In a recent assignment involving my pursuit of a Masters in Business Entertainment from Full Sail University I was asked to respond to a question that fascinated me. The exercise involved an assessment of a successful recording company considering a substantial expansion. My task was to identify potential benefits and risks involved in this transaction. The final question pointed me to Rich Dad, Poor Dad. What I discovered is the deep rooted relationship that exists between my attachment to money. It reinforced my concern that I was identifying my self-worth by my cash flow. I also discovered that my relationship to money in positive and negative moments were both ruled by fear and desire. In effect, I was trading my sense of self for a monetary value. I was good or bad according to my bank statements. To sum up, money was controlling me rather than my controlling my money. This created numerous bad financial decisions. It was a disturbing moment and, at the same moment, epiphanic. I doubt that I will ever look back from this moment and I wanted to share it with you.
What is Rich Dad’s “Rule One”? Why is it so important?
This rule (lesson) is important because it compels us to check0in on our relationship to and with money. Do we control money or does money control us?
At its worst, money creates an emotional dynamic. It creates feelings of desire and fear. I would amplify this point taken from Rich Dad, Poor Dad by claiming these feelings of desire and fear guide deeper and more dangerous feelings of anger and frustration. Speaking in general terms, these feelings suggest that choices about how we choose to spend and earn our money are guided subjectivity rather than objectivity.
Witness the young child who imagines what he will be able to buy with $5.00 an hour. Consider the intense levels of excitement involved. And yet, this same child, under the tutelage of Rich Dad, comes to recognize the danger of these emotions and their long-term resonance.
I recall purchasing my first new car. At the time Hyundai was boasting a $5,000 car that was dependable and cost-affordable. I talked my parents into co-signing a loan for this purchase. I entered the dealership with the intentions of purchasing the basic model without any bells and whistles. The salesman took me out for a spin in one of the better models. This model had an improved sound system. He churned on the Beatles while I drove it around the block. By the time I returned to the lot I had already decided that I ‘needed’ that better sound system. I had put aside funds for a new guitar that I truly did need in order to improve the overall sound quality of my performance. In order to get this better sound system I would have to draw from those funds allocated for the guitar. I did so. Approximately one month later I ran into a spectacular deal on a vintage model fender Stratocaster. It was ironically selling for the same amount that I had spent for the better car stereo. So now I had the luxury of a better auto audio system while suffering with the same issues regarding the much-needed guitar. The term “opportunity cost” was not yet in my vocabulary. My desire for the immediate gratification created a situation that might have generated additional monies resulting in increased number of performances, better audio recordings, and the ‘joy’ attached to owning what I considered a piece of guitar history.
To equate this to our present analysis in assignment 3 I now ask myself the following questions. Is this new board this company state-of-the art? Does this equipment have the capability of adjusting to new technology and software that may appear on the horizon? These sorts of questions translate into potential net income, concerns about devaluation, and risks factors regarding future lump sum value. I note that in our book, the individual who purchases a new car attaches a certain amount of status and fulfillment in owning a new vehicle at the opportunity cost of investing in a house or investments that might yield better returns.
I point this out because we cannot as human beings discount our very nature that struggles between short-term goals and long-term objectives. It is indeed difficult at best to reach a logical compromise between these considerations. It is also true that future profits generated by most investments has with it a palatable risk factor. Given today’s complex economy these sorts of struggles are amplified.
What this rule points out is that the sooner we learn to acknowledge these concerns the more likely we are to achieve financial success and emotional balance in regard to our love/hate relationship with money. I contemplate the story of multi-millionaires who gather in the same room only to experience financial disaster in their future. The story about the sports figure unwilling to take his championship ring off while working in the car wash is particularly powerful. It demonstrates the sort of irrationality that is attached to pride and past that may rule our decisions.
To sum up, this company stands to gain approximately $10,000 per year over a five-year period realizing a potential $50,000 gain through purchase of this facility, new equipment, and the older equipment that is attached to the facility. The danger in this is reflected in their estimation of salvage value of $0 in the building and older equipment. Consider for the moment that it is more likely than not going to be seriously outdated and therefore loose potential earning future after the five-year life expectancy. Perhaps this is not the case. Perhaps the equipment can be used to generate profits by attracting emerging artists willing to forgo state of the art because of financial limitations.
Bear in mind, however, that these two young boys who agree to work for nothing create a thriving comic book library because they are hungry. In essence, they are living proof of the age-old adage that necessity is the mother of invention. Had they taken the $5.00 per hour perhaps they might not have been quite as hungry. Their acceptance of a $5.00 per hour wage might have satisfied their immediate desire and fuel their fear that they forgo future risks for immediate short-term gain. Take risks? Yes! Assess Risks? Of course! Adapt? Absolutely! Apologize? Never!
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