The New 8 Rules of Money by Robert Kiyosaki

Rule #1 Money is knowledge.

Today, traditional assets do not make you rich or financially secure. You can lose money on businesses, real estate, stocks, bonds, commodities, and even gold. Knowledge makes you rich and a lack of knowledge makes you poor. In this brave new world, it is your knowledge that is the new money.

Rule #2 Learn how to use debt

After 1971, the U.S. dollar switched from being an asset to being a liability—debt. Debt exploded because the banks could create more money by creating more debt. Our current subprime mess was caused by subprime borrowers and subprime banks. Obviously, both

the poor and the rich need to learn to use debt better.

Debt is not bad. Misuse of debt is bad. Debt can make you rich, and debt can make you poor. If you want to get ahead financially, you need to learn to use debt, not abuse it.

Rule #3 Learn to control cash flow

After the dollar became debt, the name of the game was getting you and me into debt. When you are in debt, your cash flows from you to others.

Today, many people are in financial trouble because they have too much cash flowing out of their pockets and very little money flowing into their pockets. If you are going to be financially secure, you need to learn to have more cash flowing into your pockets.

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Rule #4 Prepare for bad times and you will only know good times.

The last depression made my rich dad very rich and made my poor dad very poor. One dad saw the depression as an opportunity, and the other saw it as a crisis.

My generation, the baby boomers, has only known good times. Many are not prepared for the bad times. I am doing well today because I began preparing for bad times over twenty years ago. By preparing for bad times, I do well in good times.

Rule #5 The Need for Speed

Today, one reason why we have people making billions and others still working for $7 an hour is a difference in speed. Today, the faster a person can transact business, the more money he or she will make.

For example, a typical medical doctor can see one patient at a time. A high school kid with a global web business, transacting business to unlimited customers 24/7, can potentially earn much, much more than a medical doctor. The difference, is that one type of work is metaphysical (web business) and the other is physical (medical doctor). One type of work creates wealth exponentially; the other creates wealth linearly.

Many people are financially struggling today because they are simply too slow—they cannot make money faster than the banks are printing it. When it comes to financial transactions, most people are still in the Stone Age, getting paid by the hour, by the month, or per transaction, working for commissions, as is the case with real estate agents or stockbrokers.

Those who will succeed in the future will be entrepreneurs who understand how quickly business and money are changing, and who have the ability and flexibility to quickly change and adapt.

Money evolved from barter to digital money as the world’s financial system picked up speed. Today, slow people are left behind. A well-positioned person can transact business 24/7.

Rather than making money by the month, people can make money by the second.

Rule #6 Learn the Language of Money

In Sunday school, I was taught the phrase “And the word became flesh.” In other words, you become your words.

In 1903, when I believe the conspirators took over our school system, they took away the language of money and replaced it with the language of schoolteachers, words such as algebra and calculus, words rarely used in the real world. The main reason 90 percent of the population struggle financially is

because they were never taught the language of money.

Life is an attitude. If you want to change your life, first change your words, which will in turn change your attitude.

WORDS OF A RICH PERSON

Just like the poor and the middle class, the rich have words that set them apart.

1. “I’m looking for good employees to work for me.”

2. “I’m looking for a cash-flowing hundred-unit apartment house to buy.”

3. “My exit strategy is to take my company public via an IPO.”

Power of Derivative

Example #1 - Real Estates

For example, I borrow $1 million at 10 percent and buy an apartment

complex. I follow the first new rule of money: Money is knowledge, and I apply

my knowledge to get my tenants to pay me at least 20 percent for the $1 million

I borrowed at 10 percent interest.

In this overly simplified example, I make $200,000 a year off the $1 million

I borrowed, and pay the bank $100,000 per year on that $1 million—that’s a net

profit of $100,000 for me. In this example, the moment I have the tenant sign a

lease agreement, I have created a derivative of my apartment complex that gives

the tenant the right to live there according to my rules for an agreed-upon price.

Example #2 - Books

Also, once I understood the power of the word derivative, I could move into

areas other than real estate. For example, this book is a derivative. To increase

the potency of this book, I asked my attorney to create a license for this book. A

license is a derivative of this book, and the book is a derivative of me. I then sell

the license to print this book to over fifty publishers throughout the world. The

publishers then take the license they bought from me, and they print books,

another derivative, and ship them to bookstores in their country. Once a quarter, I

receive royalty payments from these fifty publishers. The royalty payments are

derivatives of the books, the books are derivatives of the license, the license is a

derivative of this book, and this book is a derivative of me. Most authors think in

terms of books; I think in terms of derivatives.

Rule #7 Life Is a Team Sport. Choose Your Team Carefully.

To protect yourself, start putting your financial team together and begin building or reinforcing your financial house of bricks using the B-I Triangle as your blueprint.

Rule #8 Since Money Is Becoming Worth-less and Less, Learn to Print Your Own

Starting at the age of nine, my rich dad gave me one of the best of gifts, the gift of a financial education. New Rule of Money #8 links all the way back to New Rule of Money #1: Money is knowledge. Given the financial crisis we are in today, and with money becoming worth-less and less, a person with a financial education has an unfair advantage over those with a traditional education.

Today, the world is in a crisis of financial ignorance and incompetence.

Since it is the lack of financial education that got us into this crisis, it is financial education that can

lead us out.

As you know, our leaders are using the same thinking that created our financial problems to solve them. Rather than expect them to change, I think it is best that you and I change, just as Colonel Sanders changed. We can change ourselves by changing the way we think and what we study.

To me, our education system’s biggest problem is that it teaches kids not to make mistakes. If children do make mistakes, the system punishes them rather than teaching them to learn from their mistakes. An intelligent person knows that we learn by making mistakes. We learn to ride a bicycle by falling off the bike and climbing back on. We learn to swim by jumping in the water. How can people learn about money if they are afraid of making mistakes?

Minimizing Risk

Building a business and investing is not necessarily risky. Being financially uneducated is risky. Therefore, the first and best step to minimize risk is education.

The second step is to hedge your investments. Professional investors invest with insurance.

For example, when I invest in the stock market, I can buy insurance, such as a put option.

For my real estate investments, I have insurance against losses to fire, floods,

and other natural disasters. Another bonus of owning real estate is that the rent

my tenants pay me covers the cost of the insurance. If my property burns down, I

do not lose money, because I have insurance to cover my losses.

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