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Taking Control of the Ark
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“If you are going to build a rich ark,” rich dad said, “you need to be in control of its construction, what is loaded in the cargo holds, and who is steering it.” After the market crash of March 2000, millions of people came to feel less secure about their financial future. Why? Because they were not in con-trol of their ark or its cargo, and many did not know who their skipper was.

Rich dad stated that security and freedom were not the same words, in fact they were almost opposite from each other. Rich dad said, “The more se curity you gain, the more freedom you lose.” He also said, “A person who seeks security often gives up control over parts of their lives. The more con trol you give up, the less freedom you have.” Many people feel insecure about their financial future and retirement because they have given up most of the control over their financial future.

In Rich Dad Poor Dad, I stated that rich dad said the most important word in business was cash flow. In Retire Young Retire Rich (book number five in the Rich Dad series), I wrote that the second most important word was leverage, the ability to do more and more with less and less. Although rich dad never directly said it, if there was a third most important word in his vocabulary, I believe it would be the word control. Here are a few obser vations about the word control as it relates to cash flow:

1. One of the most important life skills to develop is to learn to gain con trol of your cash flow.

2. When I saw the picture of the fifty-eight-year-old Enron employee on the front page of USA Today's “Money” section who had lost a significant amount of his retirement due to the fall of Enron, I saw a picture of a person who found out late in life that he had very little control over which way his cash was flowing.

3. Most financial problems are caused by personal lack of control over cash flow.

4. Kim and I were able to retire early in life because we took control over which direction our cash flowed.

One of the reasons so many millions feel less secure about their financial future is because they lack control of many aspects of their lives. Simply looking at a 401(k) defined contribution plan—the ark of choice of the American middle class—most people have very little control over it. Rich dad was in control of his arks. He worked on design, cargoes, and knew his skippers well. The reason he had many skippers was because he had many arks. Obviously, if you decide to build a rich ark, one of the most important things to consider is whether you are willing to take back control of the entire ark or fleet of arks. If not, then stay with a defined contribution plan, invest for the long term, diversify, pray a lot, and hope your skipper knows what to do.

By taking greater control over your entire ark you may also slowly take back more and more control of your life and then your freedom. Warren Buffett says, “I'm the luckiest guy in the world in terms of what I do for a living. No one can tell me to do things I don't believe in or things I think are stupid.” In other words, he is in control of his arks . . . and he has a fleet of them.

Before going on to what it takes to take control over your ark, I think it important that you hear the word from Warren Buffett himself on his style of ark control. Buffett controls but is not into overcontrol. He buys companies with excellent management and treats them like owners of their businesses . . . in fact many are allocated ownership positions. To this point he says:

“We wish to see the unit's managers become wealthy through owner ship, not simply free-riding on the ownership of others. I think, in fact, that ownership can in time bring our best managers substantial wealth, perhaps in amounts well beyond what they now think possible.”

The remark not simply free-riding on the ownership of others was made about a famous investment house, whose name shall remain anonymous. He felt this large investment firm did not care about the shareholders or their in vestments. The second half of this remark is about how he treats his man agers . . . he lets them share in the profits of his arks.

He also hires the best people he can find to be skippers of his arks. He does that because he wants them to run the ark, not him. He says: “If they need my help to manage the enterprise we're probably both in trouble.”

Rich dad had the same style of ownership and management. That is why both men could manage many arks. It is a style of management that comes from the B and I quadrants rather than the hands-on approach that many E and S quadrant people envision. It is the same style I am learning. I state this because many people say to me, “I don't have time to do my own investing. I'm just too busy.” Many people from the E and S quadrants think they have to do everything rather than learn to find people smarter than them to build, load, and sail their arks. So the word control does not necessarily mean you have to do it all by yourself. People from different quadrants control their arks in different ways. If you control in the style of the B and I side, you can control many arks. If you control in the style of the E and S, you may only be able to control one ark, and for that one ark you will be ark designer, ark builder, cargo loader, crew, and skipper. As I have said in other books and tapes, people from the E and S side tend to have two theme songs running in their heads. One song is “Nobody Does It Better” and the other theme song is “I Did It My Way.” In my opinion, those are theme songs of people who tend to overcontrol.

Taking Control of Your Ark

Repeating a question asked earlier in this chapter: “Are you willing to take control of your ark?” That is the question. If the answer is no, then the rest of this book may be too problematic . . . seeming to involve much too much time, effort, study, and money. For many people, it is much easier to work hard at their jobs and just hand their money over to someone they hope is better at managing arks than they are.

But if the answer is yes, then read on. Remember, being in control of an ark does not mean you have to do much. All you have to do is be willing to be in control. Warren Buffett is in control and lets other captains run the ships. You can do the same thing . . . if you want.

Learning About the Ark Business

From 1965 to 1969, I attended the U.S. Merchant Marine Academy in New York. For four years, that federal school trained young men, and now young women, to become ship's officers. Our training began with four weeks of rigorous physical and military indoctrination, which military academies are noted for. We got up early in the morning and ran till late at night. After our heads were shaved, we learned everything from military discipline, to how to wear a uniform, how to properly shoot a gun, exercise, and even proper etiquette at a dining table.

After the month of indoctrination, school began. We had to fulfill the academic requirements of a traditional college or university, which meant we had courses such as English, calculus, spherical trigonometry, thermodynamics, physics, literature, electronics, and the humanities. In addition to those traditional academic courses of study, we had to learn about life at sea . . . so we also had to learn Morse code, knot tying, wire rope splicing, semaphore, sailing, rowing, rescue at sea, astronomy, celestial navigation, weather, small boat handling, large ship steering, running an engine room, docking and undocking, handling a tugboat, business law, maritime law, cargo handling, naval architecture, oceanography, and other seagoing subjects.

On top of that, we spent a year at sea, taking a correspondence course while actually on merchant ships sailing the cargo lanes of the world, learning in the real world about what we had been learning in the classroom. My classmates and I literally went to every famous seaport throughout the world. To me, that was the best part of the program. Because of this year at sea, we had to finish a traditional four-year college curriculum in three years. It was a great well-rounded education. By the time my class graduated in 1969, we had lost over 50 percent of the class, but the rest of us were ready to take control of a ship, as junior officers, ready to apprentice under the captain and other senior ship's officers. On graduation day, one of my instructors said, “Our training program is rigorous because we are training you to be more than captains of ships, we are training you to be captains of this industry.” And many of my classmates did go on to become leaders in the shipping industry.

Rich dad put his son and me through a similar program, beginning at the age of nine. That is why he had us working in every aspect of his business. We cleaned rooms, waited on tables, cleaned the grounds, picked up trash, hung wallpaper, worked on construction of buildings, worked in accounts receiv-able and payable, accounting, sales, management, banking, human relations, and investing.

I meet many college kids coming out of their MBA programs today who have great formal education but very little practical real-world education. For many of them, the only job they had was working in a fast food restaurant flipping burgers, as waiters, or clerks in retail stores. Upon graduation, many of these young people are put into positions of management lacking in realworld people skills.

Because they are smart, some are promoted quickly before gaining those real-world people skills. Instead of knowing what it feels like to be the janitor, the clerk, the warehouse foreman, the receptionist, in the company, all they know is their fraternity or sorority friends who move up the corporate ladder with them. Too many of these very bright students become captains but lose touch with the workers, the real engine of business. When people lose touch with their workers, then disasters like Enron happen. Did those so-called well-educated leaders recommend that their employees buy shares of the company while they were selling? It may not be technically illegal, but to me, it is definitely unethical. The problem is, this practice of recommending a buy while in fact you are selling is very common practice not only at Enron, but it is a common practice in business, especially the business of the stock market.

One thing both of my dads demanded of me was that I never lose touch with people at all levels of society. My rich dad said, “Never lose your hu manity. Always remember that each member of your business is a human being with a family, and your job as the leader of the business is to do your best to protect their welfare and their well-being.” Rich dad reminded Mike and me of this very often. That is why he had us work in every corner of the busi ness, not only to learn that part of the business, but also to get to know the people responsible for that part of the business.

A few years before he died, my poor dad said, “I have no doubt that someday you will be a rich man. Please never forget the home you come from and the values we hold. Always remember the people who have touched your life along the way. You may never see them again but always remember them and be grateful for the gifts they have given you. And when you get to where you are going, have the humility to remember that rich or poor, friend or enemy, we are all human beings. Money does not make you superior to anyone. Please remember that you are a human being too.” In my humble opinion, there are too many skippers of ships who have forgotten that they are responsible for human beings as well as the ship, and the ship's cargo.

Rich Dad's Lesson

At the start of this book, I related a story of how my rich dad began our meetings with my showing him my current financial statements. That is how we started almost every meeting. As a child, he had me do very simple ones. As an adult, my financials became more adultlike. As I grew richer, my financials became more complex. Once I became financially free, my financials became even much more sophisticated. As I grow older and hopefully wealthier, my financials will also grow in sophistication . . . and so must I. Getting into the habit of always having up-to-date personal financials is a learning process, a habit my rich dad stressed I develop.

Needless to say, my poor dad never had one, much less a current up-todate one. He knew how to fill out credit applications, for such things as a home loan or to buy a car. But he never made it a habit of having a book keeper do his monthly personal financial statements.

All through this book, I refer to financial greats such as Warren Buffett, America's richest investor, Alan Greenspan, chairman of the powerful Fed eral Reserve Board, and Paul O'Neill, the secretary of the treasury, who all say basically the same thing my rich dad said to me. All of these financially smart men stress the importance of financial literacy and that financial liter acy begins with a financial statement. None of these men said start with real estate, savings, a business, tax liens, stocks, day trading, options trading, or mutual funds, which is where most people start building their arks . . . and that is why so many arks cannot stand rough seas.

To repeat a question I asked before in this chapter: “Are you willing to take control of your ark?” If the answer is still yes, then the next question is, “Are you willing to have current, up-to-date, audited, personal financial statements?” If the answer is no, then a DC pension plan such as personal savings, government retirement plans, a 401(k), and a home become very, very, very important.

If you are going to take control of your ark and maybe build a rich ark, you must make it a habit of having at least monthly income statements and balance sheet statements . . . the two documents that make up the basic fi-nancial statement. If you are to become richer and richer, regardless of the storms ahead, you must constantly work on improving your financial literacy and the best place to start your real-life education is with your own personal, up-to-date, real-life financial statement—even if it has nothing in it. I stress this point because I meet many people who read financial statements and annual reports of other companies, but they do not have financial statements on themselves. The most important financial statement of all, if you are going to be in control of your ark, is your own personal financial statement.

At the start of most meetings with rich dad, he had me show him my personal as well as business's financial statements. Without those statements, he could not have helped me. He could only guess as to what my problems were and where they were. In 1977, my financials looked pretty good, because the business was just starting out and we had some investor money in the treasury. Rich dad helped me by making specific suggestions on what to do on my personal financial statement as well as the business's financial statements. But by 1978, the financial statements from my business were getting murky, a little cloudy. By 1979, you heard what rich dad said, “Your company has financial cancer.” He also thought the cancer would prove terminal . . . and it did. The company soon disappeared. Nevertheless, with his help, and my constant reporting to him, my personal fi-nancial wounds healed and my fortune began to grow again . . . although I did lose it all again, one more time. Again, by constantly checking in, handing over my financials, my rich dad was able to help me heal and grow. Today, that process of making mistakes, learning, correcting, and reporting to rich dad with my financials has been the process that helped me evolve into a better ship's officer. Today instead of fearing the storms brewing ahead, I look forward to them, knowing that it is by confronting life's challenges that we all become stronger, even though sometimes I feel fear just as anyone else would.

Before closing this chapter, I would like to point out that health and wealth are very similar. When we go to a doctor, the first thing a doctor does is take a blood sample or X-rays. That is the way the doctor can pinpoint ex actly what is wrong and what needs to be corrected. The other day, I went to my doctor and from reviewing my blood test, he gave me some disturbing news. As much as I did not like the news, I was glad I received it early be cause receiving the bad news early allowed me to make corrections early . . . before the problem becomes worse.

A financial statement with clean clear numbers serves the same purpose as a blood test or X-ray. Regular updated financials give you a chance to find out the bad news early and take corrective action early. Unfortunately, because our school system has failed to educate people financially, millions of people will find out that they have financial cancer only after it is too late. That is what happened to that fifty-eight-year-old Enron employee in USA Today. He found out that his ship was rotting, so was its cargo, and the skippers had abandoned ship without telling the crew. The problem was, this worker found this out a little late in life . . . but it's not too late. If that employee is willing to take control of his own ark, that fifty-eight-year-old employee may sail into a whole new world of financial wealth and financial well-being. All he has to do is look in the Yellow Pages for professional bookkeepers, interview many, hire one, begin receiving at least monthly financial statements, and re-view them with a financial expert like a banker or accountant once a month, and start making corrections. By facing his real-world finances, with realworld financial documents, he enters a whole new real world of financial possibilities.

In the following chapters I will go into the controls a person needs in order to begin to gain greater control over the ark of his or her financial future. These controls are the basis of becoming a better captain of your own ark.

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