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Second Chance – Exploring the Past, the Present, and Future with Robert Kiyosaki

Review of Second Chance by Robert Kiyosaki

I’ve read quite a few financial and business related books over the last decade, and Second Chance by Robert T. Kiyosaki is one of my favorites. I’m sure Kiyosaki is no stranger to anyone who reads financial or business related books. His Rich Dad, Poor Dad empire has grown such that he has now released approximately 30 books. Robert Kiyosaki’s net worth is thought to be around 80 million.(1)

Kiyosaki definitely has a way of presenting his philosophy on money that comes across as down to earth and relatable and I can see why he has become such a household name for personal finance over the past 20 years.

In Second Chance he presents his financial view on The Past, The Present, and The Future, in a three part treatise. He also presents many concepts from his previous books, especially the Rich Dad, Poor Dad book, and unlike some reviewers I actually enjoyed that aspect of the book.

His quotes from other books didn’t come across as a sales pitch like other authors seem to do. He quotes R. Buckminster “Bucky” Fuller often, with references that permeate every chapter. Kiyosaki is obviously a fan of Dr. Fuller, who passed away in July of 1983.(2)

In Second Chance Kiyosaki does a great job of presenting the problem with our modern world today (lack of sound financial education) in the section of the book titled The Past. He then proceeds to outline a very thorough plan for overcoming the problem and reaching the goal of financial independence in his section titled The Present. And finally, in The Future section he presents a plan for accomplishing much while living through times which may be drastically different than what we see now.

Those with a curious mind and a willing spirit will definitely walk away from the book with a strong desire to act, and a plan to act upon. For those with cash value life insurance, you’ll be comforted to read that your life insurance is an asset and not a liability. 

Part 1 – The Past

In part one Kiyosaki presents his view that new “wealth” is no longer cash, but knowledge. In addition, he believes that the current monetary system is how the rich enslave the lower classes.

(I’d like to point out that in this reviewers opinion, it is the monetary system coupled with the differences in education received between the rich vs the poor, that allows the rich to remain in their positions of power.)

When speaking about the different societal classes he states that the United States runs on the “engine” of the Middle Class, and therefore if the Middle Class is in decline, then it follows that the United States is in decline.

It’s not hard to see the truth in this belief. Just recently I read about a study that showed that Millennials were earning about 20% less than Boomers in the same stage of life.(3) This isn’t news to anyone really, you’d have to be living under a rock in America to avoid obvious truths like these.

However, Kiyosaki doesn’t stop there, he continues by pointing out that there are essentially two types of rich people; those that have high paying jobs, and those that have assets that pay them income. One works for dollars, while the other has dollars work for them.

This is where Kiyosaki takes a moment to present some of his concepts from his previous book Rich Dad, Poor Dad. The definition of an asset is presented as something that provides income to the owner, i.e. puts money into your pocket. An asset is contrasted with a liability which is defined as something that takes money out of your pocket.

In his famous example, Kiyosaki states that most people consider their home to be an asset, when in reality it is likely a liability because it costs money to keep it. He is definitely not discouraging real estate as an investment, to the contrary, he is actually very much an investor in real estate. But in order for it to be an asset, it has to be earning income, such as rental income.

Later in the book, Kiyosaki makes a strong case for individuals to go out and invest in assets, even at the expense of modern wisdom proposing expensive college degrees and classes.

(A savvy investor could use a cash value life insurance policy to fund the down payment of a rental property, and recoup the financing costs associated with the down payment by repaying his loan, while earning dividends and interest on the cash value in the policy simultaneously, a la the infinite banking concept®. Just one example of an asset as explained by Kiyosaki.)

The Boomerang Generation

The Boomerang Generation is defined as those children that graduate from college and then move back in with their parents because they haven’t been able to land a job that provides enough income to live on their own. This generation, also known as the Lost Generation can be characterized as individuals that are working below their education level.

As I was reading through this part of Kiyosaki’s book, it seemed odd that the title of the section was The Past when it seemed so obvious that it was actually the situation that we see in our world today, in the present. Kiyosaki attempts to reconcile this apparent disparity by pointing out that the educational system and philosophies of our past have resulted in the situation we have today. I understand his point, but it did seem odd to describe our current-day situation under the section titled The Past.

An entire chapter of the book is given to “Bucky” Fuller, the man of many accomplishments. But the thing I took away from this chapter was a single principle – aptly titled the Fuller Principle, which states – the more people I serve, the more effective I become.

Kiyosaki goes so far as to state that those that want to become wealthy just need to figure out how they can serve the most people. (It is this value creation that leads to wealth, because dollars follow value.)

I think it’s a great way of motivating would-be entrepreneurs. I’ve seen this same principle stated a number of different ways, but I don’t think I’ve seen it presented more succinctly than by Fuller. Kiyosaki continues by saying that the rich should seek to be generous, and that people should not seek to earn more money, but seek to help more people.

Kiyosaki doesn’t say this so that people will eschew money, but says that by doing so they will actually increase their effectiveness and therefore become wealthier.

(In other words, if you want more money, you should seek to help more people and money will follow.)

Second Chance is not kind to defined contribution plans such as the 401k, 403b, and IRA, or even to the Defined Benefit Plans that most pensioners have. Kiyosaki points out the effects of the 2008 market crash on those accounts and suggests that crashes are not as unusual as we might think.

Instead, the crashes in the market are much more likely to happen again and again. In fact, later in the book Kiyosaki states that he believes another major market crash is coming around 2016. [Update: Kiyosaki is still expecting a crash but believes Donald Trump has pushed out the inevitable crash a few more years.]

I’m writing this in January of 2017 and we have yet to see a big crash in the market. The longer we go without a crash, the more obvious it is that Kiyosaki’s prediction was wrong. Then again, crashes are inevitable so maybe he simply missed the date by a little bit. If we get another major crash before 2020, that would still represent the third major crash in the last 20 years – not a good omen for those that are banking on their 401k or IRA to last them through retirement.

(That is why banking on any instrument or product is foolish. Instead, you should bank on you, that is, invest in yourself so that no matter what occurs in the financial markets, you have developed yourself in such a way that you can make the most educated decisions on what to do next.)

While Kiyosaki may be wrong in his timing, I think he still makes a good point about the instability of the stock market and the obvious risks for those that are putting all their eggs in their 401k basket.

Cooperation vs. Competition

Dr. Fuller states that we have spent too much energy and resources developing competitive environments and individuals. We are good at killing and waging war, but we are poor at cooperative endeavors. The competitive environment creates a system of gridlock which leads to emergencies. Fortunately, emergencies are an opportunity for cooperation, because we have no other choice if we want to survive.

Kiyosaki points to the Marines who believe they are the best branch of the military. They all succeed as one unit or they fail as one unit – cooperation is everything in order to achieve success. I love the idea of promoting cooperation and I love that Kiyosaki is pushing for teams.

It’s true that the whole is greater than the sum of the parts, but it takes effort to cooperate and work out differences within a team. Emergency situations may not be enjoyable to navigate but they definitely provide the necessary motivation for ironing out the kinks along the way.

the General Principle of Ephemeralization

While sharing his thoughts on cooperation Kiyosaki shares another principle from Dr. Fuller – the General Principle of Ephemeralization. This term, coined by Fuller, is the ability of technological advancement to do

“more and more with less and less until eventually you can do everything with nothing.”

An example of such would be the assembly line of Henry Ford. With technological advances we are able to provide more benefit, with less output or work.

A modern day example of this might be the inside of an Amazon fulfillment center, or perhaps a Google data center.

Regardless, it’s clear that we are in many situations doing exactly what Fuller described. So now what? What does Kiyosaki propose we do with this principle in place?

Kiyosaki suggests that the principle requires that we cooperate more fully or we will find ourselves obsolete. He states we need to get our heads out of the Industrial Age and get into the Information Age. If we don’t, we may miss out on significant opportunities.

Lack of Education About Money

Throughout the book Kiyosaki is trying to persuade the reader that our education system is flawed, specifically when it comes to our understanding of finances.

Much of the book is about opposites. Kiyosaki presents what many believe is modern wisdom, and then he showcases why the opposite is actually true. Below is a chart that Kiyosaki provided that showcases what he means.

The schools teach us to use the words on the left, Kiyosaki teaches people to use the words in the right column:

EmployeeEmployer
SaverDebtor
Taxed IncomeTax-Free Income
LiabilityAsset
Self EmployedEntrepreneur
PaycheckCash Flow
GamblerInvestor

Cashflow

When Kiyosaki says Cashflow he is referring to obtaining assets and being able to have passive income, i.e. making money while you sleep.

If you don’t find a way to make money while you sleep, you will work until you die”. Warren Buffett(4)

Rental property would be considered an asset and would be beneficial to Cashflow. Owning a portion of an oil rig would also be considered an asset that generates passive income and has specific tax advantages.

(In addition, you can utilize dividend paying whole life insurance as a tax-free savings tool vs. saving a portion of your paycheck and placing it into a taxed savings account, or fee-laden and taxed investment account. These are things that we can do to increase our Cashflow.)

With respect to this term, Kiyosaki actually created a boardgame years ago called Cashflow and he markets it as a game that teaches financial education. In the game of Cashflow the person that uses good debt the most and obtains the most cash flowing assets, wins.

In other words, he doesn’t see the benefit to paying off your mortgage in which you’re borrowing money at 4%, if you can use that money to purchase another asset that will earn a  greater return. This is the velocity of money, keeping your money moving and avoiding the stagnation of having sit in some compound interest account expecting to grow wealthy.

Many of us know that we shouldn’t gamble in the stock market, and we also know that we shouldn’t just rely on our savings to provide retirement income.

But very few of us act on the knowledge we have.We don’t change what we are doing. And according to Kiyosaki, the reason we don’t act on the knowledge we have is because we are afraid to make mistakes. Fear holds us back.

One suggestion is changing the words we use. We need to change the words we use, such as replacing the word entitlement with responsibility. And we need to resist the urge to believe the lie “All you have to do is…” to get rich or be successful. The lie is that it is easy, that it is simple. The reality is that it takes hard work, responsibility and value creation to get rich.

Part 2 – The Present

Kiyosaki begins the second part of his book by stating that all the problems presented in the first section of the book can be confronted by giving yourself a Second Chance – like the title of the book suggests.

This second chance is only available to those that are willing to undergo a change from within, or a metamorphosis in our thinking. We have to learn to “think rich.”

The path to this way of thinking is presented in the next ten chapters or so. These chapters could honestly all be grouped into a sub-heading entitled “The opposites.” Let’s take a look at these chapters in brief.

Chapter 9: The Opposite of “Go to School”

Kiyosaki states that debt and taxes make you poorer if you invest in paper assets (also known as tertiary wealth). But debt and taxes make you richer if you are a professional investor in Real Estate.

Therefore, going to school, to get a degree, to get a high paying job, is investing in tertiary wealth (paper assets). Whereas learning about money, to use debt to acquire assets, is investing in secondary or primary wealth.

In the former situation you are relying on the business owner, who is relying on the economy, to earn your income. In the latter example, your assets earn income and have significant safeguards against trends and economic cycles. Not to mention the fact that most Millennials today are graduating with a mountain of student loan debt (bad debt) that handcuffs them for years to come.

Chapter 10: The Opposite of “Don’t Make Mistakes”

The reason why we all fear to make mistakes is because in school we are taught that making mistakes means getting a poor grade. In contrast, those that memorize the right answers, are supposedly the smart ones.

Kiyosaki believes the opposite is true. We should not fear making mistakes, instead we should learn from our mistakes. Those that are the biggest winners in real life are likely those that have failed the most, and have learned from their mistakes.

In school the person that makes the fewest mistakes wins. In real life the person that makes the most mistakes wins.

THEREFORE – find a place you can make the most mistakes and get to it!

For those that are familiar with Malcolm Gladwell and his massive best-seller Outliers, this will come as no surprise. Gladwell showcases the massive success of those that have 10,000 hours of “practice” in any given endeavor. Kiyosaki states the same thing in another way with his “make mistakes” directive.

Chapter 11: The Opposite of “Get Good Grades”

After WWII the United States had the best High School graduation rate in the world. Today, we rank 22 of the 27 industrialized nations. Only 46% finish college – and therefore we rank dead last among industrialized nations.One problem with our education system is that it is designed for the Industrial Age – This is ridiculous. We are not robots.

The Tetrahedron – the four types of Intelligence that make you a human being.

  1. Physical Intelligence – found in the muscles.
  2. Mental Intelligence – gifted learners, found in the brain.
  3. Emotional Intelligence – good at handling life’s challenges, located in the gut.
  4. Spiritual Intelligence – religious leaders, located in the heart – the most powerful.

(Strengthen these intelligences by going to the gym, the library, taking an investment class, hire a coach (find a friend), and going to church. Remember, you are your greatest asset. Increase your value and increase your wealth. Dollars follow value.)

Typical schools focus on Mental Intelligence only, and for a few individuals on Physical Intelligence as well. Very few do much to encourage Emotional Intelligence. This all plays into the success / failure discussion mentioned in the previous chapter. Those that have the most success in life probably have more failures than others, and therefore have a higher Emotional Intelligence.

Chapter 12: The Opposite of “Get a Good Job”

Going to school teaches you to be a specialist – they know a lot about a little. But good entrepreneurs are generalists – those who know a little about a lot.

This was a fantastic revelation for me, because I’ve always been known as a generalist and I frequently considered it a massive shortcoming on my part. Reading Kiyosaki on this point was a bit of an eye opener, and definitely a refreshing perspective on those of us that don’t have a specialty that shines bright.

Solid business owner entrepreneurs need to have a team of specialists that know more than they do in their given specialty.

Chapter 13 – The Opposite of “Get Out of Debt”

NOT ALL DEBT IS CREATED EQUAL.

Good debt makes you richer.

Bad debt makes you poorer.

This is a key concept for Kiyosaki, and one that many “gurus” will take issue with. Buying an apartment building with debt, and then making more in rent than the mortgage payment, is positive cash flow.

In this case the debt is “good debt” because the apartment building is cash flow positive. Money goes into your pocket. This is exactly what the rich are always looking to do with their money, leverage your money into good debt to create more income producing assets.

Kiyosaki says if you are poor, listen to Suze Orman. If you are in the middle class, listen to Dave Ramsey. But if you want to be wealthy, follow the rules of the rich. The rich use other people’s money (i.e. good debt) for financial leverage.

Chapter 14: The Opposite of “Live Below Your Means”

Expand your means by taking control of your asset column. Change your focus from your income column to the asset column. This is where the rich focus their time and effort.

Most people struggle because they buy liabilities that they think are assets (fancy cars, boats, expensive houses).

Kiyosaki suggests we make a list of the different assets that we want to acquire (Real Estate, Oil and Gas, Intellectual Property). It’s okay if we don’t know how to acquire them yet. We should look at the list daily so that it frames our way of thinking.

Chapter 15: The Opposite of “Don’t Cheat”

In school if you ask for help, it’s considered cheating. It real life, you NEED to get help. You don’t have to be the smartest person on the team.

Rich Dad solved his problems by asking others, and therefore enjoyed tremendous success.

Poor Dad solved his problems on his own, and his success was severely limited.

The opposite of cheating is COOPERATION.

Chapter 16: The Opposite of “The Rich are Greedy”

Rich people are not all greedy. In fact, those that give the most, may be the most liked of all the people. Walt Disney for example! Here is another place where we see the Fuller principle – the more I serve, the more effective I become.

Money does not make you a good or bad person. You simply are who you are and money provides you with the opportunity to fully reveal your true identity.

You see, if you are a giving person now, you will continue to give when you have money. If you are a miser now with little money, you will be a miser still with much.

Money allows you to maximize who you are by giving you more resources to bless others in a way that aligns with your beliefs.

Chapter 17: The Opposite of “Investing is Risky”

There is risk when you buy a house, but there is also risk when you are learning to walk, or learning to drive. But the rewards outweigh the risks, correct? Practice means that we decrease our risk while increasing our reward.

Risk + Control (comes from practice) = Reward

Types of controls

  1. Control over our education
  2. Control over our advisors (don’t listen to salespeople)
  3. Control over our time

$10,000 investment in Exxon is completely risky. $10K investment in an oil well = 3,200 tax deduction. That’s a 32% return guaranteed. Which investment would you choose?

(In this reviewers opinion, the answer is neither, not until I had a better understanding of the investment. We should invest in what we know or find out more about what we might be interested in before putting dollars at risk.)

Chapter 18: The Opposite of “Save Money”

Why save when the government is printing money? Wealth is stolen when you save, because your purchasing power declines at a greater pace than your interest rate thanks to inflation.

Why invest in a mutual fund, when you have to invest 100% of the capital, and take on all the risk (the investors put up all the money, and the mutual fund managers earn fees regardless of result)?

The opposite of saving is known as the “Velocity of money” – keep it moving! When you keep your money moving, it increases in value. The government taxes you for parking your money. It gives you tax incentives to move your money. Moving your money around is what the government wants, so you get tax breaks/incentives.

The rich keep their money moving.

Part 3 – The Future

Kiyosaki finishes the book with a short section on The Future. He encourages us not to ask “What is our government going to do about it?” But instead to be opportunists that are actively looking for ways to improve the world we live in.

We are encouraged to take leaps of faith, not held back by fear.

He finishes off by suggesting we ask ourselves the following questions.

  1. If I connect the dots of my past, where is my future going?
  2. When I was a kid, what questions did I want answered?
  3. What do I see that needs to be done, that no one else is doing?
  4. What cause am I willing to be hungry and foolish for?
  5. How much good is my work doing for the world?

And finally, Kiyosaki suggests we do the opposite of our past.

Questions that can help lead your Second Chance.

  1. Rather than look for a job, look for problems that need solving.
  2. Rather than work hard for money, work hard to serve more people.
  3. Rather than ask God for help, find ways that you can help God.

Conclusion

Second Chance is an excellent book and action provoking to say the least. I assume Kiyosaki is correct that most will read this book and increase in knowledge but will still walk away without actually putting anything into practice.

The questions above are a great place to start, but personally my reading resulted in seeking to find assets anywhere I could. In fact, it’s one of the reasons I was happy that I had a cash value life insurance policy. It’s something that generates income for me, and has tax advantages while also providing a basic need for protection.

Kiyosaki provides true wisdom in a world where financial “gurus” have all but corrupted the entire platform of financial advice.

This Second Chance review does an adequate job of touching on the main points of Kiyosaki’s book but any serious reader would benefit from reading the book in it’s entirety and passing it along to others. I’m sure you will find the book much more educational and thought provoking than my basic review.

And for those that are already convinced that assets are the best way to secure your future, you may want to contact one of our advisors. They will be happy to outline a process by which you can secure more assets while maintaining the liquidity necessary for any financial need.

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