Robert Kiyosaki famously said that savers are losers; I agree with him wholeheartedly. Most people believe that he wants people to be reckless with their money.
However, he means quite the opposite. He is saying that depending on the bank to generate your rate of return will always be a failing proposition.
For the last two years, we have had interest rates around 5%, meaning the average American can open a high-yield savings account and earn a decent yield on their money.
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But those days are coming to an end very quickly. I expect interest rates to be around 3% within a year. Our high-yield savings account will no longer be a safe income generator for our cash.
Staying ahead of inflation. I believe the average person needs to generate an annual return of at least 10% to stay ahead of inflation—a far cry from 3%.
Inflation is the cost of being alive. We must deal with it or be consumed by it. Robert Kiyosaki’s quote alludes to the fact that we must take it upon ourselves to generate a 10% annual yield (in my opinion).
Therefore, when we look at our $10,000 HYSA on January 1st, we must decide that it will have $11,000 on December 31st.
That’s right; we are 100% responsible for creating $1,000 and getting it into our HYSA. I discussed this mentality in “Welcome to the Elite Savers of America.”
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Today, I want to walk through a few ways to create $1,000 to ensure our HYSA ends the year at $11,000. Remember, next year, we will start at $11,000 and need to end at $12,100.
Thankfully, the strategies we implement exploit the power of compounding to grow our wealth. Let’s begin.
Starting with HYSAs. The first way to generate a return is through our high-yield savings account. I have a few HYSAs, but my favorite is through Discover. I also use M1 Finance and SoFi.
At 3%, we will earn $300 annually via our HYSA, which leaves us $700 short for the year. Now, here is the crazy part: we will need to earn more income outside the high-yield savings.
This is what Robert Kiyosaki referred to so many years ago. We must think outside the box to ensure our cash beats inflation; we can’t depend on the banks, corporations, or the government.
Separating risk for safety. We need to take more risks to earn a higher yield on our cash. This is why we must have a firm handle on our lifestyle expenses.
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Putting our money into risk assets isn’t the riskiest thing on the planet; however, we must understand how to balance risk and safety.
The only person who can determine your risk profile is you. If you have a government job or are in the military, your paycheck is stable.
If you run a retail business, you may need more cash in your emergency fund. Do the math and create reinforcing cash flow to protect your assets.
Reinforcing cash flow means generating a return from a risk asset that you feed back into safe assets. Let’s dive deeper into these topics.
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The magic of reinforcing assets. Let’s split our $10,000 HYSA right down the middle; 50% will stay in the HYSA, and the 50% will go into a closed-end fund like Pimco Dynamic Fund (PDI).
The money we put into PDI is no longer part of our emergency fund; however, we can use the cash flow it creates to rebuild our fund.
PDI currently yields 14%. Putting that into our calculator would generate $700 annually from PDI. The goal is to feed that $700 back into our HYSA.
From the outside, this double-layered approach to our HYSA may seem a little strange. But remember, we must generate yield, or inflation will consume our lifestyle.
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At the end of the year, our portfolio would consist of $5,850 in our HYSA and $5,000 in PDI, for a total of $10,850. This is not ideal, but we are heading in the right direction.
Other ways to generate yields. We can invest in many more ways to create a return in our HYSA. Let’s look at a few.
- Getting a roommate is the best way to create wealth for the average person. With little risk, we can easily earn $700 per month and add $7,000 to our HYSA, blowing away our $1,000 target. Highly recommended.
- Start a blog, write books, or become a content creator. The content creator world is amazing, but it takes a good amount of time to generate income. Let’s say it’ll take at least two years to generate $1,000/year. However, the results will compound quickly once you have a handle on your niche. Moderately recommended.
- Trading options. You can trade options with $2,000 of your $10,000 portfolio. You can earn $1,000 annually without taking too much risk; however, options trading is too emotional for the average person. Slightly recommended.
The best part is combining these strategies to find the right situation. My wife and I still have a roommate because the income is just too good.
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I also trade options, write books, and use the GI Bill to go to college. I want to increase my passive income by at least 10% annually.
The danger of inflation. Inflation encompasses more than food and energy prices. Outside of the government’s inflation metrics, we still must deal with raising costs in home insurance, property taxes, registration fees, homeowner association fees, rental costs, maintenance, etc.
Robert Kiyosaki understands that the minute you stand still or get comfortable, inflation is coming to take everything you earned.
Our initial goal is to increase our HYSA by 10% every year. However, the underlying concept is that we increase our income by 10% annually.
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The magic of renting rooms. My wife and I rented rooms for five years before stopping. That allows us to build a monthly dividend portfolio that generates $2,000.
By reinvesting those dividends, we surpass inflation while keeping our money relatively safe. Renting rooms is the best way to create a wealth generator you can use throughout your lifetime.
Let’s say you have a $10,000 HYSA that you want to increase by 10% annually. If you rent a room for $1,000 per month, that would give you $12,000.
If you invested that $12,000 in PDI, you would generate $1,680 annually. You can transfer $1,000 to your HYSA and reinvent $680.
You can use your PDI account to fund your HYSA’s growth every year. That’s the magic of understanding money. But it all started with renting rooms.
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That was only from renting rooms for one year. Imagine if you were renting rooms for five years. It may sound crazy, but that is what my wife and I did; that’s how we retired at ages 42 and 39.
Conclusion. The goal is to boost your high-yield savings account by 10% every year to counteract and defeat inflation.
By understanding money and cash flow, you can generate your own return without the help of the banks. To be successful with your money, you must think creatively.
Robert Kiyosaki said it best when he said savers are losers. He means that letting your money sit idle while not using your brain is a recipe for financial disaster.
The best thing we can do is think ahead, make a plan, and count every penny that comes into our households. Every dollar should have a plan to double itself. Good Luck!
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