than your home.

The good news is that the I quadrant is a great quadrant to place first—to learn to be responsible for—because freedom comes from this quadrant.

I have asked question two and left it without an answer because of this phenomenon: You may have noticed that when a major company announces a lay-off of thousands of employees, the company's share price often goes up. That is an example of the two sides of the table. When a person shifts to the other side, his or her point of view of the world also changes. And when a person shifts quadrants, if only mentally and emotionally, then loyalties often change. And I believe that this shift is brought on by the change of ages, the change from Industrial Age thinking to Information Age thinking, and it will cause businesses and business leaders some of the biggest challenges in the future. As they say, “The rules have just begun to change.”