Reaching the I-Investor of the Cashflow Quadrant is the best option for us to escape the rat race. But how do we become a successful investor?

In my early posts, I gave some reasons on why do you need to invest. In addition to that, Robert Kiyosaki gave the different types of investors, of which ‘ultimate investor’ is at its peak.

In continuation of my learnings on Kiyosaki’s teachings, I now present The Seven Rules of Investing, in which according to him, you should commit yourself before launching to become a successful investor.

I will try my best to add some of my insights on it and try to explain the best that I could for the benefit of my readers.

Rule 1: Know what kind of income you have to work with. Are you dealing with earned, portfolio, or passive income? These are the three types of income where we get the cash or money that we spend. They greatly differ on how do we produce it and in terms of taxes.

Rule 2: Convert earned income into portfolio income or passive income as efficiently as possible. This will not only put your money to work for you but also increase the chances that your funds will grow. For example, an investor might purchase a multifamily home, live in one unit, and rent out the others to cover the debt service, or rent out all the units for a positive cash flow, investing the profits in securities. A good advisor can tell you how to handle investments in ways that maximize tax efficiency.

So instead of spending your income that you get from your job in other unneccessary expenses, why not try to learn where to invest your extra cash to make your money work for you. There are several options like mutual funds, time deposits, stocks, trust funds, etc. I’m sure in due time, you will be able to build assets that will ultimately replace and convert your earned income into portfolio or passive income.

Of course, to spread the risk, you should not only concentrate on investing in one type of investment. Consider distributing your nest eggs in a lot of baskets so that when one investment fails, then it won’t ruin everything.

Rule 3: Purchase securities with positive returns. Obviously, securities are bought to serve as assets, yet some securities lose value and become liabilities. While no investment is risk-free, the educated investor will more often than not buy securities that provide a good return on investment.

Stocks, as an investment, provide good returns to investors who know how to play it. However, as with any other investments, it comes with a huge risk. We all know that the higher the return, the riskier it is. Before you purchase securities or stocks, educate yourself first.

If you are interested with educating yourself on stocks, the articles that I’ve made on how stock market works and stock trading tips might help you.

Rule 4: Become your own best asset—instead of your own liability. A good investor buys undervalued securities in a bear market or lucrative real estate in foreclosure. A bad investor locks in losses on a stock by panicking in a market slump. An educated investor is emotionally neutral when making investment decisions.

In addition to this, don’t forget to continuosuly educate and take good care of your health as yourself is the investment with the best return.

Rule 5: Be prepared for anything; don’t try to predict what will happen or when. Investing is a skill, not a science. Professional investors know they cannot control the real estate or stock market, let alone the global economy. Instead, they train themselves to be financially intelligent, to think confidently and creatively when opportunities or problems arise.

Rule 6: Learn to trust that, when a good deal presents itself, the funding will be close behind. Sophisticated investors know a money-making deal when they see one, and nothing generates financial backing like the prospect of success. The opposite also holds true: If respected investors are all rejecting a deal, an investor should heed the red flag.

Rule 7: Know how to evaluate risk and reward. There is risk in every investment, but risk is a relative term. An investor who can understand a company’s financial statement, evaluate a business system, or take the pulse of the stock market has a greater chance of buying an asset than a liability. Since risk is often directly proportional to reward, anyone who hopes to become wealthy must be able to invest more aggressively than someone who’s content to be secure. The more financially educated you are, the less risk you’re taking.

As an ending to this post, I would like to give another Rich Dad Tip for all:

“Investing is less risky than being an employee. Skilled investors are in control of their investments; employees are under the control of their employers.”

Source: Robert Kiyosaki’s Coaching Program

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