Rich Dad, Poor Dad and more about leverage

Over the past decade, one of the hottest financial gurus for the common person has been Robert Kiyosaki, the author of Rich Dad, Poor Dad.

Kiyosaki preached a get rich strategy that he stressed anyone could do.  The cornerstone of his strategy was owning real estate.  Basically, he taught people to purchase real estate with as little money down as possible and then either flip (quickly sell it) or rent it for ongoing income.

Of course he taught other things as well involving business, the stock market, and so on.  Some of it was good and some of it was bad.  None of it was original.  You could easily buy 1,000 other books that teach the same principles in a better way.

Let’s go back to the no-money-down real estate strategy.  It seems ludicrous now.  There are two gigantic problems with it: over-leverage and the silly belief that real estate always goes up.  There is no doubt that a huge percentage of the people following his strategy for no-money-down real estate purchases have lost everything in the last three years.

I have always been adverse to debt.  I was raised that way and for many years, never had an ounce of debt, even in my business.  But slowly during the last decade, I got sucked into the concept of using leverage in the business to grow faster.  Like almost everyone else, I lived to regret it.  In fact, it almost destroyed us.

For about two years, I lived with the idea that losing money was acceptable if you were setting yourself up for future growth. That is true to a point, but it is also a dangerous trap.  In fact, two years ago, I was sitting in a hotel in Washington DC realizing that my company was out of cash and our debt levels were astronomical.  At that point in time, we literally needed a good day of sales just to have cash for payroll. 

And that is the day I changed my mind about leverage.  We cut expenses so that we could be profitable again and started the long road out of leverage (debt).  We are still 1.5 years away from done (if God wills), but have reduced our debt by 65%.

Probably, an important reason why we had the capacity to come back is that I never let the leverage trap influence our personal finances.  Thankfully, while I did buy and sell real estate during the decade, it was always with cash.  I am still stuck holding real estate to this day that I don’t want but at least I don’t owe any money on it.  Believe me when I say that takes a lot of pressure off.

Let me assure you that life is a lot easier now.  Everyone gets along better, my family is happier, and my stress is way down.  Yes, things don’t happen as fast.  Yes, growth is slower.  But I will take today over a few years ago any day.  Frankly, I am just thankful that I got the chance to come back.

I don’t mean to preach and I am not a financial expert but I have an expensive education in real-life hard knocks.  And I am here to tell you to forget about Robert Kiyosaki and the leverage trap.  His philosophy will get you into big trouble.  It may work for a while, but eventually, reality will catch up to you.  It will strain your family and your health.  You may lose everything you have.  I can’t keep count of my business associates who were happy multi-millionaires a few years ago and are now divorced and broke.

It reminds me of the young businessman who asked a wealthy older man to lunch and asked him a question: “What is the easiest way to get rich quick?”  The older man looked at him and said this: “The best way to get rich quick is to get rich slow.”

There is a lot of truth in that.