A hearty welcome to “Grandma’s Wealth Wisdom” with your neighborly hosts, Brandon and Amanda Neely. This is the only podcast that helps you take charge of your cash flow and leverage your assets, simply and sustainably, the way Grandma used to.
Brandon: Hi. I’m Brandon, and welcome to Grandma's Wealth Wisdom, where we help you break through to a smart, stable, financial future, with the tried and true wisdom Grandma used.
Amanda: And, hey, I'm Amanda. And this is Episode 69, which we've titled “Kiyosaki: is his advice leveraging too much?” To be honest, I’ve never read or studied Kiyosaki very much until I was preparing for this episode, but I’ve heard lots of other people talk about his ideas, especially the cash flow quadrant, and I’ve played the cash flow game a few times, but that's it. [00:57.0]
Brandon: For me, though, I listened to the audio version of Rich Dad's Cash Flow Quadrant and I’ve watched several of Robert's YouTube channel videos, or him being interviewed by others, because I find it fascinating. I remember sharing one video in particular with Amanda, because it was pretty clear Robert is a fan of this strategy that we call Grandma's Strategy, but the way he talked about it was strikingly different.
Amanda: To be honest, I didn't watch much or it didn't watch that video because either I thought it would be something I’ve heard before or I just got busy and forgot.
Brandon: Wait, you didn't listen to the stuff I sent you?
Amanda: I do that sometimes. Yeah.
Amanda: But then digging into Robert's info to get this episode content, I really got to the heart of what he teaches and there were parts where I was like, Oh, yeah, totally agree with this, and other times when I was like, Holy cow, you've got to be kidding me. I even started crying because I was kind of angry at one point. [02:06.4]
Brandon: So, we've got a pretty interesting episode for you today and we'll see if Amanda starts crying in anger.
Amanda: Or maybe just start yelling.
Brandon: Yeah. Who knows?
Amanda: But, first of all, let's look at Robert's background. It is quite similar, in fact, to Dave Ramsey's in three ways and then there's one way that it's very different.
Brandon: Here's something very interesting. Both went bankrupt in the mid-80s, but for very different reasons. Dave was because his real estate loans were called and Robert was because several business deals fell apart.
Amanda: Then after bankruptcy, they both got involved in learning from multi-level marketing companies, MLMs, Dave with what would eventually become known as Primerica on Robert with Amway. [03:02.5]
Brandon: Oh, interesting. They both teach people to invest. Dave after getting out of debt and saving a smaller emergency fund, he says to invest in the stock market, not real estate, and Robert says to use debt to invest in real assets that generate passive income as soon as possible. He says typically real estate is a good way to go.
Amanda: In business, too, probably, but real estate, first and foremost. But the biggest difference really is their stance on debt. Dave hates debt. Even the mortgage on your house, he says, pay it off as soon as you can. Robert loves debt, and we're going to come back to that again and again in this episode, different ways that he thinks about debt and how to use it.
Brandon: Yes, they're very different polar opposites almost in that regard. Now, if you're familiar with Robert, here are the main two core Kiyosaki ideas. One is that cash flow quadrant. Now, Amanda, can you explain this cash flow quadrant in a few minutes. [04:13.3]
Amanda: Yeah, so like quadrants, you have a vertical line and a horizontal line that divides into four sections, quad, four, and each part is labeled. One label is employee. One label is self-employed. One label as business owner and one label is investor.
The employee is the person who works for a W-2 job. They trade time for money. The self-employed is not much better. They're also trading time for money. They just are their own boss. They choose what they do. Then the business owner is the person who has employees that makes money off their time, and then the investor is the person who has money to make money. There's no time trade trading needed. It's just using money to make money. A lot of people see these as you move from employee to self-employed to business owner, to investor. [05:11.5]
Brandon: Yeah, and I’ve found myself in all four at the same time, especially when we were starting our coffee shop. I was working as a W-2 job to continue to get that paycheck while starting the brick-and-mortar business, and then I’ve seen myself going back and forth in other ways as we scaled this business, and we've invested in other things, with things as we've grown, right? And so, we've done that as well.
Brandon: So, we've been in all four quadrants at the same time.
Amanda: The other part of this is that it's not necessarily that you move from employee to self-employed to business owner to investor. Let's say, you're the fire movement. That's all about you're an employee for a time. You save half of your money that you put into investments that grow enough to give you passive income, so you can jump straight from an employee to being only an investor. [06:13.3]
Then you can choose whether you want to be self-employed or own a business, or just create art or whatever it is that you don't have to necessarily go from one to the next to the next.
The harm is when people see this quadrant all about money. I mean, it's called the cash flow quadrant, so it is kind of about money, but there's a lot of personal development in these quadrants, too. I actually found these two quotes of Robert’s that really underline what he's really talking about with this cash flow quadrant.
Brandon: One of his quotes is it's more important to grow your income and cut your expenses. It's more important to grow your spirit, than cut your dreams. [06:59.4]
Amanda: He's talking about here, like, yeah, you're growing your income, right? You're focusing on expanding your intake rather than just cutting your expenses. But it's also about growing your spirit, going after your dreams, about personal development, and that is super important as well. Then the second quote we have…
Brandon: It’s don't be addicted to money. Work to learn. Don't work for money. Work for knowledge. I love this. This is a great quote.
Amanda: Yeah, and I think this, again, is about personal development and I think Robert would say, if you're in a W-2 job where you're learning a lot, you're gaining a lot of knowledge. You see the possibility to continue doing that for some time. Don't try to go be self-employed, all of a sudden. Stay where you are. Learn as much as you can. It's not just about the money. It's, again, about that personal development.
That's the first core Kiyosaki idea, this cash flow quadrant. It's really like a framework to think about the different ways people make money, as employees, as self-employed, as business owners and investors, and you can choose which parts you want to be involved in, how you want to move through that. It's not just cookie cutter, one thing, and then the next. [08:14.6]
Brandon: Yeah, and some people feel like failures when maybe they go back to being employed or whatever because of family situations and things like that, and I want people to realize that, hey, it's more important of learning and building that knowledge, and just because you became an entrepreneur and then you go back to work, that's not necessarily a failure thing.
Brandon: The second thing that he really does a lot of in and build on is this idea of the cash flow game. Now, the cash flow game is a board game. The closest similar game is monopoly, but it's very different from monopoly. [09:00.7]
Now, the goal isn't to dominate the other players, but it's to build enough passive income that you escape the rat race and go after your big dreams. Literally you're all about escaping out of the rat race. That's the whole point.
Amanda: Yeah, and when you play the game, you learn that real estate helps you escape the way it's a lot more quickly than stocks, right? The real estate gives you passive income that you're getting turn after turn after turn, whereas the stocks you have to wait until a card comes up that it allows you to sell it for a profit. You can also buy businesses that help with passive income, but ultimately it seems, at least in the game's perspective, real estate is the best way to build it.
Brandon: Yeah, and I found this really interesting. When we first played this game, we were, again, having all this debt. We had our mortgage and everything. I remember trying to get out of my mortgage debt because I was like, Hey, I want this debt over my head. Then Amanda said something. What was it that you said? [10:05.2]
Amanda: Yeah, I opened my big mouth. I saw that Brandon was going into the trap of reducing his expenses rather than growing his income, and so I said to him, Hey, you're doing the Dave Ramsey route. You're paying off your mortgage as fast as you can live. What if you use that money instead to buy real estate? The extra that you're putting on your mortgage, buy real estate with it. That's going to actually give you more passive income than the expense on your mortgage. You tell people to do this all the time because the mortgage is such a low interest rate and yet you can build passive income somewhere else more quickly. Why pay extra on your mortgage? And, of course, I open my big mouth and share that. Brandon changes his strategy and he wins the game.
Brandon: Yeah, I totally won the game because I was like, Wait a second, you're right. My friend who was playing with me, he kept doing the Dave Ramsey method. I changed my behavior and I actually beat Amanda at a game, which was amazing to do. [11:04.4]
Amanda: And all because I opened my mouth.
Brandon: Hey, whatever. We're one team, one unit.
Brandon: So, you won kind of.
Amanda: No, I didn’t, but the thing I find really fascinating about this game, besides that it's rigged toward real estate the other thing that I find fascinating with games in general is, especially when they mirror life, the game also makes you feel like life is a game, right? And you play it. You put the box away, but then you go and you are in your life, and you start playing your life the same way that you played the game.
I think that's part of Robert's intention behind creating the game. It’s to teach people real skills for real life, and I found this quote of Robert’s. He says, “Find the game where you can win and then commit your life to playing it and play to win.” It's definitely clear that Robert has chosen to see life as a game. [12:00.0]
We're going to come back to this idea and look at what game Robert seems to have chosen to play and how he is playing it. It's all going to tie into the thing we talked about with debt, but also something that's not really talked about much or about Robert's ideas, but it's everywhere in his writing and videos.
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Brandon: The most interesting thing about Robert that isn't talked about so much but is everywhere in his writing and video is taxes. Now, don't turn off the episode because we said the big taxes word and think, Hey, I already know this or this is going to be boring. This is really interesting actually, so keep listening. [13:15.7]
Now, we want to read, to use some quotes from this video that we, again, watched most recently or really recent. It was in September 2020 when there was breaking news that Donald Trump pays 0% in taxes. There were some quotes that he said. Now, if you don't know this about Robert, he co-authored a book with Donald Trump and they both do real estate, so I'm sure he has a lot of opinions about Donald Trump's tax returns.
Amanda: Yeah, so Robert made a video and we're going to put the link to the video in the show notes. You can watch it if you want, just be forewarned there’s some name calling in it. There's some strong language. We're going to read to you some of the highlights. Not all of the quotes that Brandon is about to read fall back to back to back, but imagine a bunch of ellipses in this next block of what Robert is saying on the video. [14:17.7]
Brandon: He says the rich don't pay taxes. America was founded on a tax revolt. Now, if you guys remember there was that whole idea of the Boston tea party. I mean, he's true there and it's interesting. We didn't want to pay taxes to Britain.
Amanda: But it was not no taxation period. It was no taxation without representation.
Amanda: And it brought the next part that Robert says that Americans hate paying taxes. I've actually read that most Americans see it as their patriotic duty to taxes and that's part of their contribution to making a better society. We can set that aside. Let's keep going with what he says in the video. [15:01.0]
Brandon: He says, Americans hate paying taxes. They never tax the rich. The rich aren't that foolish. That was again a quote of his, “The rich aren't that foolish.” Another quote he says is, “I love real estate because it involves two things, debt and taxes. The more real estate I own, the less taxes I pay.” The only rich people who pay taxes have jobs and invest in the stock market.
Amanda: That last sentence there was a paraphrase because he does some name calling at that point and I didn't want to put that into our wholesome podcast here.
Brandon: Yes, restate it again.
Amanda: A paraphrase is the only rich people who pay taxes have jobs and invest in the stock market.
Brandon: In another quote, he says, “Every time you give a bureaucrat money, they spend more money.” That's another reason why he doesn't want to pay taxes. [15:58.2]
Number three or another quote he says is, “I have control over my taxes. There's a big difference. The reason I don't pay taxes is because I invest in programs the government wants me to invest in. I get tax breaks for employees, low-income housing, R&D that I invest in.”
Amanda: Yeah, R&D, research and development. Then he goes on to say those are all tax breaks for the capitalists to make more money.
Brandon: Another quote he says is, “I don't want to donate money to war anymore. I want to donate to low-income housing.” So, he does his investments and then he gets tax breaks for that.
Amanda: Yep. He's talking all about how taxes really work and why the rich don't pay taxes, and that's his perspective, very interesting take on taxes and what's happening with that. [16:57.5]
Then I found this other video from April 2019 that was kind of a preview of a longer interview. We'll put this video in the show notes as well. It's only a minute and a half or so, maybe two minutes, and this is a really good snapshot of how he’s promoting becoming the rich pay no taxes, invest in real estate, have employees as a business owner, do some personal research and development, spend money on things that the government wants you to spend it on and thereby get tax breaks. But in this other video, he shares what will result from the current money system and what's happening with it.
Brandon: And this was again in April 2019, so now we are in 2020, and so I think it's really interesting to think when that was said, where we're going now.
Amanda: Yeah. Our money system is designed to keep the rich getting richer, and the poor and middle class poor. [18:04.3]
Amanda: “Capitalism is run by a central banking system controlled by the rich. I decided I'd rather be on the banker side than the employee's side.”
Brandon: I liked that one.
Amanda: “As an entrepreneur, my job is to create assets. I take loans to buy assets. The real game is called debt and taxes,” end quote. There you go.
Brandon: That might've been the video I shared with you.
Amanda: It probably was. That he was bringing it back to the game, right, real life is a game and it's all about debt and taxes is what he's saying. Let's continue with the quote. “Government needs me to be in debt. If there's no debt, the economy collapses. When I borrow money, I create money. The more I borrow, the happier the government gets because I'm putting money into the economy, and if you're paying taxes, you're not helping the government.” I’ll end the quote right there, and that's very interesting.
Brandon: If you're paying taxes, you're not helping the government. [19:01.6]
Amanda: It's really interesting. He is sharing how the money system works, right? He is sharing how the rich get richer, and the poor and middle-class get poor, because the government needs us to be in debt. When he's borrowing money, more money is created. The more he borrows, the more the economy keeps growing, and the only reason people have to pay taxes is because they're not investing in the things that the government wants them to invest in to help the economy grow, like housing and businesses and things like that.
hen when we get to this point, we hear the interviewer ask him a question. If this is how the money system works, where does that mean we're headed? What is this all going to end up with? Then I think he’s super honest and here's what he says, quote, “I think we're going to economic collapse. We spend too much money. We print money. We debase our currency. We can't keep giving money to people for free. It's not going to last. We're in serious trouble financially,” end quote. [20:10.0]
This was the point where I was like, I'm so mad right now, because he just said, Here's how the money system is played. He's choosing to play that game to be part of that money system to play along with it, even though he then says he thinks that means there’s going to be an economic collapse.
Brandon: And teaching other people to play that game in that kind of way.
Amanda: Right, even though he says that he thinks it means we're going to be in an economic collapse. When he borrows money, that gives the government the ability and the banks the ability, not the government, the banks the ability to more money, right? And that creation of more money debases our currency. With this sentence, we can't keep giving money to people for free, he's kind of doing a nod to social programs. We can't keep these up. [21:00.5]
But it's also like we can't keep giving people free debt with such low interest that it's basically free. It's not even keeping up with inflation or it's just barely above inflation as also what that means to me that this whole system is not going to last. Yet he continues to operate in that system and help other people play that game and further that system, and maybe just possibly the bigger that system grows, the harder the crash is going to be.
Brandon: What does all this mean? Now, you can come to your own conclusion, but here's Amanda's take.
Amanda: I don't want to sound like a total conspiracy theorist or all gloom and doom, so let's bring it back a little bit. Take what I'm saying, weigh it against your own experience, see what rings true for you and keep doing your research. Keep listening to different voices. Keep getting more of a clear picture of what's happening, not just from the mainstream. [22:03.8]
Remember, Dave and Suze both got started in the financial sector and the 1980s, Suze with Merrill Lynch and Dave with Primerica. At that time, Robert was involved in business, especially with Amway, and Dave and Suze in that cultural milieu of the large investment firms, they promoted what the large investment firms wanted people to do, invest in the stock market, use mutual funds, active stock trading, whatever.
Brandon: Buy term and invest the rest.
Amanda: Yeah. Robert was outside of that influence. He was not part of a major investment firm or anything in cahoots with them, but he still had a cultural milieu. He had his experience that was still influencing him, and his thoughts about real estate and business became a great alternative to Dave and Suze's advice.
For people that didn't want to participate so heavily in the stock market, Robert and real estate became their go-to source for inspiration, and I think it's great to have an alternative to those blanket statements and the baby steps that get you out of an extreme situation. [23:07.7]
But we have to ask ourselves, Is that alternative any better? Is it leading us down the same dead end path to total economic collapse due mainly to economic disparity? I mean, think about it this way. If you took the average employee and you told them to follow Robert's advice, to leverage debt, to buy real estate, to create passive income, they started when they were 30, pretty young, and the goal was by the time they were 70 over the 40 years to build enough passive income that they didn't have to worry about anything for the rest of their lives.
What do you think are the chances that they're successful? How many of them actually do it? How many of them go bankrupt in the process? And how many actually have enough at age 70 to cover all their needs and wants when they're starting as an employee with very little at the beginning? And this is kind of where the title of the episode came from. Is Robert's advice asking us to leverage too much? [24:08.2]
Brandon: Yeah, and, again, for me, I think we want to make sure we are not leveraging too much, maybe a little, but making sure that we are sustainable and creating a sustainable future that our grandkids can be a part of, and that it's not all about my wants and my needs now, but building a future for us when we're 70, us when we have kids, us when we have grandkids that they actually have hope as well.
Amanda: Yeah. The two major things we want to conclude with is that the game that we're playing has real consequences. There is an economic system. There's a money system. There is a game underfoot in the world, but it has real consequences, and you have to choose which part of that game do you want to play in which part of the game you want to change to create a better future, a different future. [25:07.3]
Brandon: And he also goes on and says that the game is rigged and he clearly states the rich have a little bit of an upper hand here, so that whole idea of taxes and that, and so realizing that maybe there are things that we want to think through.
Amanda: Just like the board game is rigged in favor of real estate, right?
Brandon: Yeah, exactly.
Amanda: The game in real life is also rigged. There are ways that it's in favor of certain things and not in favor of others, like the tax code. It's in favor of certain investments and not others.
Brandon: Do we want to think strategically and think smart about knowing that and not just assuming that these pundits or people, learn and think about it for ourselves? [25:56.9]
Amanda: Yeah, and also remember Dave's ideas, Suze's ideas, Robert's ideas, the whole using the stock market for the primary way to invest, that hasn't been around forever, right? The normal average American didn't start doing that until the late-70s into the early-80s. With real estate, that has been around for a really long time, but only a few people within a society have participated in building lots of real estate holdings and being successful at that.
But there have been time-tested wisdom, time-tested ways of making sure that you are using your money wisely that we can turn to, that we can listen to those products that have been around for centuries and use those that have been the cornerstone of so many Americans, when you look at our 200+ year history that had been the cornerstone of so many Americans’ finances, and what makes us to say that that's not good enough for us. [27:02.7]
Okay, we're going to conclude there. This episode has gone kind of long. Next time, we're going to get away from critiquing humans to critiquing robots. We're going to talk about robo-advice.
Amanda: Yeah, robo-advisors. Are they the answer to asset under management fees and bias from cultural experience? What would Grandma say about robo-advisors?
Brandon: Until next time, keep building your wealth simply and sustainably, so you can break through to a smart, stable, financial future.
The topics presented in this podcast are for general information only and not for the purposes of providing legal, accounting or investment advice. On such matters, please consult a professional who knows your specific situation.
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