The 7 Levels of Investors

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Ok, ok, ok. I give up. I wasn't going to share this because it is so clearly explained in the book, but I want to learn a little more, so I though...why not. Kiyosaki uses John Burleys idea of the 7 levels of investors as a guide to help us determine where we are and where we want to be. He explains that before becoming a level 5 or above you should first become a proficient level 4 investor.

Level 0 Investors: Have nothing

• Have no money to invest
• Spend everything and/or more than they make

Level 1 Investors: Borrowers

• Solve financial problems by borrowing money (also invest with borrowed money)
• Buy depreciating toys or doodads like boats, nice new cars, etc. just because adds say "no down, easy monthly payments.
• Love to shop and charge their credit cards to the max
• Get all equity out of home to pay off credit cards, shop and max out cards again, borrow against home again...you get it.

Level 2 Investors: Savers

• Put aside a small amount of money on a regular basis
• Earn little to practically no interest in savings accounts, CD's, checking accounts, etc.
• Believe in paying cash; very scared of credit cards and debt

Level 3 Investors: Smart Investors (3 categories)

• Aware of need to invest. Usually participate in 401k plans, mutual funds, stocks, bonds, etc.
• 3a: Convinced themselves that they don't understand money and never will. They let money sit and do little in their retirement plan or turn it all over to a financial planner.
• 3b: Cynical about investing. They know how you get swindled, always have intelligent sounding answers, but also always negative. They follow the market, but buy too late because they get their information late.
• 3c: Gamblers. They look at the stock market as luck and a roll of the dice. They have no rules or principles when trading. They try and act sophisticated about their investments without knowing who or what the game is about.

Level 4 Investors: Long-Term

• Actively involved in their investment decisions.
• Have a clearly laid out long-term plan that will allow them to reach financial goals.
• Educate themselves before entering an investment.
• Seek advice from competent financial planners

Level 5 Investors: Sophisticated

• Have good money habits and solid foundation of money and investment savvy
• Focus their investments, not diversify
• Good track record of coming out on top of deals
• Put their own deals together
• Risk less than 20% of all their capital in speculative ventures. Losing this 20% would not hurt them.
• Have clear principles and rules for investing

Level 6 Investors: Capitalists

• Create investments and sell them to the market by using the talents and finances of other people.
• Movers and Shakers of the economy (Kennedys, Rockefellers, Fords, Gettys, Perots)
• Make other people rich, create jobs, and make things happen all while increasing their wealth.
• Good or bad economic times, they make money. Involved in ventures years before it becomes popular to the masses.
• Returns of 100% to infinity are expected.

Read, read again, then re-read those 7 levels of investors. Where do you fit in? Where do you want to be? Do you know anyone at any of those levels? What can you learn from them (good or bad)? Start making plans now to get you where you want to be financially.

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Baby Steps

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In order to help us get off our feet Kiyosaki recommends starting with the 7 Baby Steps to get you started on the road to Success from his book Cashflow Quadrant.

1. Fill out a financial statement. Set goals for where you want to be in 12 months, 5 years, etc. Set goals to decrease consumer debt and increase assets.

2. Take control of your cashflow. Set goals for your cashflow and set aside money every paycheck that will go towards assets. PAY YOURSELF FIRST, not last!

3. Learn all about what is/is not risky. Define for yourself what you think risk is. Spend at least 5 hours a week learning so you can decrease the risk involved in your investments. “If you want to take on great wealth, quickly take on great financial problems.”

4. LEARN!! Become a proficient level 4 investor (levels of investors are in his book Cashflow Quadrant). Every week call up or visit realtors, property managers, stock brokers, financial planners, business owners and brokers. Ask them questions, advice, etc. Find your niche in the market. Specialize your skills.

5. Seek MENTORS. Find role models, mentors, and reverse mentors for your field. A reverse mentor is someone who is the opposite of what you want to become. You learn what not to do from their example.

6. Make mistakes. Start small, put a little money down. If you make a mistake, learn from it and move on.

• “Only fools expect everything to go the way they want.”
• “We can never know things beforehand, and we often only learn things when we need to learn them….Try new things and expect disappointment. Many people never start projects simply because they do not have all the answers. You will never have all the answers. Begin anyway.
• “The size of your success is measured by the strength of your desire, the size of your dream, and how you handle disappointment along the way.”

7. Believe in yourself and start today! “Listen to your doubts, fears, and limiting thoughts, and then dig deeper for the deeper truth. Prepare daily to become bigger than your smallness.”

What I Learned from CASHFLOW QUADRANT

After finally reading "Rich Dad Poor Dad" I was psyched to read the next book, "Cashflow Quadrant." My husband and I had already signed up for a 3 day seminar that was fast approaching and I wanted to learn as much as I could before I went so I would understand what people were talking about. It took me two steadfast days, but I got it read, and these are some of the things I learned.

1. There are four main types of people out there: Employee's, Self-Employed, Business wners, and Investors. Of those four Employee's and Sefl-Employed work for their money, while Business Owners and Inverstors have their money work for them. Most people are the E's and S's (Empolyees/Self-Employed). The rich are the B's and I's (Business Owners/Investors).

Employess: People who have a job, a boss, and work for a paycheck. This is the majorityof people.

Self-Employed: People who go into business for themselves, may have some people under them, but they still work for their money. This can comprise of lawyers, doctors, consultants, small business owners, etc. If they left their business for a year
it would probably crumble.

Business Owners: People who own a big business system and have hundreds of
employees. They usually hire people to do the work, thus freeing up their own time. They own the business, but other people keep it running. If they left for a year, the business would be more profitable.

Investors: People who invest in stocks, real estate, and other areas. They build up
their portfolio of assets and earn money through their investment transactions. Their money works for them.

2. Kiyosaki suggests that if you want to move from being an E or an S to a B or an I that you first become a business owner of sorts so that you can learn about how businesses are run, how to read their financial statements, etc. This is a learning experience. Your business becomes a mentor, it increases your cashflow, and allows you more time to invest. The most experienced Investors are those who first owned a business. There are three main ways you can make this move.

• First, build your own business.
• Second, buy into an existing business system called a franchise.
• Third, become part of a network marketing group.

3. Kiyosaki introduces the idea of buying up Tax Lien Certificates as an investment. For example: if someone doesn’t pay their property taxes, you can pay them. They them become indebted to you. When they do pay they pay the amount owed, plus percentage gained.

4. Kiyosaki also introduces Wraps, or Lease Purchase Agreements. Basically you become the bank or lender in the sale of an asset. You may have bought a $100,000 home for $70,000 but them put it up for sale for $100,000 with no down and low monthly payments. The purchaser of the home them signs a lease purchase agreement where they pay you (the lender) and not a bank for the mortgage. The nice thing about this is that you can choose the interest rate. Kiyosaki usually has it around 10%. So, you are still paying your $70,000 mortgage at about 5-6% (about $400) while the purchase is paying you the %100,000 lease at 10% (about $877). That gives you a monthly cashflow of $477. If the purchaser defaults on the lease, you can foreclose and find another person to purchase the home while keeping the money already made.

5. Seminars on tape by Raymond Aaron were recommended. Goes over keys to success: Dream big, think long term, underachieve on a daily basis (smaller goals are easier to achieve the huge over the top ones), take baby steps.

6. I loved this quote by Erik Hoffer. Times have changed, yet we are still taught to think financially in terms of the industrial age. It is now the information age. Those who change with the times are the ones on top of the game.

• “In times of change, learners inherit the earth. While the learned, find themselves beautifully equipt, to deal with a world, that no longer exists.”

7. Problem solvers are the money earners because at the flipside of every problem there is opportunity.

8. When the world gets excited about something you should be afraid, when the world is afraid, your should be excited. (aka, don’t follow the crowd off the cliff).

Kiyosaki also goes a lot more in depth about the different kinds of investors (I recommend reading that in the book as it is very extensive). But he does recommend becoming proficient at level 4 investing before you move onto 5 or 6.

What am I Doing?

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This blog is mainly written for myself. It's a way for me to keep track of information I'm learning, the steps I'm taking, and the actions I'm doing on my path to greater wealth and understanding.

It's funny that one book could have done so many things for me. I remember that I bought "Rich Dad Poor Dad" by Robert Kiyosaki many years ago on a whim. I'd heard that it was a good book. Since browsing the discount section of bookstores and libraries was something I love to do, it was no surprise that I ended up buy this book I'd heard so much about.

So, there it was. On my bookshelf with many other bargain buys. I was in school at the time studying to be a high school English teacher. I was at a competitive university (Brigham Young University). It was a school filled with perfectionists and overachievers. I was one of them. My school schedule was very busy. Plus I was one of those students who always did all the homework, and even the suggested readings. On top of that I was working two jobs. Needless to say, "Rich Dad Poor Dad" stayed on that shelf for a long time.

I finally finished school and accepted a job as an English teacher at a local residential treatment center. Again, I worked hard. Most of the time, I was the last teacher to leave the school (not the first to show up; I just loved my sleepy time). I'd go home and do all I could to relax. I read all day with my students, on my own (to prepare lesson plans and get ideas), and in class (I had to take extra classes to work at this school). My time was nowhere to be found, and I did not want to read anything else because I was already on book overload (first from school and now from work).

The next time I even thought about that "Rich Dad" book sitting on my shelf was during a parent teacher conference. I was talking to the substitute who was going to take my class for the day. He loved books and was currently reading "Rich Dad Poor Dad." My thoughts turned to that book on my shelf, "I have that book, but haven't read it yet." "You haven't read it?" was his reply, "You need to get on that."

It took about two years for me to "Get on that." I had quit my job because of all the stress it gave me, and was looking for something else. I decided that I didn't want to work for someone else if I could help it. As it would happen I ended up marrying that substitute. He is now in the military and we live in Hawaii. He had been reading some of Kiyosaki's other books and signed us up for a free seminar. We went, were inspired, and signed up for a 3 day seminar (coming up next weekend). I dusted off my book and finally finished it. It took me two days to read the next book, and now I'm on to the third.

What am I doing? I going to put to use the things I'm learning. I don't want to work for someone else. I want to help those around me be financially free. I want to spend time with my family and friends. I want to travel the world. And, I want to live a long full life that isn't worried about money all the time. So, what am I doing? I'm changing my life. I know it will take a while, but I am prepared, ready to learn, and willing to change.

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