Wednesday, October 17, 2012

Book Review: Unfair Advantage

     A friend recently suggested that I read Unfair Advantage: The power of financial education, by Robert Kiyosaki of RichDad.com, author of NY-Times best-selling Rich Dad, Poor Dad.  The book is 176 pages long, and the Kindle version can be purchased for only $9.85.  I found the book very thought-provoking, challenging many of the most commonly held beliefs of our time.  My only complaints are a few typing errors and a few mild slang expressions the book would have been better without.  The book was well worth its price, and I would definitely recommend it.  

Information Age v. Industrial Age
Kiyosaki claims that the Industrial Age ended with the birth of the world wide web ,and the Information Age has begun.  For those still clinging to outdated Industrial Age ideas about going to school, job security, steady paychecks, early retirement, saving money, assets & liabilities, and government support, Kiyosaki predicts the next few years will be the worst of times.  If you want to be free, he says, it is necessary to let go of old ideas.  "For those who are financially educated, prepared, flexible, and adaptable, the next 10 years will be the best of times.  For those who are waiting for the happy days of the past to return, the next 10 years will be the worst of times."  In the Information Age, Kiyosaki says financial education (not training)  is essential.

Assets v. Liabilities
Kiyosaki's definition of assets and liablities is quite different than anything we learned in accounting class.  To him, anything that brings cashflow in is an asset and anything that sends cashflow out is a liability.    For example, he considers his house a liability because he has to pay taxes and insurance on it and pay for its upkeep (cash flows out).  He considers the apartment building he owns and rents to tenants an asset because after all the expenses are paid he has a net income from the rent he is paid (cash flows in).  "Assets put money in your pocket, and liabilities take money from your pocket."

Saving Money
Saving money, according to Kiyosaki, is a bad idea.  Why? because since the United States went off the gold standard during Nixon's presidency, money hasn't been real money.  Why save money when the government is always printing more?  Kiyosaki believes higher taxes and inflation are coming, and the U.S. dollar could even collapse.  Since 1971, he says, the dollar has lost 95% of its purchasing power, and it won't take 40 years to lose the remaining 5%.  Instead of saving paper, he recommends that those who have a limited financial education save real money (gold and silver).  "If our leaders do a good job, gold and silver will decline in value.  If our leaders are incompetent, gold and silver will go through the roof" (Take your bet :P).  For the financially sophisticated, he recommends using debt to acquire "assets."  He also recommends investing money for cash-flow.

Investing
"Nothing is a good investment if you are a bad investor," Kiyosaki says.  First of all, he believes sending money to others to invest for you (in mutual funds, etc.) is a bad idea.  He believes 401k's are a very bad choice.  "Mindlessly sending your money to complete strangers is not the end result of good financial education.  It is the end result of dog training." Cash flow is the most important word when it comes to investing.  "Cash is always flowing.  It is either flowing in, or it is flowing out.  True financial education trains you to have cash flow in."  He invests primarily for cash flow, not capital gains; and he likens investing mainly for capital gains to gambling.  "We invest in investments that require people to send us money, good economy or bad," he claims.  For example, people always have to have a place to live, so he invests in apartments, and his tenants send him rent whether the economy is up or down.  People always need gas for their cars, so he invests in drilling.  His focus is on acquiring assets that will work for him, so people will always be sending him money.  He also believes in having a diversified portfolio.  But the typical "diversified portfolio" is what he calls a "de-worsified  portfolio" because most so-called diversified portfolios only contain a variety of paper assets--so they are "less worse" but not diverse.  For him, a real diversified portfolio has investments in different asset classes--real estate, businesses, paper assets, and commodities.  This book contains advice on reducing risk in various investments.   

Education
"The real financial crisis is a crises of an educational system that is old, obsolete, and out of touch with the real world," Kiyosaki asserts, "One of our biggest problems is an antiquated educational system that hangs on to the past and cannot see the future.  It's an obsolete system that insists on preparing students for a world that is dead and dying."  Traditional education teaches people to become employees and small business owners.  These students will work hardest and pay the most taxes (if they are able to find jobs at all).  Kiyosaki says schools change too slowly while the world changes too fast and claims that to solve the financial crisis, more true capitalists are needed.  To become a big business owner or investor, it's best to have instructors from these quads.   What he considers most important in an education is the skills learned, who the teachers are, and how the education prepares a person for the real business world.  He goes to seminars and lectures, hires coaches, learns from his mistakes, and believes financial education is essential, especially for the uncertainty of the world ahead.  ROI for Kiyosaki stand for a Return on Information.  "This means the more information I have, the higher my returns--and the lower my risk."  He claims that life-long learning, and good teachers, coaches and friends are the key to success.  

Financial Freedom
     Kim Kiyosaki, Robert's wife, writes in his book that "Shifting [her] focus to acquiring assets took the attention off me working forever for my money, and put it on [her] money working forever to make money." Every year they set their goals...they were looking for financial freedom.  "Financial freedom to Robert and me was not amassing millions of dollars in savings on which to live.  It was simply to have the cash-flow coming in every month from our investments, whether we worked or not," she wrote.  She said they were always learning.  They achieved their goals and financial freedom, and went from being homeless, in bad debt, and living in a friend's basement, to being multi-millionaires.  


A Motivational Book
"Your brain is your greatest asset.  Your brain can also be your greatest liablility," Robert Kiyosaki says  .  Kiyosaki forecasts a coming financial storm/crisis and a "crash of nations".  He gives advice for the reader, depending on where they are in life, and urges the reader to "Learn more so you can do more.  Focus on doing more with less, and enriching the lives of others.  Your job is to use your unfair advantages to put the power of financial education to work in your life.  First change yourself.  Then change the world."

So, that's my summation of Unfair Advantage's 176 pages.  If you, like me, are pondering whether some of his ideas are good or bad, practical or impractical, it's time for you to start reading.  Kiyosaki expresses his ideas cleverly and keeps the book alive with stories from his own experiences.  He also had his wife and a few experts on taxes and investing write segments of the book.  Most importantly, Kiyosaki keeps the reader engaged and thinking about what improvements he/she can make in his/her own life.  If you're up to some unconventional and surprising reading which may challenge you to look twice at some of your own beliefs, this book is for you!



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