Control over Your Time

Rich dad said, “One of your greatest assets is time. One of the reasons most people do not become rich is because they do not make good use of their time. Most people work hard making the rich richer but fail to work hard making themselves rich.”

In 1974, I began working at the Xerox Corporation in downtown Honolulu. For those of you who have read my other books, you already know that I chose the Xerox Corporation because the company had an excellent sales training program. Rich dad recommended I learn to sell if I was going to become an entrepreneur in the B quadrant. He said, “The number one skill of a business owner is the ability to sell.” He also said, “When I find a business that is struggling financially, it is often because the owner cannot sell.”

But by mid-1975, I was on probation with the Honolulu branch of Xerox. The reason was because I could not sell. My shyness and fear of rejection had me at the bottom of the list of new sales trainees. If my sales performance did not come up, I was going to be fired. Again I turned to rich dad for advice.

On a hot summer day, I met rich dad at a restaurant near his office, and he re-reminded me of one of his core philosophies. After listening to my tale of woe, my poor sales performance, and my fear of rejection, he said, “So what are you going to do about it? How many times do I have to remind you that you do not get rich at work? How many times do I have to remind you that you get rich in your spare time?”

A few weeks later, after leaving my office at Xerox, I walked up the street to a nonprofit charity and sat on their phone bank dialing for dollars. The reason I did this was to gain more sales experience . . . faster. Three to five nights a week, I would make ten to thirty phone sales pitches, asking people to donate money to this worthy cause. In a three-hour period, I was making as many sales presentations as I was making in a month pounding the streets for Xerox. In other words, I was getting rich faster. I was getting rich because I was gaining a skill that would enrich my life forever. By late 1975, I was no longer on probation at Xerox, my sales were improving, and so was my income. By 1976, I was one of the top sales reps. When asked by my sales manager what the secret to my success was, I simply said, “I made more sales calls faster.” He smiled and I never told him I made my sales calls for a charity, and did them in my spare time.

At about the same time, rich dad encouraged me to begin investing in real estate. That is why I took a real estate investment course before I got out of the Marine Corps. Rich dad always said, “I make my money in my busi ness—and I keep my money in real estate.”

When I reflect on my life, I appreciate rich dad's wisdom of getting rich in my spare time. Today I am financially free because of what I did in my spare time, rather than what I did at work. Today, if you are working hard on somebody else's ark, you may want to set aside some spare time to build your own ark.

People often say to me, “I love my work. I love what I do.” To those statements I reply, “Congratulations. Loving what you do is very important.” Yet silently, I ask this question: “Is what you love doing providing everything you need?” The point is, many people love their work but their work will not pro-vide for their long-term needs. For example, Kim and I have a friend who is a great interior designer and her husband is an executive in a manufacturing company. They both love their work, both make a lot of money, but neither of them has anything to fall back on. When they asked for advice, one of the first questions I asked them was, “How much can you sell your job for?”

Saying nothing, I simply sat there in the silence and let them listen to their own words. Finally, the silence became deafening. “So what are you say ing?” asked the wife. “Quit our jobs?”

Again, I said nothing and the squirm factor became higher. “Look we've come to ask for help. The least you can do is say something. Are you saying quit our jobs? Is that what you're saying?”

My silence was met by their silence. Finally the husband took a deep breath and rocked back in his chair as I sat at my desk. His wife, our friend the interior decorator, was still leaning forward, hoping for an answer from me. After about thirty seconds of silence, she too rocked back in her chair and sat there in silence.

“How much can we sell our jobs for?” said the husband as he rocked back and forth, listening to the question I asked initially, but he was now asking in his own words. “How much can I sell my job for?” he suddenly asked, but this time in a much louder voice. I could tell he was hearing his own ques tion, not my question.

“Well the answer is nothing,” he said, answering himself. “Absolutely nothing.”

“But it provides us income,” said his wife in a defensive tone. “We earn money to put a roof over our heads, feed the kids, and provide for the future.” “I know, I know,” said the husband. “I know all that. But that is not the question being asked. The question is, ‘How much can we sell our jobs for?' ” “So you say we're working for nothing?” asked the wife.

“No,” I replied, breaking my silence. “I just asked a question . . . a ques tion I wanted you to ask yourself.”

“So we're working at something we cannot sell,” said the husband. “What do you suggest?”

“Well, how about investing time to work for yourself? Why not work just as hard to make yourself rich as you do to make someone else rich?” “So invest some time in ourselves,” said the wife.

I went on to tell the story of my dialing for dollars for the charity and investing in real estate. “When I look back upon those years, my job did not make me rich. What made me rich was what I did after I did my job. What are you doing?”

“Truthfully nothing,” said the husband. “We work hard for our clients, we work hard to pay bills, we work hard to set a few dollars aside for our retire ment, and we work hard for our kids and their future education.”

“I know, I know,” said the husband. “I got the message. It's time we in vested some time in our future.”

Today it is no longer enough to be professionally competent. We all need to be professionally and financially competent. Earlier, I wrote that many people today are investing, but very few are becoming investors. The couple I just mentioned fell into that category. After the market crash in March of 2000, they realized that they might be better off becoming investors rather than trusting their money to people they hoped and prayed were investors.

The couple attended some of the courses richdad.com offers. Their comments after leaving the courses were, “I cannot believe how fast a per son can make money from their investments. Why would anyone want to put money in mutual funds and hope for a 10 percent per year taxable return? Why would anyone want to take the risk of having his or her mutual funds wiped out in a market crash? Why not learn how to make money when the market is going up as well as coming down?

Richdad.com offers seminars for business owners and investors. I mention this because the comment most people have after leaving the courses is what they learned about how fast money could be made. The point is that you can gain more control over your time if your money can work at a higher rate of return. For example, many participants in our stock options classes are shocked to find out how relatively simple it is to trade options. Participants in our real estate classes find out how relatively simple it is to use your banker's money rather than your own money to generate 50 percent or more in returns per year.

Rich dad taught his son and me that if you can increase the velocity of your money, you could gain valuable time. For example if you earn 5 percent per year on your investment, it takes you approximately twenty years to get your initial investment back. If your money earns 50 percent per year, you get your investment back in two years. If you can earn 100 percent per month, you get your money back in one month, or twelve times a year. These returns are possible with the appropriate financial investment educa tion. In other words, a small investment in your financial education can gain you massive amounts of financial time.

Rich dad often said there was a strong correlation between health and wealth. In earlier books, I defined wealth as the number of days you could survive without working, while still maintaining your standard of living. More specifically, wealth is measured in time more than money. For exam-ple, if you had $5,000 in savings and your monthly expenses were $1,000 a month, your wealth would be 5 months. The same is true with health. If you are healthy, you have years ahead of you. But if your health begins to deteriorate, then your time on this earth diminishes. So health and wealth can be measured relative to time.

Another measurement of health and wealth is recovery time. For example, if you go for a physical examination, the medical examiner may ask to take your resting heart rate and then put you on a treadmill to get your heart rate up. After attaining an elevated heart rate, the examiner then measures how fast it takes your body to recover to the resting heart rate. That is called recovery time. The same is true with surgery. If a person is healthy, the recovery time is short. If the person is physically weak, the recovery time may take longer.

Wealth can be measured in the same way, relative to time. If a person is a true investor with the proper education and experience, if they lose everything, their recovery time can be quick. But if a person is like the fifty-eight-year-old Enron employee on the front page of the “Money” section of USA Today, the financial recovery time may take longer than that person has years of work left. He may be healthy but his wealth is anemic.

Rich dad encouraged his son and me to learn to build businesses and be-come investors. That is why I went to sales training and learned about property. Today I make my money in business and store my money in real estate. Ever since 1994, I have been studying how to use stock options such as puts, calls, and other derivatives. There are several reasons why I study options and options trading. They are:

1. I have the financial stability to trade them. My businesses and my real estate allow me the luxury to learn the profession.

2. Trading options is fun and fast. I love the speed at which a trade can be executed. Building a business can take years. Buying a piece of real estate can take months. But trading options takes seconds.

3. I am preparing for the next market boom and bust. When the market goes up I will be using call options. When the market comes down I will be using put options. Earlier in this book I stated that most mutual fund in vestors were playing Russian roulette with a three-chambered gun with two chambers loaded. Options give me control over the ups and downs of the market. Mutual funds do not. That means during the next market crash, mil lions will be losing while options traders will be winning.

4. If I get wiped out, being skilled at options trading gives me a faster recovery time, if I am good at the profession. Of course, if I am not good, my recovery time could take longer.

Our Rich Dad's advisor on real estate, Dr. Dolf de Roos's wife, Renie Cavallari, a respected corporate strategist, says there are four kinds of people. They are:

Right after Renie mentioned these four different types of people, I immediately could place friends and family into each of the four categories. I would say Kim and I are definitely in the category that needs to win. One of the reasons we could retire young and retire rich is because winning was more important than any of the other three categories. By having the return on our money pick up speed we could retire far earlier than most people and win our private race to financial freedom . . . and financial freedom means having more free time.

As captain of your own ark, one of the ways you can increase the speed of your ark and gain more time is by investing some time in your financial education. Earlier in this book, I wrote about educating the middle mind. As captain of your ark, after you gain that education, it is still up to you to turn that middle mind education into higher mind wisdom. One of the more frustrating things about learning is investing the time to convert knowledge into wisdom. When I was struggling financially in the 1980s the hard part of life was knowing what to do mentally but not being able to do what I knew I had to do. The benefit of investing the time first into education and then into live practice is that a person begins to learn to love the game. For example, I did not like building a business when I was failing at it. Today, I love the process. When I was losing at investing in real estate, I hated real estate. Today I love the game of real estate and the properties Kim and I own. When investing in options, the frustration is often very high and profits are low, but I know I am making progress because I am learning to love the game.

As captain of your ark, I strongly urge you to learn to love your cargo. Today, I love my businesses, my real estate, and my options trading. I learned to love these assets and skills because I first invested time into educating my middle mind and then invested time in teaching my higher mind to love the assets.

A Little Education Means Less Time, Less Money, Less Risk, and a Higher Standard of Living

A friend of mind just told me that his 401(k) lost over $350,000 between 2000 and 2002. At fifty-three years old, he is now concerned that he can never retire. He realizes that diversification will not deliver the returns he wants or the long-term protection he needs. When he asked me for some advice, I said, “Why don't you take $30,000, buy three rental houses for $100,000 each, and let your tenants pay down your mortgage as well as give you income. By the time you're sixty-five, you should have a steady stream of income, if you have invested wisely.”

Nodding, I said, “Really all you need is $15,000 to buy three rental properties. The federal government has loan programs, if you qualify, that allow individuals to only put 5 percent down on certain properties.” “So are you saying I could retire with only $15,000? And the bank will lend me the rest?”

“I believe so,” I replied. “If market conditions remained the same, and I had five to ten years before retiring, I am quite certain that I could retire with only $15,000 invested.”

“What about people who live in expensive cities such as New York or San Francisco? Won't they find it hard finding inexpensive rental properties?” “In the heart of the city . . . yes, they would. But if you go an hour out of most cities, you can find affordable properties. All you have to do is find an area that is going up in value and over time your property should appreciate. If inflation hits, you can raise your rents. By the time you retire, those three houses should be paying you a steady income, a far more secure income than income from mutual funds.”

“That's correct,” I replied. “With a little education and experience, you can retire using less money, less risk, higher returns, and contribute to soci ety by providing much needed housing.”

“But what if everyone begins to invest in rental real estate?” he asked. “Then we help the government provide housing at lower prices and hopefully raise the standard of living of those who cannot afford to buy a house. If there is more supply, then rents come down. If there are more owners competing for tenants, then competition will improve the quality of housing.”

My reply was to quote Warren Buffett: “My time frame for holding a stock is forever.”

“Most of the time,” I said. “But every now and then I sell. I usually sell when I made a bad investment and I just want to get rid of it. But generally I follow Warren Buffett's idea of investing in what I love and holding on forever. I love the real estate and the businesses in my asset column.”

“No you don't,” I replied. “It's just like playing Monopoly. If you have four green houses you can then buy a red hotel. The government loves you, your banker loves you, and your future is more secure. One reason you feel more secure is because real estate can protect you from one of life's greatest fi nancial threats, which is the threat of inflation.

“By owning rental property, as inflation increases due to taxes, excess government spending, the government's printing of money, increasing costs of materials, rising interest rates, and the rising cost of insurance, those increases are passed on to the tenant. Mutual funds often lose value during periods of high inflation and high interest rates and a good prop-erty can increase in value during the same period. If you have purchased your real estate early enough and have a fixed interest rate, you have greater control over your investments as long as you do not invest in cities with rent control. As long as the rents are allowed to increase, inflation can actually be your friend. The same is true if you understand how stock op-tions work. If inflation goes up, and stock prices fall, you can make more money on the way down, while those in most mutual funds will be losing money and losing time.”

“So I have a lot more control,” said my friend. “By investing a little time, I gain more time, I take greater control over my assets, use less of my hard earned money, control my income for life, improve my returns, and lower my risk . . . all with a little education.”

One of the ways to gain more control of the time in your life is to invest some time in learning to create assets that return your money at a higher rate of speed. But just as a race car driver must increase their training if they want to handle higher speeds, so does an investor need to invest in their education if they want to handle investments that return more money in less time and at higher speeds.

Most of us know that education requires three steps and all three require an investment of time. The three steps are:

1. Invest some time finding the longand short-term reasons why you want to learn something. You may want to sit down and write down your goals and the reasons you want to achieve your goals. It is the reasons that get you energy to move forward.

2. Invest some time in learning the technical knowledge required to achieve your goals. For example, I still invest time going to classes on how to build businesses, invest in real estate, and how to trade options. The investment in technical knowledge saves me time because it gives me guidance, tells me what I must learn once class is over, and gives priceless insights from the instructor.

3. Invest some time learning via real-life trial and error. Right after your technical classes are over, it is important to go out and gain some of your own experience and wisdom. The reason I recommend starting small and using a small amount of money is simply because you will make mistakes. In the real world, humans learn by making mistakes. In traditional schools, humans are punished for making mistakes. That is why you may need to forget some of the bad habits school teaches you and go out and make mistakes and learn from them. The more wisdom you gain, the greater financial challenges you can take on.

If you follow this three-step process, you may find that your wealth goes up as your confidence and experience increase. When wealth and experi ence increase, you gain greater control over your future and expend less time getting richer.

To me, the great waste of time with pension reform was that it failed to en courage people to learn to manage their own money and their own investments. The plan basically said, “Turn your money over to people who are smarter than you are.” The problem is, you may notice that many of the peo ple you thought were financially smarter than you were not.

Warren Buffett says this about students coming out of our current MBA and finance programs:

“It has been helpful to me to have tens of thousands [of students] turned out of business schools taught that it didn't do any good to think.”

In other words, one the reasons he does well in the markets is because graduates of business schools run most of the large fund companies, but they are not good investors. To which he adds, “Current finance classes can help you do average.”

Simply put, the biggest problem with saving money and investing in mutual funds is that you do not gain much real-world investing experience. To me, that is a massive waste of time and money. Without real-world investing experience, it takes a lot of time, greater risk, tons of money, and constant financial insecurity all for a small financial return that may not be there when you need it. And as I stated earlier, if you're over forty-five years of age and have been wiped out or are just starting out, investing in a diversified DC pension plan will probably not work. In most cases, for a person over fortyfive, time is a real challenge.

So there are many ways to gain greater control over your time. One way is via education.

The reason richdad.com puts out different products in different formats is because people learn differently. For example, some people learn by reading, yet many others do not. Some people learn well in traditional schools, but unfortunately, traditional schools teach little about the game of investing. Some people learn by doing, which is why we have created games for people to learn by playing. And still others learn by attending intensive seminars, seminars that concentrate the learning process in a short period of time.

In addition to our regular products such as books, audiotapes and videotapes, and games, some of the live intensive seminars we offer have covered the following subjects:

Our courses are designed for people who are looking for real-world in vesting education, rather than getting an education for a college degree. Real-world investors teach our seminars, and they don't have the time to waste your time. There is too much money to be made and too much fun to have in the real world of business and investing. (If you want to stay abreast of our seminars, simply check in periodically with richdad.com and find out what seminars are being offered.)

Allen is an attorney and was a partner in one of the premier international law firms. The more successful he became the less time he had to spend with his family and friends. He was paid exceptionally well but his income was still based on the hours he physically invested in each project.

After reading Rich Dad Poor Dad and Rich Dad's CASHFLOW Quadrant, Allen realized he was a “Super S” on the left side of the CASHFLOW Quadrant. After practicing law for over twenty-five years and seeing an ever-increasing demand for his time from his clients, he knew he had to make a change. Even though Allen had accumulated a significant amount of wealth in savings, he realized the bulk of his time was still being spent making others rich.

Allen changed his association with the law firm so he could be more flexible in the way he did business with his clients. Now he can choose the clients he wants to work with and he has the ability to exchange services for equity. Instead of just working for an hourly rate, which would keep him in the S quadrant, he can now invest his time in exchange for ownership in the companies he advises and has shifted to the B quadrant. He is using his time to build equity for himself, an asset in the B quadrant of the CASHFLOW Quadrant.

While Allen had already filled his financial ark with paper assets through savings plans and 401(k) plans, his wealth was closely tied to the stock mar-ket and out of his direct control. He realized just how out of control he was when he saw the value of his paper assets decline significantly during 2001.

By changing control over how he spends his time, Allen is now building business assets and real estate over which he has more control to add stability to his financial ark and make it less susceptible to fluctuations in the stock market. He currently owns an equity interest in a number of different types of companies including an Internet marketing company, a medical imaging company, an environmental company, a gold company, and oil and gas companies. Some he has invested money in directly while with others he has exchanged his services for stock.

His financial statements now include all three asset categories: paper, businesses, and real estate. Through focusing on moving to the right side of the quadrant, Allen has succeeded in escaping the rat race while also build ing stability for his financial ark.