Cash Flow and Leverage Lyrics

The most important word in business and investing is the word cash flow

In other words, if cash is flowing into your pocket from an asset, that's very smart

But if you're continually buying liabilities where the cash is flowing out of your pocket, that's not too smart

So a rich person has better control over their cash flow, and that is a very important skill to have

In more layman's terms, it's called the basic life skill of money management

Are you able to manage to have your cash keep flowing in, or do you manage to have your cash flow out?

It is a basic fundamental life skill, and going back to it again, it is simply a choice that you can make

Nobody else makes that choice for you

The second most important word, according to my rich dad, was leverage

And leverage is the ability to do more with less

The rich are not smarter. The rich just think a little bit differently

They think about, how can I do more with less effort?

The middle class and the poor think simply

I'm going to work harder, so they'll get a second job or they'll work overtime

That's not leverage. That's you working harder for the same amount of dollars

So to give you an idea on leverage

The reason my rich dad bought apartment houses rather than a big house

Is if I bought large apartment houses and I served many people, that was leverage

And that apartment house could then buy his big house because he liked leverage

If a person just buys a big house, that's no leverage

Because you're the leverage, you're the person that has to work really hard for it

Another form of leverage is debt

You know, the people are going around saying

The way to get rich is cut up your credit cards, get out of debt and live frugally

That's not too intelligent

But what they're talking about is bad debt, and it really is not too good to have bad debt

My rich dad said, if you want to get rich, borrow, get into debt

But he was talking about good debt

So he would borrow money to buy apartment houses

So you can borrow money to buy a big house to live in, and you can also borrow money to buy a big apartment house

That's leverage, but one is good leverage, and one is bad leverage

Buying a big house that you have to work harder for, number one, you have no leverage working

And then you're working harder to leverage paying that mortgage off again

That's reverse leverage

Another way of leveraging is your ideas

You have to think big

The reason most people aren't rich is they think small

Let me give you an example

Let's say I came to you and I said

I want to start a hamburger stand. I'm going to put it in this little shopping mall

I want to work there from eight o'clock in the morning till midnight every night

Would you invest money in me, with me?

I'd look at this person and say, no, I'm not going to invest money in with you

Because you're thinking like a self-employed person or a small business owner

So his idea is too small

Now that same person comes to me and says

I'm going to open a hamburger stand

I'm going to buy the best real estate in the world

And I'm going to put my hamburger stands on every street corner throughout the world

I'm going to call it McDonald's

You see, it's the same hamburger stand, except one person thought small

And one person thinks big

So a great form of leverage is allowing yourself to think bigger, to do more with less

As I said, my poor dad always said the rich are greedy

And my rich dad said, the rich are generous

And the reason they're generous is they think about how they can do more and more for more and more people

People who are generous with thinking big provide jobs

They put up more buildings

They actually pay more in taxes ultimately, and they actually do more for the economy

So a big form of leverage is not how hard I can work

But how big can I think

And that is a very important aspect of becoming wealthier the older you get