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I smell a ra(n)t coming--a reaction to Rich Dad Poor Dad

November 16th, 2006 at 12:33 am

Way back when, I read part of Rich Dad Poor Dad by Robert Kiyosaki at the bookstore. I found it at the library sometime later, and have since finished the whole book.

I've been trying to write a post on it for a while now, but I've had blogger's block the entire time. I just... couldn't figure out how I felt about it.

On the one hand, the book introduced an entirely different way to think, which I've always found that to be valuable, even if I end up disagreeing vehemently in the end.

On the other hand, it just rubbed me the wrong way, and actively pissed me off in many parts.

I wanted to do a "balanced" post on it, discuss the book fairly, but everything I tried to write came out heavy-handed and negative, and I didn't feel comfortable or confident enough to post it.

But then I found John T. Reed's website, and the floodgates broke. This entry came pouring out, and here it is.

Beware, you are now entering Rant Country. Smile You have been forewarned.

To start off, I must point out that my family is pretty much a carbon copy of his "poor dad". And guess what? We're not rich, not by a long shot. So I don't know--maybe poor dad's views and advice are, in fact, antiquated, and causes one to be stuck in an inescapable rut/"Rat Race".

But in order to convince me that this is TRUE, especially since the majority--the VAST majority--of people are NOT rich, he must present logical, evidence-based arguments that this is the case. And I found Kiyosaki to be quite underwhelming in this regard.

First of all, a stylistic nitpick. His prose was god-awful. Having been a lit major for three years, I feel like I have the right to make this claim. Not only was his writing mind-numbingly repetitive and blatantly padded with extraneous phrases that were ultimately meaningless and downright distracting (he ought to either fire his editor, or hire one, seriously), he often takes a righteous, holier-than-thou attitude that I found incredibly distasteful and inappropriate (read: unprofessional). Most of the book felt like a mindless, barely coherent rant with quite a bit of propaganda.

I know this is harsh, but just based on the quality of the writing ALONE, I get warning bells on the intellectual acumen of its author. But enough about style. It's superficial, and I'm willing to overlook it if there's substance behind it.

...But is there?

One of Kiyosaki's main points is that "financial literacy" is more important than "traditional" education. After all, poor dad had a prestigious law degree and a successful "career", but he still struggled financially, while rich dad barely finished eighth grade (or something to that effect), and became one of the richest people in Hawaii.

I'll grant this point--to a degree. It's true that schools don't teach you "financial literacy"--if by "financial literacy" you mean "ability to analyze financial opportunities". That's not what schools are for. School is for learning how to think critically, nurturing intellectual passions, and developing skills for a fulfilling career, not for teaching ways to spot get-rich-quick schemes. Even if it's true (via the evidence-based research by the authors of "The Millionaire Next Door") that higher education is inversely correlated with net worth, it's certainly not because higher education teaches you to become a tool, which is essentially his argument.

To make himself sound more credible, no doubt, Kiyosaki claims to support "education reform". This sounds nice (since who would claim to be against it?), except if you actually READ into what he's saying, he's alarmingly anti-education, and I certainly wouldn't trust him to inform educational policy, since I seriously fear what he would do to the curriculum. His measuring stick for the value of any form of "education" is its ability to put (tax-deductible) profits into one's pocket.

I don't know about anyone else, but I find this to be quite disturbing. Whatever happened to learning something because you love it, not because it makes money? It's apparent that making money is right in line with Kiyosaki's own passions and priorities, but he must concede that at least for some people, it doesn't work that way? Maybe some people aren't willing to quit their full-time jobs so that they can "not work for money" by looking for real estate foreclosures and speculative microcap stock investments all day? Isn't there some sort of middle ground for the average Joe/Jane, who has a fulfilling career, but would still like some more financial security without sticking it to the Man, so to speak? According to Kiyosaki, such people are clueless, fearful, and wasting their potential genius. Uh, thanks. YOU find the cure for Alzheimer's Disease, then!! Sheesh.

Furthermore, I find his attempt to posit a dichotomy between "education" and "financial literacy" to be absurd. Financial literacy requires education. In my experience, many, if not most, subjects are easy to learn in terms of basics, but difficult to master thoroughly, and I believe the same is true for real estate and stock market investments. Now he may be just being selective about what constitutes "financial literacy" (knowledge useful for making money) and "education" (everything else), but the fact remains that I simply do not believe that such profitable real estate and stock market investments can be accomplished so easily and in a matter of hours. People spend years in those fields, gathering the experience and mastering the nuances. Kiyosaki himself claims that he doesn't invest in anything he doesn't understand. But reading this book is enough to send Joe Shmuck on his way from rags to riches?

To answer my own rhetorical question, NO, I don't think it's enough, and Kiyosaki doesn't think so, either. He gives himself away when he said that his personal examples of making money were "not recommended" and only meant to "inspire". Now if his examples were any good, they would be recommended, so I can only understand this to mean that his examples are, in fact, crap. So he's trying to inspire you with... crap. Wonderful disclaimer there, eh? Of course, a more charitable interpretation would be to say that he's admitting that these deals were closed by professionals, so don't try this at home, which implies that you do need REAL knowledge and training not given in his book to pull something like that off.

The only decent advice I feel he gives is his recommendation to buy "assets" and not "liabilities". But strip away the asset/liability rhetoric, and all that remains is the standard advice to maximize investments and minimize spending. So in the end, I really don't see what this book says that is new and valuable, despite its bestseller status.

Not all that glitters is gold?

What's important about money to me?

September 18th, 2006 at 07:13 pm

I'm currently reading David Bach's "Smart Women Finish Rich."

Don't have many thoughts on the book yet, as I haven't gotten too far, but I did enjoy his "values ladder" exercise. It was definitely a perspective I hadn't considered before.

Ask yourself the question, "What's important about money to you?", and keep reiterating with, "What's important about _________ to me?" Then, use that answer to realize how money can make your life *better*.

What a concept, right?

So, what's important about money to me?

Security. I want to know that if anything happens to me or my family, I'll be all right. Whether it's unemployment, an injury or medical emergency, a natural disaster, or even a death, I don't want to live in fear of what the future may hold.

Independence. I want to be completely self-reliant. I want to have my own job/career so that I can support myself. I want to have my own car and own a home. I want to answer to no one--not the landlord, not the debtors, not anyone.

Freedom. I want to be able to make choices that make me happy. I want to choose the career path that I desire, without having salary be a limiting factor. I want to be able to have children if I decide I want to raise them. I want to be able to reconcile the two.

How am I heading towards those goals? I'm medically insured, and I'm starting an emergency fund. At some point, I'll need to know the financial ins and outs of my family. A will or a trust would be good to set up and have.

I'm relatively self-reliant now, but I need to get my driver's license, so that a car becomes an option. I do like the freedom of not having a car, but I want the option to be available. I'm saving towards a house down payment.

I've made tentative plans for the next four to five years regarding saving for retirement. If I can match my projections, that will free me up to pursue graduate school and a possibly risky academic career, worry-free.

I'm not quite sure how to financially prepare for the prospect of creating little ones, but I'll start with saving for a house, and figure it out from there.

Financial planning is so much more fulfilling when you have concrete and heartfelt goals in mind.

Most doctors aren't wealthy

September 4th, 2006 at 01:14 am

To continue with my reflections on "The Millionaire Next Door"...

One thing that really surprised me was its report on doctors. Apparently, despite the fact that their average income is four times the average American household's income, two-thirds of them are Under Accumulators of Wealth (UAWs)--they don't have as much wealth as expected (p. 74).

Why? Some of the reasons I've already discussed in the preceding post--namely that they have more educational debt and a late start in generating income for saving and investing.

The other reasons were more unexpected. Doctors hold a higher societal status, and thus must maintain higher domestic overhead in order to keep up appearances and respectability, by living in nice neighborhoods, driving nice cars, wearing nice clothes, etc. (pp. 75-76).

Another reason is that they are generous, both with their time and their money. They're so busy tending patients that they don't have the time or mental energy to do financial planning. And they give away larger portions of their incomes to "noble causes". And because everything assumes that doctors are rich and don't need money, doctors don't receive as much in inheritances (p. 77).

The reason why I thought this was interesting and relevant is because I've been told, and sometimes repeatedly, that:

- I should go to medical school and become a (rich) doctor.

And/or:

- I should marry a rich doctor.

Was this the wrong advice all along? When parents want their kids to pursue high income, high status careers, thinking that it will help their kids get by comfortably, will it backfire unless they also teach their kids the drawbacks of such careers?

Personally, I have no interest in med school (I hate dealing with patients, I much prefer lab animals--animals bite, patients sue Stick Out Tongue). The fact that I hate keeping up high-maintenance appearances will probably doom my practice to failure, anyway.

Anyway, I found this tidbit interesting, and thought I'd share for posterity's sake.

I think I'm kind of screwed

September 3rd, 2006 at 11:23 am

...unless I'm seriously proactive about this wealth-building business.

That was what was running through my head during most of "The Millionaire Next Door".

To start off, I'm a gal. Big disadvantage, right then and there, in terms of earning potential. The statistics show that women earn 50% - 60% of what men earn (p. 181), regardless of field or level of experience. Fabulous. Oh, and I live longer, so I need to save more for retirement. Double-whammy. (Not complaining about the longer life expectancy, just... makes things marginally harder.)

Next, many millionaires are self-employed entrepeneurs. That's something I'll never be. What am I? An academic. A research scientist. One of those chronically underpaid thankless professions fueled by love and passion rather than monetary returns. (Again, not complaining about my chosen profession, just... this is a statement of fact.)

Right now, I'm making a little over $30K/year (pre-tax) as a technician. If I stay in academia, I'll need to spend five to six years in graduate school, getting my doctorate. During that time, I'll be living off an extremely low stipend ($20K/year?), and possibly getting more into educational debt.

After I graduate, I'll be floating around, doing postdoc after postdoc for around the same salary as I'm making right now. None of the postdocs in my lab are saving for retirement. I'm the ONLY ONE. Granted, most of them are foreign nationals, but even the ones who are here for good are putting off contributing to their 403(b)'s.

And then if you're incredibly lucky, you might land a position as an assistant professor. Your salary jumps to, oh, $65K/year. But by then, you're 35, at the very least. And if you don't get tenure after a few years, you must leave your university, move on, and start all over.

And this timeline hurts, financially. A lot. The book states:

"For all high-income earners (those earning at least $100,000 annually), the relationship between education and wealth accumulation is negative. High-income PAWs are significantly less likely than UAWs to hold graduate degrees, law degrees, or medical degrees." (p. 74.)

Why? Because:

"Well-educated professionls get a very late start in the earnings race. It is difficult to accumulate wealth when one is in school. The longer one stays in school, the longer one postpones producing an income and building wealth." (p. 74.)

It doesn't help that professors don't even earn in the "high-income" category.

So where does that leave me? Totally screwed, financially, if I choose the academic path. Either I aggressively save and invest now, during my two years of employment before grad school, and hope that time is on my side enough to grow this seed money, or I bust. It doesn't matter if my dream career is to be a successful research scientist. I'm not exactly willing to starve for the privilege of having my name on landmark papers published in Science or Nature. Am I?

Alternatively, I can put off graduate school for longer--until I'm 30 or so--and earn during my prime saving and investing years. I feel like the more I earn now and invest, the better off I'll be. I need to find the formulas and crunch the numbers for some concrete projections, but this seems to be the case.

I can also give up academia, and go into biotech. The salary there is $65K/year to start, although I may need a Master's to qualify for those positions. Then, I'll have a good ten year head-start on the folks heading down the professorial path, and that's a significant difference.

None of this even *begins* to take into account a possible family life. I don't even want to think about it.

But tons of people who are in this field *are* making it, right? And I know I don't necessarily need to measure my success by whether or not I make it to millionaire status--because honestly, what would I *do* with all those assets--but I'd really prefer to have too much than too little.

Damn, this is going to be harder than I expected.

Wealth != Consumption

September 3rd, 2006 at 01:59 am

I'm about three-quarters through The Millionaire Next Door.

I am so, so glad I read/am reading this book.

There are so many tidbits that I felt in my *gut* to be true, but either wasn't reflected in "conventional" knowledge, or I didn't have the hard evidence to support. This book not only articulated these gut feelings, but also confirmed many of them with the objective analysis of concrete data and statistics.

Take, for instance, the book's definition of wealth:

"Ask the average American to define the term wealthy. Most would give the same definition found in Webster's. Wealthy to them refers to people who have an abundance of material possessions.

"We define wealthy differently. We do not define wealthy, affluent, or rich in terms of material possessions. Many people who display a high-consumption lifestyle have little or no investments, appreciable assets, income-producing assets, common stocks, bonds, private businesses, oil/gas rights, or timber land. Conversely, those people whom we define as being wealthy get much more pleasure from owning substantial amounts of appreciable assets than from displaying a high-consumption lifestyle." (pp. 11-12, my emphasis.)

If you were to ask me what a "rich" person looked like, I probably would have said a person living in a big house (or several houses!), drives expensive car, and wears name-brand designer clothing. Why? Because that's what you see when the media covers the life of the Rich and Famous.

But from the people that I know in person, this is not true at all. My roommate is the perfect example. He looks rich, but is flat broke.

And he constantly mocks (but in a friendly way so I don't take it personally) my frugal tendencies. For instance, one time, he was ooh-ing and aah-ing over a display of watches. My comment was that the only watches I ever owned were bought from street vendors for $20, but now, I don't even have a watch, since my cellphone shows the time beamed from the cell tower.

His response was something along the lines of: "Well, if you just use watches to tell time, then of course that's what you would do. But for me, a watch is a piece of jewelry. That's why I like fancy watches."

(I guess this explains why I also don't care much for jewelry (although I'll admit that they *are* pretty and sparkly). My ears aren't even pierced, and I don't plan on piercing them. Because then I'll have to get earrings, and why would I want to do that?)

He has the same feelings regarding cars. He considers himself a connoisseur, and is proud to drive a big fancy luxury sports car (it has really good acceleration, don't know if that makes it a sports car?) that he bought new. And when he's on the road, he will always comment on the inferiority of the other cars he sees.

I commented that my car will be a small, fuel-efficient, used car that can hold its own on the highway (hey, not crashing to death is worth something, even to me Wink). His response was: "Aw, come on! What if you need a big car? It's better to have that just in case! But I guess that's fine for you--you just see a car as a method of transportation. You'll be perfectly happy with a Honda Civic. But not me."

So imagine my vindication when I read the following:

"It is unfortunate that some people judge others by their choice in foods, beverages, suits, watches, motor vehicles, and such. To them, superior people have excellent tastes in consumer goods. But it is easier to purchase products that denote superiority than to be actually superior in economic achievement. Allocating time and money in the pursuit of looking superior often has a predictable outcome: inferior economic achievement." (p. 28.)

And:

"Most [millionaires] are frugal. And few could have ever supported a high-consumption lifestyle and become millionaires in the same lifetime." (p. 29.)

I think I prefer the >$10K I have in savings over costly status symbols. I can't even tell what's a status symbol and what's not, actually. But I sleep better at night, knowing that I'm not living paycheck to paycheck with precisely zilch in savings.

Oh, and I don't have to worry about being robbed.

I'll continue to write about this book in segments. It's a little much to discuss all at once. But I'm taking notes, so I'll eventually cover everything.

And just as an amusing aside: under Appendix 3, which is a listing of business/occupations of self-employed millionaires, there is one that caught my eye.

BOVINE SEMEN DISTRIBUTOR.

Sorry, I just had to. *guffaw*

Got my library card and books

August 31st, 2006 at 05:53 pm

I actually went yesterday, but the hours posted on their website was wrong. Grrrr.

Anyway, I got my library card, and took out four books.

- The Money Book for the Young, Fabulous, & Broke, by Suze Orman
- Personal Finance for Dummies (my father recommended this one)
- Smart Women Finish Rich, by David Bach
- The Millionaire Next Door, by Thomas J. Stanley and William D. Danko

I'm particularly intrigued by that last one, actually.

Since we're being hit by a tropical storm tomorrow, going to B&N on Friday might not be such a good idea, so I'll probably skip my trip tomorrow (especially since I don't, um, own an umbrella). But I get to finish Suze Orman's book anyway, so yay.

Suze Orman's The Money Book for the Young, Fabulous, and Broke

August 26th, 2006 at 12:16 am

Following in the tradition of last Friday, I spent another two hours reading personal finance books today.

I was able to locate many of the suggested titles, and skimmed through a few of them.

The book that I settled on to read this week was Suze Orman's The Money Book for the Young, Fabulous, and Broke. I chose that one this week because it covered the topics that are currently the most relevant to me.

I am handling student loans, building my credit for the first time, looking to milk my (ephemeral) youth for maximum returns in retirement, and starting to save for large future purchases such as a car and house, and accumulating assets for generalized investing.

A few things that I learned:

- I need to get my three free credit reports at annualcreditreport.com before the end of the year to have an idea of where I stand in terms of my FICO score.

- My (what I feel is an) obscenely high credit card limit ($10,000) is actually a good thing, because it lowers my debt-to-credit ratio, since I never carry a balance? I thought I heard somewhere that high credit limits counted against you because it could be seen as 'potential' debt, so I'm still a little confused on this point.

- I've been considering getting a new credit card with more/better rewards, and if I do, I shouldn't cancel my current one to preserve my credit history.

- I shouldn't be in a hurry to pay off my student loans. I've actually been leaning more towards this position myself as I realized that money going into 45 years of compounding interest at >10% returns is much better than reducing 10 years of 4% to 5% student loan interest. Yes, it requires deferring the emotional gratification of shooting down that debt, but I think the numbers justify it.

- "Saving is for a short-term goal that you hope to reach within five years or so. Investing is for the long term." Short term savings can be placed in high interest CDs, money market deposit accounts, and money market mutual funds.

- A Roth IRA is better than a 403(b). I was planning on maxing out my Roths anyway.

I stopped before I got the the investing and car/house buying chapters of the book. I'll finish them off next week.

I also hope to start on some books specifically on investing. I just discovered that there was an entire investing section!

I just read Automatic Millionaire

August 18th, 2006 at 07:14 pm

Instead of taking the shuttle straight home after work today, I did two things.

1. I walked to the Salvation Army store I found a month or two back, and looked at their hours. Monday through Saturday, 9 to 5. So I can go during my lunch breaks, or on Saturday. It's a bit of a hike from my apartment, but hey--free exercise!

2. I then walked to the Barnes & Noble, found the Personal Finance section, sat down on the ground, and spent 2-1/2 hours reading David Bach's The Automatic Millionaire.

I even took notes.

I still need to clean up my scribbles and come up with a concrete plan of action, but that was 2-1/2 hours well spent. I'm definitely going back and reading more, both from him, as well as the other books. I still have a lot to learn.

I can do this. I'm not making much now and I probably won't make much for the remainder of my career, but I can do this. At the very least, I'm going to try. Smile