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How the Successful Handle Investment Planning

Avoid losing money with these helpful tips

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  • Anyone can be a successful investor if they build and follow a strategic investment plan

  • aving a strong financial education is the key to a successful investment plan

  • Asking the right questions, and learning from mistakes are just some of the tips we’ve provided to help you become a successful investor

A lot of people shy away from investment planning, because it seems too complicated, like the learning curve is too steep. And it’s true, some people do make investing seem complicated. But the truth is, anyone can become an investor with just a little bit of help and insight.

The following are five tips to help you with investment planning. They’re straight to the point, clear, and concise. All you have to do is put them to action.

Key #1: Arm yourself with some education

It’s all about education. The more you know, the better you’ll do when it comes to investing. This means that you’ll need to do some homework. The good news is that with the Internet, there are plenty of resources right at your fingertips.

In 1974, Robert Kiyosaki was learning (the hard way) to improve his financial education and investment planning strategies.

He purchased what he thought was a great investment opportunity: A small condominium on the fringes of Waikiki for $56,000. He thought he was losing about $100 a month, but when rich dad, his best friend’s father, began asking questions, he realized he had made a grave mistake.

"Don't be foolish," rich dad said. "I haven't gone over the numbers in detail, but I can tell just from these documents that you're losing more than that. Why would you invest in something that knowingly loses money each month?"

"The unit looked nice," Robert said. "And my real estate agent said not to worry about losing money. He said that in a few years the price of the unit will double. Plus, I get tax breaks from the government on the money I lose. It was a good deal, and I was afraid someone else would buy it before me."

Rich dad then began to tear Robert’s investment deal apart by asking questions that he had failed to ask.

  • Why was the interest rate so high?

  • How did the deal fit into my long-term investment plan or strategy?

  • What vacancy factor was I using?

  • What was the cap rate?

  • Had I checked the HOA's history of assessments?

  • Did I factor in repair and management costs?

  • Did I know that major construction was scheduled outside the building?

And just like that, Robert learned his first lesson: arm yourself with financial education, that way, you can ask the right questions.

Luckily, Robert was able to renegotiate the deal, and ultimately, make $80 per month rather than losing money. Better yet, he was now ready to take the next investment opportunity by storm.

That’s our purpose here at Rich Dad. The company was built simply to provide financial education. We don’t sell investments or even recommend them. All we offer is education, both experiential in games like CASHFLOW 101, and cerebral like books and seminars.

Key #2: Start small

Whatever you choose to include in your investment plan, expect to make some mistakes along the way. You don’t have to be afraid of making mistakes. Instead, be afraid of not learning from them!

Kim Kiyosaki’s first investment mistake was on the very first rental house she bought. After her first tenant moved out, she thought she could raise the rent by $35. She was only making $50 cash flow at the time, and to me, a 50% increase in profits sounded great.

Unfortunately, she didn’t check the comparable rents in the neighborhood. If she had, she would have learned that she was asking for top-of-the-market rents. As a result, the house sat empty for three months. Instead of making a little extra, she lost $1,500.

Today, she owns thousands of units. That mistake ultimately paid itself off in spades. And, because she had started small, the loss was manageable.

Key #3: Put a little money down

There are three reasons why this is important to successful investment planning.

  1. Until you have some money on the line, you’re not in the game. Up to that point, it’s all theory. You have to put your knowledge into action. As Rich Dad told Robert about his near-fail condominium investment:

    "I'm glad you took action. Most people think, but never do. If you do something, you make mistakes, and it's from our mistakes that we learn them most. Now you know the right questions to ask."

  2. A little money means a little risk, but a lot of money means a lot of risk. You can learn just as much from the mistakes on a little bit of money than you can on a lot of money. Make those small mistakes first, and then look at upping your money game.

  3. Have you noticed how interested you get in something when your money is at stake? Having money on the line helps you become motivated to invest your whole self in the process.

Key #4: Understand the true problem

In an article written by Barbara Kiviat in 2010, The Case Against Home Ownership, she rightly identifies, in so many words, that the myth of your house being an asset has contributed greatly to our current financial crisis. "But the dark side of homeownership is now all too apparent: foreclosures and walkaways, neighborhoods plagued by abandoned properties and plummeting home values, a nation in which families have $6 trillion less in housing wealth than they did just three years ago. Indeed, easy lending stimulated by the cult of homeownership may have triggered the financial crisis and led directly to its biggest bailout, that of Fannie Mae and Freddie Mac…For the better part of a century, politics, industry and culture aligned to create a fetish for the idea of buying a house."

At the time, home values had dropped 30 percent, existing home sales had dropped a whopping 27 percent over the previous month, and housing inventories stood at 12.5 months - over twice what was considered healthy.

With those numbers, people like Ms. Kiviat were starting to realize that the American Dream of becoming wealthy through homeownership is one of the biggest lies ever perpetuated on the US public.

We know that we’ve seen a fair share of problems when it comes to the housing market. It’s even considered a millstone that can potentially pull the entire economy down into a dip recession. But let's face it, the real estate market isn’t the real problem. The real problem is the fundamental lack of financial education in America. The real problem is that people don't fundamentally understand the difference between an asset and a liability. It’s doubtful that a financially educated population that understood your house is not an asset but rather a liability would have participated in the real estate frenzy that occurred early in this decade.

Understanding the root of the problem, the very basic fundamentals of investment planning: that an asset puts money in your pocket, while a liability takes money out of it, is a major step to strategically - and successfully- invest.

Key #5: Stay close to home

As the old saying goes, the grass is always greener on the other side. People are always looking for that next hot market.

But whether you’re a seasoned investor or just starting out, begin executing your investment plan primarily close to home. What does that mean? It means staying close to what you know. This is the exact opposite of acting on a hot tip!

Instead of chasing investment rabbit trails, stick to the well-worn paths you know and love. That way you can always get back home!

Original publish date: September 17, 2013

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