A friend of mine named Keith Cunningham, while attending an MBA class at the University of Texas at Austin, heard Ray Kroc, the founder of McDonald’s, speak. Ray asked the class, “Guess what business am I in?”
Most of the MBA students laughed thinking that Ray was joking. No one answered, Ray asked again: “What business do you think I’m in?”
The students laughed again, and finally one shouted, “Ray, who doesn’t know you’re in the hamburger business.”
Ray looked amused: “I thought you would say the same.” He paused for a moment and said quickly, “Guys, I’m not in the hamburger business. I am in the real estate business!”
Ray spent most of the day explaining his views. Ray focused on selling hamburgers, but he never forgot to keep an eye on the location. He knows that real estate and its location are the most important factors in the success of the business. Basically, shoppers also have to pay a part of money to buy business land for Ray Kroc’s organization…
When we were young, we didn’t live near a McDonald’s, however, rich dad taught Mike and me the same lesson that Ray Kroc taught at the University of Texas. That is the third secret of the rich.
The secret is: “Think of your own business.” Financial difficulties are often a direct result of people working for others all their lives. After days of hard work, many people get nothing.
Here’s an income and balance sheet chart that best describes Ray Kroc’s advice:
|Salary-> save money -> deposit money in bank-> invest to list of assets|
|Decrease expense(limit and delay buying)|
|Increase list of assets(Real estates, go business)|
|No liability(no debt)|
The current education system focuses on preparing young people for some good jobs by developing skills. Their lives will revolve around their monthly salary, or as described above, around their income column. And after developing skills, they move on to a higher education level to improve their professional skills that allow them to enter the workforce and work for money.
There is a big difference between a professional career and a business. I often ask people, “What business do you run?” And they replied, “I work at a bank.” Then I asked them if they were bankers, and they often shook their heads: “No, I just work there.”
In this case, they confused the professional profession with the business. Their profession may be a banker, but they also need to have their own business. Ray Kroc makes a very clear distinction between his profession and his business. Profession is always the same, he is a salesman. He first sold milk mixers, then switched to selling hamburgers. But while his specialty is selling hamburgers, his business is amassing income-generating real estate…
The thinking of most young people is that they will do whatever they learn. If you study law, you will become a lawyer, and if you study mechanics, you will be a mechanic… The mistake in this regard is that a lot of people forget to think about their own business. All their lives they are interested in someone else’s business and making that person rich. To be financially secure, a person needs to think of his own business. The business will revolve around the asset column, not the income column. As stated at the beginning, rule 1 is knowing the difference between an asset and a liability and then knowing how to buy an asset. Rich people focus on the asset column while others often focus only on income statements.
That’s why we often hear: “I want a raise”, if only I get a promotion…”, “I want to continue studying so I can find a better job!”, ” I will work overtime!”, “Maybe I will find a second job.”.
The main reason most poor and middle-class people keep saying, “I don’t have the money to risk” – is because they don’t have a financial background. They have to stick to work because they want to be safe.
When a large company falls into disrepair, millions of workers realize that what they call their greatest asset: the house, is eating them up. Every month, their house still demands to be paid. Another “asset” is the car that is also gobbling them up. $1,000 golf clubs are no longer worth $1,000. Without job insurance, they can’t rely on anything. What they thought were assets could not help them survive the financial crisis.
To raise cash, they must sell what they consider to be assets, for a fraction of the value on their personal balance sheets. Or if they make a profit, they have to pay tax on that profit. Thus, once again the government is divided, and so the amount that can help them get out of debt is reduced.
That’s why I say that a person’s net worth is often less than they think.
Start thinking about your own business. Keep your day job but start buying real assets, not liabilities or personal items that have no value when you bring them home. A new car loses almost 25% of its value the moment you drive it out of the showroom. It is not a real property although the bankers allow you to list it as an asset…
For adults, keep expenses low, minimize liabilities and try to build a solid asset base. For young people who have yet to leave school, it is very important for parents to teach them the difference between assets and liabilities. Help them build a solid foundation of wealth before they come into life, get married, buy a house, have kids and then get stuck in a risky financial position clinging to work and buying everything. By credit card. I see so many young couples getting married and getting each other into the trap of a way of life that can’t get out of debt for most of their lives.
For most people, when the youngest child is an adult, the parents realize that they are not fully prepared for retirement and they start racing with life to save money. But then their own parents are getting old and sick, and they find themselves with new responsibilities.
So, what kind of assets would I suggest you and your children need to earn? In my circle, real assets fall into several different categories:
1. The business does not require my presence. I own them, but they are managed and operated by someone else. If I had to work there it wouldn’t be a business anymore, it would have become a job.
2. Shares of good company
3. Checks in bank
4. Public bonds.
5. Real estate generating income.
6. Debt (Give others loan with their mortgage)
7. Royalties for intellectual property such as music, scripts, patents.
8. And anything that has value, generates income or has the potential to increase in price and is available to the market.
When I say mind your own business, I mean build and keep the asset column strong. When a dollar falls into your hand, never let it go in vain. Think of it this way, when a dollar goes into the asset column, it has to become your labor. The best thing about money is that they work 24 hours a day and can work on their own. Keep your day job and be an active worker, but keep building this asset column.
As your cash flow grows, you can buy some luxuries. One important thing to remember: the rich buy these luxuries last, while the poor and middle class tend to buy them first. Poor and middle-class people often buy luxuries like big houses, diamonds, fur coats, jewelry… because they want to look rich. They look really rich, but they’re really in debt… Experienced people or the rich often build their wealth column first. They will then use the income generated from the asset column to buy luxuries. But the poor and the middle class buy those luxuries with their own sweat and blood, as well as the wealth they have saved up for their children.
A true luxury is the reward for investing and developing a real property. For example, when my wife and I had extra money from rental houses, my wife bought a Mercedes. My wife doesn’t have to work extra or take any risks because it’s the rental houses that bought her the car. However, she had to wait about 4 years, time for her real estate portfolio to grow and eventually throw away enough cash flow to pay for the car. But this luxury item, the Mercedes, was a real bonus because she proved that she knew how to grow her wealth column. To her, this fancy car means a lot more than just a regular car, as she used her financial intelligence to buy it.
What most people do is rush off to buy a fancy car or other luxury item with a credit card. Maybe they will get bored quickly and want a new toy. Often when buying a luxury item with a credit card, people are sooner or later dissatisfied with it, as the debt it brings becomes a financial burden for them.
After you’ve taken the time to invest and build your own business, now you’re probably ready to learn another secret, the biggest secret of the rich, a secret that keeps the best of their lives, the rich stand in front of everyone, the reward for perseverance at the end of the road spends time thinking about his own business.