Pouring A Foundation Of Wealth

Returning to the dingy gray officers' quarters on base that night was very difficult. They had been fine when I left earlier that day, but after spending the afternoon in Mike's new home, the officers' quarters seemed cheap, old, and tired.

As expected, my three roommates were drinking beer and watching a baseball game on television. There were pizza boxes and beer cans everywhere. They did not say much as I passed through the shared living area. They just stared at the TV set. As I retired to my room and closed the door, I felt grateful that we all had private rooms. I had much to think about.

At 25 years of age, I finally realized things that I could not understand as a kid of 9, the age at which I first began working with rich dad. I realized that my rich dad had been working hard for years pouring a solid foundation of wealth. They had started on the poor side of town, living frugally, building businesses, buying real estate, and working on their plan. I now understood that rich dad's plan was to become very wealthy. While Mike and I were in high school, rich dad had made his move by expanding to different islands of the Hawaiian chain, buying businesses and real estate. While Mike and I were in college, he made his big move and became one of the major private investors in businesses in Honolulu and parts of Waikiki. While I was flying for the Marine Corps in Vietnam, his foundation of wealth was set in place. It was a strong and firm foundation. Now he and his family were enjoying the fruits of their labor. Instead of living in the poorest of neighborhoods on an outer island, they lived in one of the wealthiest neighborhoods in Honolulu. They did not just look rich on the surface as many of the people in that neighborhood did. I knew that Mike and his dad were rich because they allowed me to review their audited financial statements. Not many people were given that privilege.

My real dad, on the other hand, had just lost his job. He had been climbing the ladder in the state government when he fell from grace from the political machine that ran the State of Hawaii. My dad lost everything he had worked to achieve when he ran against his boss for governor and lost. He had been blacklisted from state government and was trying to start over . He had no foundation of wealth. Although he was 52 and I was 25, we were in exactly the same financial position. We had no money. We both had a college education and we could both get another job, but when it came to real assets, we had nothing. That night, lying quietly on my bunk, I knew I had a rare opportunity to choose a direction for my life. I say rare because very few people have the luxury of comparing the life paths of two fathers and then choosing the path that was right for them. It was a choice I did not take lightly.

Although many things ran through my mind that night, I was most intrigued by the idea that there were investments only for the rich, and then there were investments for everyone else. I remembered that when I was a kid working for rich dad, all he talked about was building his businesses. But now that he was rich, all he talked about was his investments . . . investments for the rich. That day over lunch, he had explained, “The only reason I built businesses was so I could invest in the investments of the rich. The only reason you build a business is so that your business can buy your assets. Without my businesses, I could not afford to invest in the investments of the rich. ”

Rich dad went on to stress the difference between an employee buying an investment and a business buying an investment. He said, “Most investments are too expensive when you purchase them as an employee. But they are much more affordable if my business buys them for me.” I did not know what he meant by that statement, but I knew this distinction was important. I was now curious and anxious to find out what the difference was. Rich dad had studied corporate and tax law and had found ways to make a lot of money using the laws to his advantage. I drifted off that night excited about calling rich dad in the morning and saying softly to myself, “investments of the rich.”

I had spent many hours as a child sitting at a table in one of rich dad's restaurants as rich dad discussed the affairs of his business. At these discussions, I would sit and sip my soda, while rich dad talked with his bankers, accountants, attorneys, stockbrokers, real estate brokers, financial planners, and insurance agents. It was the beginning of my business education. Between the ages of 9 and 18, I spent hours listening to these men and women solve intricate business problems . But those lessons around the table ended when I left for four years of college in New York, followed by five years of service with the Marine Corps. Now that my college education was complete and my military duty nearly over , I was ready to continue the lessons with rich dad.

When I called him the next day, he was ready to begin my lessons again. He had turned the businesses over to Mike and was now semiretired. He was looking for something to do rather than play golf all day.

When I was young, I did not know which dad to listen to when it came to the subject of money. Both were good, hard-working men. Both were strong and charismatic. Both said I should go to college and serve my country in the military. But they did not say the same things about money or give the same advice about what to become when I grew up. Now I could compare the results of the career paths chosen by my rich dad and my poor dad.

In CASHFLOW Quadrant, the book that follows Rich Dad Poor Dad, my poor dad advised me to “Go to school, get good grades, and then find a safe secure job with benefits.” He was recommending a career path in this direction

On the other hand, my rich dad said, “Learn to build businesses and invest through your businesses.” He was recommending a career path that looked like this:

The CASHFLOW Quadrant is about the core emotional differences and the technical differences among the people found in each of the quadrants. These core emotional and technical differences are important because they ultimately determine which quadrant a person tends to favor and operate from. For example, a person who needs job security will most likely seek the E quadrant. In the E quadrant are people from janitors to presidents of companies . A person who needs to do things on his or her own is often found in the S quadrant, the quadrant of the self-employed or small business. I also say that “S” stands for solo and smart, because this is where many of the professionals such as doctors, attorneys, accountants, and other technical consultants are found.

The CASHFLOW Quadrant explains a lot about the difference between the S quadrant—which is where most small-business owners operate—and the B quadrant—which is the quadrant where big businesses are found. In this book, we will go into much more detail about the technical differences, because it is here that the differences between the rich and everyone else are found.

The differences between the quadrants play a very important role in this book. The tax laws are different for the different quadrants. What may be legal in one quadrant is illegal in another . These subtle differences make big differences when it comes to the subject of investing. When discussing the subject of investing, my rich dad was very careful to ask me from which quadrant I was planning to earn my money.

While Mike was busy running their empire, rich dad and I were having lunch at a hotel on Waikiki Beach. The sun was warm, the ocean beautiful, the breeze light, and the setting as close to paradise as you can get. Rich dad was shocked to see me walk in wearing my uniform. He had never seen me in uniform before. He had only seen me as a kid, dressed in casual clothes such as shorts, jeans, and T-shirts. I guess he finally realized that I had grown up since leaving high school, and by now had seen a lot of the world and fought in a war. I had worn my uniform to the meeting because I was between flights and had to get back to the base to fly that evening.

“So that is what you have been doing since leaving high school,” said rich dad. I nodded my head and said, “Four years at the military academy in New York, and four years in the Marine Corps. One more year to go.”

“Thanks, ” I replied. “But it will be nice to get out of a military uniform. It's really tough being spit on or stared at, or called ‘baby-killers' by all these hippies and people who are against the war. I just hope it ends soon for all of us.”

“I'm just glad Mike did not have to go, ” said rich dad. “He wanted to enlist but his poor health kept him out.”

“He was fortunate, ” I replied. “I lost enough friends to that war. I would have hated to have lost Mike too.”

Rich dad nodded his head and asked, “So what are your plans once your military contract is up next year?”

“Well, three of my friends have been offered jobs with the airlines as pilots. It's tough getting hired right now but they say they can get me in through some contacts they have. ”

I nodded slowly. “Well, that's all I've been doing . . . thinking about it. The pay is OK , and benefits are good. And besides, my flight training has been pretty intense, ” I said. “I've become a pretty good pilot after flying in combat. If I fly for a year with a small airline and get some multi-engine time, I will be ready for the major carriers.”

“No, ” I replied. “Not after what has happened to my dad and after having lunch at Mike's new home. I lay awake for hours that night and I thought about what you said about investing. I realized that if I took a job with the airlines I might someday become an accredited investor. But I realized that I might never go beyond that level.”

Rich dad sat in silence, nodding ever so slightly. “So what I said hit home, ” rich dad said in a low voice.

“Very much so,” I replied. “I reflected on all the lessons you gave me as a kid. Now I am an adult and the lessons have a new meaning to me.” “And what did you remember?” asked rich dad.

“I remember you taking away my 10 cents per hour and making me work for free,” I replied. “I remembered that lesson of not becoming addicted to a paycheck. ”

“Yes it was,” I replied. “But a great lesson. My dad was really angry with you. But now he is the one trying to live without a paycheck. The difference is he's 52 and I was 9 when I got that lesson. After lunch at Mike's, I vowed that I would not spend my life clinging to job security just because I needed a paycheck. That is why I doubt that I will seek a job with the airlines. And that is why I 'm here having lunch with you. I want to review your lessons on how to have money work for me, so I don't have to spend my life working for money. But this time, I want your lessons as an adult. Make the lessons harder and give me more detail.”

“The rich don't work for money,” I said promptly. “They know how to have money work for them.”

A broad smile came over rich dad's face. He knew that I had been listening to him all those years as a kid. “Very good,” he said. “And that is the basis of becoming an investor. All investors do is learn how to have their money work hard for them.”

“And that is what I want to learn,” I said quietly. “I want to learn and maybe teach my dad what you know . He is in a very bad way right now, trying to start over again at the age of 52.”

So on a sunny day, with surfers riding the beautiful waves of the deep blue ocean, my lessons on investing began. The lessons came in five phases, each phase taking me to a higher level of understanding… understanding the thought process of rich dad and his investment plan. The lessons began with preparing mentally and taking control of myself . . . because that is the only place that investing really takes place anyway. Investing ultimately begins and ends with taking control of yourself.

The lessons on investment in Phase One of rich dad's investment plan are all about the mental preparation it takes before actually beginning to invest. Lying in my bunk that night in 1973, in a dingy room on base, my mental preparation had begun. Mike was fortunate enough to have a father who had accumulated great wealth. I was not that fortunate. In many ways, he had a 50-year head start on me. I had yet to start. That night, I began my mental preparation by making a decision between job security as chosen by my poor dad, or pouring a foundation of real wealth as chosen by my rich dad. That is where the process of investing truly begins and where rich dad's lessons on investing start. It starts with a very personal decision . . . a mental choice to be rich, poor, or middle class. It is an important decision, because whichever financial position in life you choose—be it rich, poor, or middle class—everything in your life then changes.