The Seven Financial Predators

Here's a thought from Robert Kiyosaki's new book Rich Dad's Increase Your Financial IQ: Get Smarter with Your Money where he lists his thoughts on what financial predators (as he calls them) exist and how to protect your money from them. The predators:

• The Government -- Taxes are our single largest expense. There's a big difference in taxes paid on earned income versus portfolio income versus passive income. Know these and plan accordingly to minimize taxes.

• Bankers -- Banks take your money, charge you tons of fees for various financial transactions, and then work to lend you money at a much higher interest rate than you receive.

• Brokers -- This includes all sorts of brokers -- brokers for stocks, bonds, real estate, mortgages, insurance, businesses, etc. Another word for "broker" is "salesperson." Do you really want to get your financial advice from a salesperson?

• Businesses -- One of the reasons so many people struggle financially is they buy products that make them poorer and then make themselves even poorer by paying for that product for years with high-interest credit cards.

• Spouses -- Marry wisely and get a prenuptial agreement.

• Family -- Plan your estate properly or your wealth could go to someone you don't want to get it.

• Lawyers -- These people are just waiting to sue you, so you should keep nothing of value in your name, buy personal liability insurance, and hold assets of value in legal entities.

Here's my take on these:

1. Yep, taxes are a killer expense. I don't mind paying my fair share, but I'm certainly going to work to pay no more than that. I wouldn't even mind contributing a bit extra to the public good if I felt that the government was spending my taxes wisely but I think they're wasting a boatload of all the money we give them.

2. I personally don't keep much money in banks. I have a checking account and that's it. I NEVER use my ATM card (it's locked in my safe.) Most of my assets are with Vanguard.

3. Yes, Vanguard is a broker, but they're about the cheapest one going. As far as other brokers go, I try to minimize my contact with them. I think you all know how I feel about this lot.

4. He's preaching to the choir here. I agree that people often can't control themselves and buy things they can't afford -- then make it worse by keeping it revolving on credit cards. Have you ever been in a building of some of those credit card companies? I have, and they're pretty nice. Yep, they're making money hand over fist.

5. The keys regarding marriage are to marry the right person and then stay married.

6. You need a will. If for no other reason, you need to name guardians for your kids.

7. Two words: umbrella insurance.

Comments

[Kevin]

I'd like to see his plan for keeping nothing of value in your personal names. I hope he isn't advocating sham corporations here. The IRS is all over those and none too happy about it.

[No Debt Plan]

I agree with you on #5. If you marry "wisely", then you shouldn't need a pre-nup.

[Outdoorgrrl]

#7 makes me laugh so hard. Lawyers don't go around randomly suing people. They only help other people sue people.

[Lawyeronthedl]

Ha Ha. I love his idea of keeping property in corporations to avoid "the lawyers" getting them. I am involved in a bankruptcy case where the debtor did just that - transfered his home to a corporation. Then the corporation declared bankruptcy. Guess who has been evicted from their house?

[Brian]

#7 is the biggest load of crap. Lawyers don't sue people, people sue people. They hire lawyers to represent them after they've decided to take legal action.

Lawyers are broadly divided into two groups: litigators and transactional attorneys. The first group does help sue people, the second group (of which I am a part) typically NEVER wants anyone to sue. For example, on a real estate deal, my sole goal is to get the deal done and I want everyone to be happy and never sue each other over anything. If I don't step into a courtroom in my entire career, then I'd be a happy guy.

What you all are thinking of are slip and fall, personal injury attorneys. They're scum. But guess what, there has to be people who want to sue over those types of wrongs.

Anyway, Kiyosaki is a complete fraud anyway. Google him and you'll come up with why.

[Amy]

Just out of curiosity - how and why don't use you an ATM card? Does Vanguard have a branch I don't know about that you can walk into to withdraw cash?

[FMF]

Amy --

I take cash out maybe once a month when I'm already heading for the bank for another reason (it's on my way to/from work).

[Nine Circles]

I think he's left out the biggest predator: children. Or to be more specific, parents on behalf of their children. I think American parents have absolutely gone round the bend when it comes to kids. Very few parents seem to have any ability to differentiate between what their kids need and what their kids want and what they want for their kids.

[Moneymonk]

I agree with nine circles- children can be a huge expense when you're not disciple with money

[Sarah]

"There's a big difference in taxes paid on earned income versus portfolio income versus passive income."

Christ, I wonder how many people have ended up paying who knows what in penalties because they listen to this guy's tax advice. Between this dangerous misinformation and the sham corporation advocacy that others have already pointed out, he's practically the pied piper of tax fraud.

(Just an example: there is such a thing as "passive income" in the tax code, but it's a fairly narrowly-defined category that has little or nothing to do with "passive income" as he talks about it. For example, the "passive income" of royalties on a book? Taxed as regular income.)

[Josh]

He is a review of Kiyosaki that makes me wary of him.

http://www.johntreed.com/Kiyosaki.html

[JK]

This is the way to avoid taxes: http://www.wsws.org/articles/2002/aug2002/bush-a01.shtml

[sow]

I don't understand why his tax advices is bad? He promotes tax avoidance, not tax evasion. But, maybe I'm out of the norm here because we just paid tax penalties for paying too little during the year...and would do it again.

[Zook]

**COUGH, COUGH, COUGH**

You would pay tax penalties again?

I almost just spit out my soda.

[sow]

Zook -
Sure. We actually owed a few thousands in taxes (plus the penalty).

Insane? Let me ask you this question. By prepaying my taxes, who's utilizing my money? The government. At the end of the day, I pay the same amount in taxes, whether I pay more during the year or owe at the end (with a possible small tax penalty). In my mind, I would rather use that money to make more money during the year and pay it at the end.

What I think is funny is that people get so excited about getting a tax return. Believe me, I was one of them. But it's YOUR money. They're just giving you back what YOU overpaid. How exciting is that?

[FMF]

Sow --

I was under the impression that penalties for not paying enough were so high as to make NOT pating enough a bad financial decision. Are you saying this is incorrect?

[sow]

I would say it depends...on you. How comfortable are you having to pay at the end of the year instead of throughout? Will you consume it? Will you absolutely dread cutting that huge check come tax time? Do you have the knowledge and the ability to velocitize that money?

My advice would be focus first on your thoughts and ideas of paying taxes and then start looking at the different strategies.

[FMF]

Thats' not what I meant. I thought that the penalty was something like 3% per month (36% per year) or some outrageous number like that -- something that made EVER paying a tax penalty a bad idea.

FYI, I agree that you shouldn't get a refund, but even worse than getting one is having to pay a penalty (or such was my understanding.)