Reading Rich Dad Poor Dad?

Question

I'm currently about half way through the book and it really does have some great information that is so easy to understand. Sure wish my parents had this knowledge to pass down to me when I was younger.

He mentions buying assets not liabilities and not exchanging time for money which is easy to understand. One of the harder assets to understand that he lists is buying or owning a business that doesn't require you to work there...I would sure like to know what profitable business I can buy or own that doesn't require me to exchange some sort of time for money.

Not sure if I fully understand that point as an asset. Sounds great but I know several business owners large and small business and they all have to put in time to keep the business running and profitable.

Maybe someone can explain his concept on this to me?

Jonathan Makovsky · Answer

@Skip Gilliam

Some examples of businesses for absentee owners: certain franchises, laundromats, etc.

I would not advise (nor do I think R. Kiyosaki is) in real estate or any owner-absentee business to ever be fully absent, but I think his point is that you don't need to be there for the business to exist (like a service business that runs only when you are running the service: attorneys, CPA's, doctors, etc.).

Hope this helps and enjoy the read.

Mike F. · Answer

The law of diminishing returns fights the law of economy of scale in business. Not every business in every situation can overcome the law of diminishing returns, nor do the owners have the ability to do what it takes nor the desire to do so.

Skip Gilliam · Answer

I appreciate the clarity on this, this is what I was thinking but the book didn't seem to cover much on that statement...or I haven't made it that far in the book yet. One would think that it's is a long shot to buy a business and not have to work or exchange time for money, more than likely why most small businesses fail...more work and time involved than the owners planned on to turn a profit.

Mike F. · Answer

It's basically in reference to the scale of the business.

If you pick up a shovel and go dig ditches for clients as the sole employee you are 100% of the business.

If you grow that business into a company of 100 ditch diggers, 3 crew leaders, 1 salesman, 2 office staff, and a CEO or president, you've removed yourself from the daily operations of the business.

Like many concepts, reality and concepts don't always meet. The vast majority of small businesses have active owners participating in them, it's the nature of the beast. Look no further than every real estate investor on this web site how many of them aren't involved in the daily running of their real estate business? How many of them have a staff and a president running the operations for them while they are on a beach in Mexico?

Connor Swalm · Answer

Skip,

I read Rich Dad Poor Dad about four years ago so my memory may be a little off on this, but I can explain what he is saying.

The golden rule of investing is passive income, in short, money you made without working or spending very little time working. Examples of passive income include rental units, dividends and returns from stocks and other investment vehicles. The investment vehicle you are referring to would be something like a franchise, specifically an absentee owner franchise.

Let's say you buy a Subway franchise. To begin with, you might spend time there working, getting everything in order, and hiring competent staff members. However, as time goes on you are able to spend less and less time physically working there and more time working on other investments. All while it provides you with a return. Eventually, the franchise practically runs itself and all of a sudden, you're collecting checks never having visited the store that month.Some Franchised companies do not allow absentee ownership (they require you to work there, much like a 9-5), but many allow it.

You can apply this thought process to virtually any business idea. Spend the time up front developing the business, but as it gets more profitable you just hire staff members to take your place then you fall back and collect your owners check.

On a side note, read the next two books in his series, they are all very helpful at changing your mindset to help you become more successful. I highly recommend both of them.

Reading Rich Dad Poor Dad?

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