MIND YOUR OWN BUSINESS

The rich focus on their asset columns while

everyone else focuses on their income statements.

In 1974, Ray Kroc, the founder of McDonald’s, was asked to

speak to the MBA class at the University of Texas at Austin. A friend

of mine was a student in that MBA class. After a powerful and

inspiring talk, the class adjourned and the students asked Ray if he

would join them at their favorite hangout to have a few beers. Ray

graciously accepted.

“What business am I in?” Ray asked, once the group had all their

beers in hand.

“Everyone laughed,” my friend said. “Most of the MBA students

thought Ray was just fooling around.”

No one answered, so Ray asked again, “What business do you

think I’m in?”

The students laughed again, and finally one brave soul yelled

out, “Ray, who in the world doesn’t know that you’re in the

hamburger business?”

Ray chuckled. “That’s what I thought you would say.” He paused and

then quickly added, “Ladies and gentlemen, I’m not in the hamburger

business. My business is real estate.”As my friend tells the story, Ray spent a good amount of time

explaining his viewpoint. In his business plan, Ray knew that the

primary business focus was to sell hamburger franchises, but what

he never lost sight of was the location of each franchise. He knew

that the land and its location were the most significant factors in

the success of each franchise. Basically, the person who bought the

franchise was also buying the real estate under the franchise for Ray

Kroc’s organization.

Today, McDonald’s is the largest single owner of real estate in

the world, owning even more than the Catholic church. McDonald’s

owns some of the most valuable intersections and street corners in

America and around the globe.

My friend considers this as one of the most important lessons in

his life. Today he owns car washes, but his business is the real estate

under those car washes.

The previous chapter presented diagrams illustrating that most people

work for everyone but themselves. They work first for the owners of the

company, then for the government through taxes, and finally for the bank

that owns their mortgage.

When I was a young boy, we did not have a McDonald’s nearby.

Yet my rich dad was responsible for teaching Mike and me the

same lesson that Ray Kroc talked about at the University of Texas.

It is secret number three of the rich. That secret is: Mind your own

business. Financial struggle is often directly the result of people

working all their lives for someone else. Many people will simply have

nothing at the end of their working days to show for their efforts.

Our current educational system focuses on preparing today’s

youth to get good jobs by developing scholastic skills. Their lives

will revolve around their wages or, as described earlier, their income

column. Many will study further to become engineers, scientists,

cooks, police officers, artists, writers, and so on. These professional

skills allow them to enter the workforce and work for money.

But there is a big difference between your profession and your

business. Often I ask people, “What is your business?” And they will

say, “Oh, I’m a banker.” Then I ask them if they own the bank. And

they usually respond, “No, I work there.” In that instance, they have

confused their profession with their business. Their profession may

be a banker, but they still need their own business.

A problem with school is that you often become what you study.

So if you study cooking, you become a chef. If you study the law,

you become an attorney, and a study of auto mechanics makes you

a mechanic. The mistake in becoming what you study is that too

many people forget to mind their own business. They spend their

lives minding someone else’s business and making that person rich.

To become financially secure, a person needs to mind their own

business. Your business revolves around your asset column, not your

income column. As stated earlier, the number-one rule is to know

the difference between an asset and a liability, and to buy assets.

The rich focus on their asset columns, while everyone else focuses on

their income statements.

That is why we hear so often: “I need a raise.” “If only I had a

promotion.” “I am going back to school to get more training so I

can get a better job.” “I am going to

work overtime.” “Maybe I can get a

second job.”

In some circles, these are sensible

ideas. But you are still not minding

your own business. These ideas all still

focus on the income column and will only help a person become more

financially secure if the additional money is used to purchase incomegenerating

assets.

The primary reason the majority of the poor and middle class are

fiscally conservative—which means, “I can’t afford to take risks”— is

that they have no financial foundation. They have to cling to their

jobs and play it safe.

When downsizing became the “in” thing to do, millions of

workers found out their largest so-called asset, their home, was eating

them alive. Their “asset” was costing them money every month.

Financial struggle is

often the result of

people working all their

lives for someone else.

Their car, another “asset,” was eating them alive. The golf clubs in the garage

that cost $1,000 were not worth $1,000 anymore. Without job

security, they had nothing to fall back on. What they thought were

assets could not help them survive in a time of financial crisis.

I assume most of us have filled out a credit application to buy

a house or a car. It’s always interesting to look at the “net-worth”

section because of what accepted banking and accounting practices

allow a person to count as assets.

One day when I wanted a loan, my financial position did not

look too good. So I added my new golf clubs, my art collection,

books, electronics, Armani suits, wristwatches, shoes, and other

personal effects to boost the number in the asset column.

But I was turned down because I had too much investment real

estate. The loan committee didn’t like that I made so much money

from rent. They wanted to know why I did not have a normal job

with a salary. They did not question the Armani suits, golf clubs,

or art collection. Life is sometimes tough when you do not fit the

standard profile.

I cringe every time I hear someone say to me that their net worth

is a million dollars or $100,000 dollars or whatever. One of the main

reasons net worth is not accurate is simply because, the moment you

begin selling your assets, you are taxed for any gains.

So many people have put themselves in deep financial trouble

when they run short of income. To raise cash, they sell their assets.

But their personal assets can generally be sold for only a fraction of

the value that is listed on their personal balance sheet. Or if there is

a gain on the sale of the assets, they are taxed on the gain. So again,

the government takes its share, thus reducing the amount available to

help them out of debt. That is why I say someone’s net worth is often

“worth less” than they think.

Start minding your own business. Keep your daytime job, but

start buying real assets, not liabilities or personal effects that have no

real value once you get them home. A new car loses nearly 25 percent

of the price you pay for it the moment you drive it off the lot. It is

not a true asset even if your banker lets you list it as one. My $400

new titanium driver was worth $150 the moment I teed off.

Keep expenses low, reduce liabilities, and diligently build a base of

solid assets. For young people who have not yet left home, it is important

for parents to teach them the difference between an asset and a liability.

Get them to start building a solid asset column before they leave home,

get married, buy a house, have kids, and get stuck in a risky financial

position, clinging to a job, and buying everything on credit. I see so many

young couples who get married and trap themselves into a lifestyle that

will not let them get out of debt for most of their working years.

For many people, just as the last child leaves home, the parents

realize they have not adequately prepared for retirement and they

begin to scramble to put some money away. Then their own parents

become ill and they find themselves with new responsibilities.

So what kind of assets am I suggesting that you or your children

acquire? In my world, real assets fall into the following categories:

• Businesses that do not require my presence I own them, but

they are managed or run by other people. If I have to work

there, it’s not a business. It becomes my job.

• Stocks

• Bonds

• Income-generating real estate

• Notes (IOUs)

• Royalties from intellectual property such as music, scripts,

and patents

• Anything else that has value, produces income or appreciates,

and has a ready market

As a young boy, my educated dad encouraged me to find a safe job.

But my rich dad encouraged me to begin acquiring assets that I loved.

“If you don’t love it, you won’t take care of it.” I collect real estate simply

because I love buildings and land. I love shopping for them, and I could

look at them all day long. When problems arise, the problems aren’t so

bad that it changes my love for real estate. For people who hate real estate,

they shouldn’t buy it.

I also love stocks of small companies, especially start-ups, because

I am an entrepreneur, not a corporate person. In my early years,

I worked in large organizations, such as Standard Oil of California,

the U.S. Marine Corps, and Xerox Corp. I enjoyed my time with

those organizations and have fond memories, but I know deep down

I am not a company man. I like starting companies, not running

them. So my stock buys are usually of small companies. Sometimes

I even start the company and take it public. Fortunes are made in

new stock issues, and I love the game. Many people are afraid of

small-cap companies and call them risky, and they are. But that risk

is diminished if you love what the

investment is, understand it, and know

the game. With small companies, my

investment strategy is to be out of the

stock in a year. On the other hand, my

real estate strategy is to start small and

keep trading up for bigger properties

and, therefore, delay paying taxes on the gain. This allows the value to

increase dramatically. I generally hold real estate less than seven years.

For years, even while I was with the Marine Corps and Xerox,

I did what my rich dad recommended. I kept my day job, but I still

minded my own business. I was active in my asset column trading real

estate and small stocks. Rich dad always stressed the importance of

financial literacy. The better I was at understanding the accounting and

cash management, the better I would be at analyzing investments and

eventually starting and building my own company.

Start minding your own

business. Keep your

daytime job, but start

buying real assets,

not liabilities.

I don’t encourage anyone to start a company unless they really

want to. Knowing what I know about running a company, I wouldn’t

wish that task on anyone. There are times when people can’t find

employment and starting a company seems like the best solution. But

the odds are against success: Nine out of ten companies fail in five

years. Of those that survive the first five years, nine out of every ten

of those eventually fail as well. So only if you really have the desire to

own your own company do I recommend it. Otherwise, keep your

day job and mind your own business.

When I say mind your own business, I mean to build and keep

your asset column strong. Once a dollar goes into it, never let it come

out. Think of it this way: Once a dollar goes into your asset column, it

becomes your employee. The best thing about money is that it works

24 hours a day and can work for generations. Keep your day job, be a

great hardworking employee, but keep building that asset column.

As your cash flow grows, you can indulge in some luxuries. An

important distinction is that rich people buy luxuries last, while the

poor and middle class tend to buy luxuries first. The poor and the

middle class often buy luxury items like big houses, diamonds, furs,

jewelry, or boats because they want to look rich. They look rich, but

in reality they just get deeper in debt on credit. The old-money

people, the long-term rich, build their asset column first. Then the

income generated from the asset column buys their luxuries. The poor

and middle class buy luxuries with their own sweat, blood, and

children’s inheritance.

A true luxury is a reward for investing in and developing a

real asset. For example, when my wife Kim and I had extra money

coming from our apartment houses, she went out and bought her

Mercedes. It didn’t take any extra work or risk on her part because

the apartment house bought the car. She did, however, have to wait

four years while the real estate investment portfolio grew and began

generating enough extra cash flow to pay for the car. But the luxury,

the Mercedes, was a true reward because she proved she knew how to

grow her asset column. That car now means a lot more to her thansimply another pretty car. It means she used her financial intelligence

to afford it.

Instead, most people impulsively go out and buy a new car, or

some other luxury, on credit. They may feel bored and just want a

new toy. Buying a luxury on credit often causes a person to eventually

resent that luxury because the debt becomes a financial burden.

After you’ve taken the time and invested in and built your own

business, you are now ready to learn the biggest secret of the rich—

the secret that puts the rich way ahead of the pack.