Out of the 'Rat Race'

Out of the 'Rat Race'

Sun.Star Davao, March 1, 2008

During the course of my conversation with fellow Sun.Star Davao columnist Dot Bangayanover dinner, she found out that my six-year old daughter Anicka reads the comics version of "Rich Dad Poor Dad" entitled "Escape from the Rat Race".

Intrigued, she started asking Anicka about the meaning of assets, liabilities and doodads.

"Assets is this and this and this", Anicka explained as she pointed to the restaurant's chairs, tables, etc.

"It's something you make money out of or when you have land and you can build a house", my daughter continues.

Dot was amazed! She says "Anicka kinda lost me on her lengthy explanation of liabilities and doodads but she definitely hit the nail on the head. Don't you learn those stuff in college?".

As much as I would like to take credit for Anicka's early exposure on financial matters, it's actually my husband Gary who is responsible for our daughter's keen interest in business.

For today's issue, I invited Gary to write about valuable money lessons from one of his favorite books, "Rich Dad Poor Dad". It is my hope that you and your family will be enlightened by the book's awe-inspiring financial lessons.

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"Rich Dad Poor Dad" was co-written by Robert Kiyosaki, the Japanese-American bestselling author and co-founder of the Rich Dad Company, the same company which also publishes the Rich Dad series of self-help books on personal finance.

It was written in 1997 and to this date remains as one of New York Times' bestselling books. In fact, the demand for copies was so high that several reprints had to be made and in several languages.

Despite growing up in an educated family, Robert was an average student who struggled through school, had bad grades and even had a teacher telling him that he will never succeed in anything.

However, against all odds, Robert became a successful businessman, retired at an early age and started another company teaching finance with lessons learned from his 'two' dads. Robert also writes for Yahoo Finance as part of their "Rock Stars of Finance" features.

Rich Dad Poor Dad

In the book, Robert tells an intimate story of his two dads, his real father, the one he refers to as 'Poor Dad' and his mentor, a person he considers his 'Rich Dad'.

Poor Dad was a caring and brilliant man, who had a postgraduate degree, became a teacher for many years and eventually headed all of the public schools in Hawaii.

In an unexpected twist, Poor Dad was caught in a political struggle for his progressive reform policies which ran head on against the antiquated policies of his colleagues in the government. This ended his career. Out of work, he ventured into business on his own but, due to lack of business experience, made several bad investment decisions, lost all his money and died a poor and broken man.

On the other hand, Rich Dad who was the father of Robert's best friend Mike, was one of the richest men in Hawaii, owning a big chain of grocery shops, commercial franchises as well as several prime real estate.

Rich Dad grew up in a poor family with regular parents who were just ordinary folks. He taught himself how to start, maintain and sell businesses. He died a very rich man who was endeared to many for his donations of millions of dollars to charity. Robert, starting at the age of 9, learned from Rich Dad the secrets of becoming rich and how to avoid his Poor Dad's mistakes.

Learn to be rich

A young Robert started his lessons by asking Rich Dad for lessons on how to be rich. Rich Dad's first lesson was to work for free.

This lesson struck so hard inside the mind of young Robert that the boy called Rich Dad a selfish person like all rich people and threatened to report child exploitation to labor authorities.

Rich Dad explained that working for money is not the way to become rich. Working for the experience and learning the business were the real lessons. The common mistake of the poor is that they think rich people are selfish and that having plenty of money is evil. For Rich Dad, being a slave to money is the true evil.

People who just work for money are slaves to money and are the real selfish people. They are in the so-called 'Rat Race' running in circles inside a wheel and trapped in a cage. They keep going after the paycheck until they become exhausted and still with no real end to their problems in sight.

What is more unfortunate is that they refuse to expand their knowledge but pass their limited ideas to their children who would also grow up thinking like their poor parents.
Robert believes that while it is good to save money, it is better to invest them and earn more money.

What divides the rich from the poor and the middle class is that the rich look at risks as opportunities whereas the poor and middle class scare themselves out of it. Rich people believe in calculated risks. The poor and middle class resort to gambling risks by betting on horses and in casinos.

Robert also warns against 'Do-It-Yourself' type of businesses, a common mistake of the poor and the middle class.

For him, it is not even a business but another job as the system is the owner himself (hence, still a 'Rat Race' but in a different 'cage'). He encourages these businesses to innovate and strive to become full term businesses with systems in place to run on itself.

A D-I-Y business limits the owners from having time to go after other opportunities. Without the systems, most owners end up closing shop mainly due to sheer exhaustion. For Robert, the rich create and own systems and employ others to manage the system.

Master of your universe

For professionals, Robert encourages them to study finance and to strive to become businessmen and/or investors. Being a lawyer by profession, I was astounded to learn that by remaining in my profession and without investing in businesses, I can be risking my retirement.

For Robert, without planning for an alternative source of income (ergo, businesses and investments), we are just 'one professional accident' away from becoming poor. I took this lesson hard and decided that, to continue in this profession, I had to plan ahead to enjoy a meaningful retirement and advise others to do so as well.

As to assets, Robert cringes every time somebody mentions that a house is an asset. A house, with which a mortgage was taken to build it, is actually a liability. Mortgage is taken from the Latin word 'mortia', which means 'until death'. Without other sources to pay for the amortization, a mortgage periodically paid only with paychecks can financially cripple a person for life.

For businessmen and investors, he suggests taking advantage of the power of leverage. Use other people's money, time and knowledge to create serious leverage and momentum to propel these businesses and investments to a higher level.

Robert advises strongly on teams and teamwork. He believes that with the right team and the right mentors on the team, a business succeeds even before it starts. Robert even went further as to warn that if you are the brightest in your group then you are in trouble.

According to Robert, the rich prefer assets which produce passive income (or income not from sweat). They know that tax laws are favorable to passive income. This is evident in government tax incentive policies for investors who contribute to its housing programs as well as to investors in securities and foreign currencies...remember the call for "Mag impok sa bangko" or "Pabahay para sa mahihirap"?

Passing on the lessons

I am passing on the lessons to my daughter Anicka. We play Robert's board game 'Cashflow 101'which integrates all the lessons in a fun and visual manner. On the way to school everyday, we talk about assets, liabilities and paychecks.

Lately, to emphasize on ownership of real estate as a form of business, we have been playing a "Spot the For Sale/For Rent" game where the winner is the one who spots the most sign on the way to school. The funny thing with all of these is that she understands everything and she is just 6 years old.

For the parents, I suggest that you can also educate your children the way Robert does in his Cashflow game, by using easy metaphors such as 'Big Deals'/'Small Deals' which refer to assets, and 'Doodads' which refer to highly depreciable assets/liabilities or expenses. You can teach your kids to spot doodads on TV, especially during commercials.

You can also teach them Monopoly, a similar board game which is locally available. This is the same game that Rich Dad taught and played with Robert as he was growing up. 

Emphasize on the need to continuously create assets. Without sounding cliché, make the lessons simple and interesting.

Getting out of the 'Rat Race'

I took a leap of faith by leaving employment with a big law firm and diving straight into business. After setting up shop, I returned to my profession and was involved in creating a law partnership.

For both endeavors, I emphasized on teamwork and the power of leverage. For one, I encouraged my law partners that we form a law partnership rather than practicing separately.

Aside from the legal advantages of the setup, it gave me time to continue building systems for CD-R Plus, a computer accessories store at Victoria Plaza, and yes, owned by a corporation which I and my brothers teamed up to run. Again, this is another entity created for its legal benefits.

I am still self-employed at present but I intend to be out of the 'Rat Race' eventually. I encourage you to do the same.

Never stop learning, and, in the process, help others learn too. I bid you well in your escape from the 'Rat Race'.