The latest addition to our Masters of Finance series is investor and entrepreneur Robert Kiyosaki.
While the author of numerous personal finance books including The Guide to Investing and Cash Flow Quadrant, Mr. Kiyosaki is best known for his bestseller, Rich Dad Poor Dad, which chronicles his childhood in Hawaii.
He has parlayed the exposure gained from that book into a financial and marketing empire.
Rich Dad Poor Dad
The theme of the book centers on personal financial advice, the lessons taught through personal memories of his biological father (the ‘Poor Dad’) and his best friend’s Dad (Rich Dad).
In a nutshell, he reveals that his real father, a highly educated school administrator, was actually quite “poor”, living paycheck to paycheck and homeless at one point.
Conversely, his best friend’s father, who gave Robert a ‘job’ when he was a kid, never completed his formal education but became very rich running his own company.
Kiyosaki expands on this conundrum in his book titled “Why ‘A’ Students Work for ‘C’ Students.”
Investing Philosophy of Robert Kiyosaki
Kiyosaki has a very different take on personal finance-‘don’t work for money, have money work for you’. He teaches achieving financial freedom or as he puts it, ‘getting out of the rat race’. In its simplest form, the strategy is to generate enough cash flow (passive and portfolio) from your assets/investments to cover personal expenses.
You’ll note this cash flow management plan is in stark contrast to most Americans who make more money (ordinary income) and acquire larger expenses (bigger house, more income taxes, higher credit card balances and expensive cars, enabled by the insatiable appetite for asset backed securities. The more your spending and lifestyle escalates, the longer you are shackled to your job.
He also urges investors to “Mind Their Own Business”, meaning it’s necessary to use the tax advantages of some type of corporate structure such as an LLC or S-Corp. He believes that to obtain financial freedom, you need to think like a business owner, not an employee.
Robert Kiyosaki is also a major proponent of utilizing alternative investments. In fact, he eschews so-called “paper assets” (cash, stock and bond certificates, real estate investment trusts, hedge funds, etc.) in favor of real, tangible assets such as real estate properties, tax lien certificates, commodities, royalty streams, water [rights] and profitable businesses.
But he won’t buy these investments when the general investing public does. Robert Kiyosaki often participated in private placements- direct, highly illiquid investments available to institutional investors or accredited individual investors.
These are highly speculative investments, often in the oil and gas industry, and may not be suitable for a number of investors-even accredited ones. Kiyosaki even says he has taken a gold mine public through an initial public offering, or IPO, to learn the process.
Kim Kiyosaki: Robert’s Better Half
While Robert is the most recognizable Kiyosaki, his wife Kim is an integral part of the team. With a strong background in real estate investing she offers her own skill sets to readers.
Ms. Kiyosaki has also become an advocate of financial education for women. This is one reason why she wrote her own book, Rich Woman, which teaches women about finance and investing in a largely male-dominated industry.1 She also challenges traditional concepts including men making investment decisions for the household.
We must point out that some remain skeptical of Kiyosaki’s methods and claims. Controversy is not uncommon among members of our Masters of Finance series. Critics claim that Kiyosaki’s strategy, which promotes the use of substantial leverage, is much riskier than advertised. Given the amount of leverage involved in real estate deals (Kiyosaki’s bread and butter) a downturn in credit conditions can be devastating.
Kiyosaki is generally in favor of using debt to purchase income producing assets not liabilities. Still, Kiyosaki calls this good debt rather than bad debt since these investments put money into your pocket. Bad debt would be taking out a loan for a sports car. He doesn’t think these luxuries must be avoided, just paid for through a positive cash flow.
The American Dream is measured by home ownership for millions of people. So it’s not surprising that many vehemently oppose Kiyosaki’s notion that a house is a liability, not an asset. He believes a house is an asset when it is an investment property that is generating a positive cash flow.
He cites people he’s known who bought houses at the tops of recent housing spikes, late 1990’s, mid 2000’s and are still underwater. So, if there is no price appreciation and a negative cash flow from the mortgage, taxes, insurance and maintenance costs it is a liability-plain and simple.
Despite the critics, the success of ‘Rich Dad Poor Dad’ vaulted Kiyosaki into stardom, allowing him to expand his brand into various areas. In addition to the book series, he created the board games CashFlow 101 and CashFlow Classic (also playable in online versions) and offers a variety of seminars and webinars on topics including options trading, niche real estate investing and even foreclosure information.
There is also the Rich Dad radio show and business coaching services. Finally, Mr. Kiyosaki also enjoys joint business ventures including the co-authoring of the book, The Midas Touch with now-President Donald Trump.
MBA in Entrepreneurship
If creating a financial empire of your own is a dream you want to chase, consider an MBA in Entrepreneurship. An increasing number of business schools are adding the entrepreneurship concentration to complement traditional MBA programs. They include prestigious names such as Carnegie Mellon, Johns Hopkins and Vanderbilt University.
Many of these programs entail group projects where students explore mock ventures. Some of these group projects end up as real world enterprises. For example, a student group project at the University of Pennsylvania led to led to the formation of CareerCup, a startup that preps computer programmers for interviews with technology companies.2 The founder used the entrepreneurship classes to vet ideas, create pricing strategies and make valuable contacts.3
In some programs, you may even be able to raise capital. Carnegie Melon and Vanderbilt University are among schools that provide seed financing to promising student-led ventures.4 Stanford University was one of the first institutions to realize the talent in many of its own students. During the tech boom, they funded a number of successful companies, perhaps the most famous being Sun Microsystems (‘SUN’ is an acronym for Stanford University Networks).
Some feel you can’t learn to be an entrepreneur from a school. We understand the logic but disagree. While a select few left school early to pursue their dreams and hit home runs (Bill Gates, Mark Zuckerburg) most do not. We believe the vast majority of aspiring entrepreneurs can benefit from a university’s resources.
Even if you aren’t sure you want to start your own business, the knowledge obtained in an entrepreneur program translates well if want to work for a venture capital firm or in consulting. And if an MBA isn’t for you, consider a seminar from Rich Dad’s education program!