The rat race refers to the situation that the vast majority of people find themselves in. In essence it is the seemingly endless cycle of working to live.
Most employees go through life having to work. There is no choice. If they do not work, they do not have sufficient income to meet their outgoings. So they continue working until they are either no longer able, or until they reach retirement.
At retirement, if they have played the money game in a conservative way, they will probably be living on various pensions at a reduced income from their working days. Many end up being poor, fearing potential medical expenses and disasters.
Becoming financially independent means getting out of the rat race. Escaping the rat race is my goal.
Someone who is outside the rat race is able to live their dreams. They no longer need to work as their investments provide them with more than enough money to live on. They can live a generous lifestyle without fear of financial disasters.
There are several investment vehicles you can use to exit the rat race. The most popular are Real Estate, owning businesses and investing wisely in the stock market.
A great way to train yourself to get out of the rat race is by playing a game called “Cashflow 101″. It was created by Robert Kiyosaki, the author of Rich Dad Poor Dad and many other books on financial literacy.
Yes, you read that correctly.
I work hard, usually around 50 hours per week. I am fairly compensated for what I do. But if there is one thing that I have learned through reading the Rich Dad series of books, it is that working for money isn’t going to get me out of the rat race.
I cannot depend on my employment to make me rich. It isn’t very likely to. And even if my salary was $200,000 a year, my income would not be passive. I would just be getting paid (and taxed) more for what I do.
There is a better way.
I firmly believe in the principle of developing passive income. If I buy assets that generate money each month, then I can rely less upon needing to be employed. Perhaps the best illustration is in the field of Real Estate.
Lets say I buy a house with the goal of renting it out. Each month the mortgage costs $1000, and rents for this type of property are $1500 per month. By the time I pay insurance, property taxes, the mortgage payment and factor in a vacancy rate & monthly repair value, my total monthly costs might come to $1400. This property, my asset, would now be cashflowing $100 per month.
Now imagine that the basement of this unit has a suite. I can charge an additional $700 rent for it. I am now cashflowing $800 per month!
If I obtained 6 such properties, I would be able to quit my job and live off the rental income Then the additional bonus would be the appreciation of the property. Over a 7 year period it is likely to increase in value. At that point in time I could withdraw some of the equity, and buy more assets while still maintaining a positive cashflow!
This example is just an illustration. The reality in the area I live is that it would be almost impossible to find properties that cashflow at $800 per month. That said, I know of some real estate investors that are achieving similar figures – but they bought the houses 5 years ago before the market boom.
I know it will be difficult for me to find such cashflow, but let me tell you this….I am going to find it! First of all I am going to look at developing a number of business ideas. If they work out I would be able to generate $200-$300 per month of passive income with very little capital outlay. I will let you know how I get on!
If it is true that profit is made when you buy, not when you sell, then the art of negotiation is going to be important. Thankfully I have always been good at negotiating. Here are some of the deals I’ve done in my 1st business venture.
Saxophone – advertised for $850. I paid $450. Flute – advertised for $450. I paid $160. Clarinet – advertised for $250. I paid $80.
Most of the negotiations were carried out by email, and then once I looked over the instruments and pointed out the problems with them, I negotiated some more!
Of course there is the occasional seller who is not willing to be flexible on their price. When this happens, I don’t spend any more time chasing after the instrument. In this situation I let the seller know what I would be prepared to pay, and if they are unable to sell the instrument to someone else, they have my email address or other contact details. Then I cordially thank the seller for their time, and depart. Sometimes I hear back from the sellers, other times the instrument finds another home. Since the first stages of negotiation are usually done by email or telephone, it doesn’t cost me much to walk away…just a few minutes of my time.
Robert T. Kiyosaki teaches that profit is made when an asset is bought, not when it is sold. Although that may sound a little confusing, it makes a lot of sense.
Take for example a used flute. I know in good condition it will sell for $300. It will need approximately $40 of repairs.
So how much should I buy it for?
If I pay $250, I make a profit of $10. Not a lot. If I pay $200, I make a profit of $60. Better, but I really want to make more than that. If I pay $100, I make a profit of $160. I would be happy with that. But if I can buy it for $80 or less, I stand to make a profit of at least $180. Now it is worth my time.
And so the negotiations begin.
I have found dealing in instruments to be reasonably easy. Of course you need to know a little about the various instruments in order to know if you are getting a good deal or not. I have only purchased instruments made by well known, high quality manufacturers. The items I have bought were mostly unused and unloved for a number of years, meaning they needed a little repair. This was how I added value to them. The repair work itself was carried out by licensed woodwind & brass technicians as I have neither the expertise or the tools to perform the repairs.
The principle I have been working with is buy low, add value, sell high. I firmly believe that profit is made when the investment is bought, not when it is sold.
Here is a list of the first few instruments I sold.
As you can see, the important figures above are the Profit, and the ROI (Return On Investment).
There were no direct advertising costs as I used free online classifieds.
Of course the above chart does not include a number of costs – for example driving to different parts of the city to view & buy the instruments. It also does not include the most precious resource I dedicated to this business…my time. However I spent no more than 1 hour on the majority of instruments, and my traveling costs were logged and written off as an expense against my tax.
One of the things I have been learning is to take advice from people who are doing what I want to do, and not from people who are financial advisors or who work for banks. At the end of the day they are just employees, and most of them have not learned how to generate money themselves.
As I considered my circle of friends, 2 men came to mind. One is a man who has run several successful businesses, and still continues to do so. The other is a successful real estate investor. I decided to ask both men if I could meet with them.
A few weeks later my wife and I were having coffee with the business man. I ran a few of my ideas past him, and I could see he was pleased with how I was thinking – and that I was asking him for advice. It turns out that every year, he and his wife help several people start their own businesses, and he was more than happy to give me some suggestions.
Thats when he blew me away. After listening to me talk for 30 minutes, he then proceeded to tell me the following.
“Rob, when I first heard you talk about your upbringing, I thought to myself ‘Here is a man who could do well selling musical instruments. He could have a room in his house full of them, and when people come to buy he could just sit there and play them – let them hear how they are meant to sound.‘”
Obviously my friend was aware that I am a musician and can play 11 or 12 different instruments.
Yet I was very surprised to hear this. I had never considered buying & selling musical instruments, and it was not one of the ideas I had mentioned to him. In fact I did not find the idea particularly interesting or exciting. I could not envisage making much money at it, and I had no idea where to buy old instruments from, or who to sell them to.
After coffee, I got in my car and drove home. I decided to do some research. I looked at the prices of flutes, guitars, clarinets, saxophones and other instruments on eBay. Then I searched through my local Kijiji site and some other local classified websites. I found that I began to get excited at the idea, and after a couple of weeks I took the plunge.
On my way home from work one evening, I bought a Yamaha 6 string guitar. I paid $100 for it. It came with a case, some beginner guitar books, and a tuner. I kept it in the house for a few weeks, and used it to teach my 9 year old son some chords. After 3 weeks I decided to advertise it locally online. Within a week of the advertisement going on Kijiji, I had sold the guitar for $180.
I had not added any value to the guitar. The lady I purchased it from wanted $180 for it. I talked her down to $100, then sold it for $180 myself a few weeks later. I had done nothing else. It was easy money.
That is when I realized I had done it. I had generated income. I had spent less than 1 hour buying the guitar, and advertising it for sale and had made $80. That equates to an ROI (Return On Investment) of 80%. Needless to say I then carried on buying instruments, and selling them on – including a trumpet I bought for $35 and then sold for $320!
You can read more about the money I have generated and check out the ROI of each instrument on this page.
Think and Grow Rich was written by a fellow called Napoleon Hill in the 1930’s. At first I was quite skeptical about reading an older book on finances as so much has changed in the last 70 years. However I was able to take quite a bit away from this book and in many ways it re-enforced some of what I had learned through reading Rich Dad Poor Dad.
This book focuses on re-training the mind. I found that much of the content, despite its age, matches up with what contemporary authors, philosophers and psychologists say.
The main statement of the book is that it is possible to get rich if you really apply your mind to it. Your brain has the capability of coming up with ways of generating income. By stimulating your mind you give permission to your brain to begin a creative process that can lead you to riches.
There are several exercises in the book that teach you how to stimulate your creative processes. I can vouch for these and prove they work given that I am now generating more income than I was prior to reading this book!
As the book is now in the Public Domain (i.e. no longer in copyright), I can distribute it right here on this site. Click here, or on the picture of the book above, to go straight to chapter 1! Each week I will add another chapter and I hope to produce a pdf for offline reading in the coming weeks.
Back in April 2008, I was having a discussion with a friend of mine. He suggested I read a book entitled Rich Dad, Poor Dad by a guy named Robert T. Kiyosaki. He didn’t tell me a lot about the book, only that it would be an eye opener for me. The title sounded quite intriguing, so I got a copy and read through it. I actually read the entire book in just two evenings. My friend was telling the truth about it. It was indeed an eye opener!
As a result of reading this book I have generated several thousand dollars!
The main aim of the book is to increase the reader’s financial awareness, yet it is done within the context of a story which makes it very easy to read.
The book is not a “how to” manual for developing wealth, but I would highly recommend it to someone who would like to learn to achieve their financial independence. The book broadens your thinking, helps expand your context, and teaches you to begin thinking like the rich.
I can honestly say that this book has changed how I think about money. Especially when it comes to assets and liabilities. Reading Rich Dad, Poor Dad has enabled me to see more of how money can work for me, instead of me working for money.
For example, I have stopped saying “I can’t afford it.” You will never hear me say those words again. I now simply ask myself a question when I am tempted to make that statement. Instead of blurting out that negative phrase, I ask myself “How can I afford it?”. By asking the question I give my brain permission to begin formulating plans to generate income, rather than telling myself that I just cannot have something.
This book opens your eyes to the way the rich think and talk about finances. It turns out that their view of things is very different to what mine has been. I have a lot to learn! Rich Dad Poor Dad was a fabulous introduction to a new way of thinking for me.
I have since read several other books by Robert Kiyosaki – reviews coming soon.
