the_cashflow_quadrant

4bg that same passion and creating my own system. That is why I was homeless. My passion was to create an educational system that taught people fferently.

When my educated dad learned that Kim and I were struggling financially, g our best to set up our own educational system, he sent us those quotes. bled across the top of the page of the quotes were these words:

'Keep going." Love, Dad,

Up until that moment, I never knew how much my educated dad had hted the system and what it did to young people. But after this gesture of Mcouragement, things began to make sense. The passion that was driving me ~hen was the same passion that had driven him years earlier. I was just

like my f

'me, dad, and I had unwittingly picked up the torch from him. I was a teacher at

The CASHFLOW Quadrant

the core... maybe that is why I hated the system so much.

In hindsight, I had become both dads. From my rich dad, I had learned the secrets of being a capitalist. From my highly educated dad, I inherited the pasFion V

for teaching, And given the combination of the two dads, I could now do something about the educational system. I did not have the desire or ability to

change the current system. But I did have the knowledge to create my own system.

THE YEARS OF TRAINING BEGIN TO PAY OFJ

For years, my rich dad groomed me to be a person who created

and business systems. The business I set up, in 1977, was a manufac company. We were one of the first companies to produce the nylon "surfer wallets" that came in bright colors. We followed that produc pocket"- a miniature wallet, also made of nylon and velcro, that attac

shoe laces of running shoes. In 1978, jogging was the new craze, and joggers always wanted a place to put their keys, and to carry money or ID

world.

they got hurt. That is why I designed the "shoe pocket" and marketed it to tlie'~ r

I (

Our meteoric success was phenomenal, but soon the passion for the product S

line and the business drifted away. It began to weaken once my little compan I C

began to be pounded by foreign competition. Countries like Taiwan, Korea Hong Kong were shipping products identical to mine and were wiping out markets we had developed. Their prices were so low that there was no way4W could compete. They were retailing products for less than it cost us to maniif,,ina

them.

Our little company was faced with a dilemma: fight them or join them. N, partners realized we could not fight the competition. The companies floodin

~c

market with cheap products were too strong. A vote was taken, and we d , j join them.

The tragedy was, in order to stay afloat, we had to let go of most of our faithful and hard-working staff. That broke my heart. When I went over to i

the new factories we contracted with for our manufacturing in Korea and Ta again my soul died a little. The conditions these young workers were forced to

a

th

work in were cruel and inhumane. I saw five workers stacked one on top -of th

other, in a space where we would only allow one worker. My conscience be

Af~Qkvtj,mt Not 43a~ ~at tftewolkels,%t %co ~A Nmetkca) but Cor workers overseas who were now working for us.

Although we had solved the financial problem

128

The CASHFLOW Quadrant

t assion

.to

lcro

he "shoe the

rs

ca s e the

product any

a and ut the ay we

nufacture

rn. The ding the decided to

our

to inspect d Taiwan, rced to op of the

ce began to r the

on and

began to make a lot of money, my heart was no longer in the business... and the

business began to sag. Its spirit was gone because my spirit was gone. I no longer

wanted to become rich if it meant exploiting so many low-paid workers. I began to

&ink about educating people to be owners of businesses, not employees of business. At the age of 32, 1 was beginning to become a teacher, but didn't realize

it at the time. The business began to decline not due to a lack of systems but

because of a lack of heart, or passion. By the time Kim and I started out on our

new business venture, the wallet company was gone.

DOWNSIZING COMING

In 1983, 1 was invited to give a talk to the MBA class at the University of

Hawaii. I gave them my views on job security. They did not like what I said: "In a

few years, many of you will lose your jobs, or be forced to work for less and less

money, with less and less security."

Because my work caused me to travel the world, I witnessed firsthand the power of cheap labor and innovations from technology. I began to realize that a worker in Asia or Europe or Russia or South America was really

competing with workers in America. I knew the idea of high pay and a safe, secure job for workers and middle managers was an idea whose time had past. Big

,companies would soon have to make cuts, both in the numbers of people and in

~e dollars they paid to workers, just to be able to compete globally.

I was never asked back to the University of Hawaii. A few years later, the word "downsizing" became standard practice. Every time a big company merged,

and workers became redundant, downsizing occurred. Every time the owners wanted to make their shareholders happy, a downsizing occurred. With each downsizing, I saw the people at the top get richer and richer, and the

people at the

boqorn pay the price.

Every time I heard someone say, "I'm sending my child to a good school

so he

or she can get a good safe, secure job," I cringed. Being prepared for a job is a

good idea for the short term, but it is not enough for the long term. Slowly but

surely, I was becoming a teacher.

BUILD A SYSTEM AROUND YOUR PASSION

Although my manufacturing company had turned around and was doing

well

again, my passion was gone. My rich dad surnmed up my frustration when he said:

'School days are over. It's time to build a system around your heart. Build a system

amund your passion. Let the manufacturing company go and build what you know ~~ou must build. You have learned well from me, but you are still your

father's son.

The CASHFLOW Quadrant

You and your dad are teachers deep in your souls."

Kim and I packed up everything and moved to California to learn new teaching methods, so we could create a business around those methods. Bef

could get the business off the ground, we ran out of money and were out on street. It was that phone call to my rich dad, my wife standing by me, anger at

myself, and a rekindling of the passion, that got us out of the mess we were in.

Soon we were back at building a company. The company was an

educabonal

company using teaching methods almost exactly opposite of what traditional schools use. Instead of asking students to sit still, we encouraged them to

be

active. Instead of teaching via lecture, we taught by playing games. Instead of

being boring, we insisted our teachers be fun. Instead of teachers, we sought out

business people who had actually started their own companies, and taught our style of teaching. Instead of grading the students, the students graded the teacher

If the teacher got a lousy grade, the teacher was either put through another intensive training program, or asked to leave.

Age, educational background, sex and religious beliefs were not criteria. we asked for was a sincere desire to learn and to learn quickly. We were

eventually able to teach a year's worth of accounting in one day.

Although we mainly taught adults, we had many young people, some 16

ye

old, learning right alongside highly paid, well-educated 60 year old business

Then, we had the team taking a test competing against other teams taking e same test. Instead of striving for grades, we bet money. Winner take all. The

competition and desire to do well as a team was fierce. The teacher did not ha

to motivate the class. The teacher just had to get out of the way once the lea

competition was on. Instead of quiet at test time, there was yelling, creaming

laughter and tears. People were excited about learning. They were turned on learning... and they wanted to learn more.

We focused on teaching just two subjects: entrepreneurship and investing, "B" and "I" side of the Quadrant The people who wanted to learn these subje

in our style of education showed up in droves, We did no advertising. Everythi

spread by word of mouth. The people who showed up were people who wanted to create jobs, not people looking for jobs.

Once I made up my mind not to quit that night at the phone booth,

executives. Instead of competing on tests, we asked them to

cooperate on tea

began to move forward. In less than five years, we had a multimillion-dollar usiness with 11 offices throughout the world. We had built a new system of

education, and the market loved it. Our passion had made it happen, because passion and a good system overcame fear and past programming.

130

A TEACHER CAN BE RICH

ne CASHFLOW Quadrant

Whenever I hear teachers say they are not paid enough, I feel for them. The 'ore w~ itony is that they are a product of their own system's programming. They look at

being a teacher from the point of view of the "E" quadrant rather than the

"B" or

conditioning.

acher.

the

at

Many of us came from families where the emotion of fear was used as a prime motivator to get us to think and act in a certain way. For example:

a. All "Did you do your homework? If you don't do your homework, you'll flunk out

of school and all your friends will laugh at you."

"If you keep making faces, your face will get stuck in that position."

16 years ss teams. the

he

t have

learning ing,

d on" by

ting. The subjects erything wanted

And the classic, "if you don't get good grades, you won't get a safe,

secure job with benefits."

Well, today many people have gotten good grades, but there are fewer safe, secure jobs and even fewer with benefits, like retirement plans. So many people,

even those with good grades, need to "mind their own business" and not just look

for a job where they will mind someone else's business.

IrS RISKY ON THE LEFT SIDE

I know many friends who still seek security in a job or a position. Ironically,

~e march of technology continues moving at an even faster pace. To keep up in

~e job market, each person will need to constantly be trained in the latest technology. If you're going to be re-educated anyway, why not spend some time

educating yourself on the skills needed for the right side of the Quadrant? If

people could see what I see when I travel the world, they would not be looking

more security. Security is a myth. Learn something new and take on this

brave

world. Don't hide from it.

it is also risky for self-employed people, in my opinion. If they get sick,

. mpred or die, their income is directly impacted. As I get older, I meet more

-employed people my age who are physically, mentally and emotionally med out from hard work. The more fatigue a person endures, the less secure

~e become, and the risk of them having an accident also goes up. The CASHHOW Quadrant

IT IS MORE SECURE ON THE RIGHT SIDE

The irony is, life is actually more secure on the right side of the

Quadrant. or

example, if you have a secure system that produces more and more money with less and less work, then you really do not need a job, or need to worry

about

losing your job or need to live life below your means. instead of living below your

means, expand your means. To make more money, simply expand the systein and hire more people.

ng

People who are high-level investors are not concerned about the market

goi

up or going down because their knowledge will allow them to make money either

way. if there is a market crash and/or a depression in the next 30 years, many

baby boomers will panic, and lose much of the money they had set aside 'or i

retirement. If that happens in their old age, instead of retiring, they will have tot,

T

work for as long as they can.

As for fear of losing money, professional investors are people who risk li'e their own money and yet still make the highest returns. It is the people

who know

little about investing who take the risks and earn the least in return. From my Nln~

of view, all the risk is on the left side of the Quadrant.

WHY THE LEFT SIDE IS RISKIER

"If you cannot read numbers, then you must take someone else's opinion," said rich dad. "In the case of buying a house, your dad just blindly

accepts your~

banker's opinion that his house is an asset."

Both Mike and I noticed his emphasis on the word "blindly."

"Most people on the left side really do not need to be that good with

financial

numbers. But if you want to be successful on the right side of the Quadrant, then

numbers become your eyes. Numbers allow you to see what most people canflol see," rich dad went on.

"You mean like Superman's X-ray vision," said Mike.

Rich dad chuckled and nodded. "Exactly," he said. "The ability to read

numbers, financial systems and business systems gives you vision that mere mortals do not have." Even he laughed at that silliness. "Having financial vision

lowers your risk. Being financially blind increases risk. But you only need that

vision if you want to operate on the right side of the Quadrant. In fact, people On

ly the

the left side think in words, and to be successful on the right, especial quadrant, you must think in numbers... not words. It's really risky trying to be,

investor while still thinking predominantly in words."

"Are you saying that people on the left side of the Quadrant do not need to know about financial numbers?" I asked.

It

132

7he CASHFLOW Quadrant

"For most of them, that is coffect," said rich dad. "As long as they are content

o erate strictly within the confines of being an "E" or "S," then the numbers

I am in school are adequate. But if they want to survive on the right side, rstanding financial numbers and systems becomes crucial. If you want to

a small business, you don't need to master numbers. But if you want build a worldwide business, numbers become everything. Not words. That is why so c(~,uxpames are often run by bean counters."

&~, r-ontinued his lesson: "If you want to be successful on the right side, it comes to money, you have got to know the difference between facts and

- You cannot blindly accept financial advice the way people on the left d You must know your numbers. You must know the facts. And numbers

r

e to

little of

o know my point

the facts."

PAYS TO TAKE THE RISK?

Besides the left side being risky, people on that side pav to take that risk

on, ), S your

finan rant, then ~le cannot 't

ead mere

ial visi0ft ecd that

:t, people on fty the -Ir

to 66 'Once you better understand the ftht side, xfou witt beg:ya to

~ed to'

'What did vou mean by that last remark?" I asked. "Doesn't everyone pay to

11, 'said rich dad. "Not on the right side."

you trying to say that people on the left pay to take risks and the people 1he right side get paid to take risks?"

'Wctly v~rhat I mean," said rich dad, smiling. "That is the biggest difference

~%Cen the left side and the right side. That is why the left side is riskier than the

you give me an examole?" I asked.

,'said rich dad. "If you buy shares of stock in a comnanv who takes th

r& You or the company?"

I do," I said, still puzzled.

7

a medical insurance co, nany and I insure your health -And tA-,-

I do I pay you?"

I said. "If they insure my health, and they take that risk, I pay for i