Real Estate Investor Magazine South Africa Real Estate Investor Magazine - November 2017 | Page 62

COACHING
Six Basic Rules
of Investing
How to put your extra
money to work for you
BY ROBERT KIYOSAKI
O
ne of the things I love most about my work is seeing
people move from the left side of the cashflow quadrant
to the right side of the quadrant.
The process of moving from being an employee or self-em-
ployed to a business owner or sophisticated investor is a bit like
that of a caterpillar turning into a beautiful butterfly. It takes
time, and often requires a total transformation in mindset and
behaviour.
One of these behaviour changes is understanding what to do
when you have more money suddenly at your disposal. Whether
it’s from an inheritance, a raise or bonus, or some other source,
the temptation for those on the left side of the quadrant can be
to, at best, follow conventional advice about money, or, at worse,
to spend it on liabilities like cars or vacations.
Such conventional advice could be to increase your contribu-
tions to your 401(k) or to continue to live below your means. I’ve
written a lot about both these topics, and it should come as no
surprise that I don’t condone either of them.
If you’re facing a windfall in new money, now is the per-
fect time to put into place the rich dad fundamental: invest in
cash-flowing assets.
But in order to do that, you need to understand some basic
rules of investing. Here are six of them to master, taught to me
by my rich dad.
Basic investing rule #1: Know what kind of income you’re
working for
Most people think only of making money. They don’t realize
that there are different kinds of money to work for. For years,
rich dad drilled into me that there are three kinds of income:
Ordinary earned income: Generally earned from a job via a
paycheck.
Portfolio income: Generally derived from paper assets such
as stocks, bonds, and mutual funds.
Passive income: Generally derived from real estate, royalties,
and distributions.
Rich dad said, “If you want to be rich, work for passive in-
come.”
Basic investing rule #2: Convert ordinary income into pas-
sive income
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NOVEMBER 2017 SA Real Estate Investor Magazine
Most people start their life out by making ordinary earned
income as an employee. The path to building wealth then starts
with understanding that there are other types of income and
then converting your earned income into the other types of in-
come as efficiently as possible.
Basic investing rule #3: The investor is the asset or liability
Many people think investing is risky. The reality, however, is
that it’s the investor who is risky. The investor is the asset or
liability.
If you want to move from being a risky investor to a good
investor, first invest in your financial education. As part of your
education—because nothing beats real-life experience—start
small with your investments, learn from your mistakes, and then
make bigger and bigger investments.
Basic investing rule #4: Be prepared
Most people try to predict what and when things will hap-
pen. But a true investor is prepared for anything to happen. “If
you are not prepared with education, experience, or extra cash, a
good opportunity will pass you by,” said rich dad.
Basic investing rule #5: Good deals attract money
One of my big concerns as a beginning investor was how I
would raise money if I found a good deal. Rich dad reminded
me that my job was to stay focused on the opportunities in front
of me, to be prepared.
To get the money is the easy part. The hard part is finding
a great deal that attracted the money—which is why so many
people are ready to give money to a good investor. I call this
OPM, a.k.a., Other People’s Money, and it’s worth learning
more about.
Basic investing rule #6: Learn to evaluate risk and reward
As you become a successful investor, you must learn to eval-
uate risk and reward.
Learning and mastering the rules of investing takes a life-
long investment in financial education. But these basics will get
you started. Where you go from here is up to you.
SOURCE
RichDad