Page 93 - Rich Dad's Increase Your Financial IQ: Get Smarter with Your Money

business cannot expand via investment or acquisition, it may buy back its
own stock. This stock repurchase may sometimes mean the company feels

it is not able to expand the business and opts to buy itself instead. If this
action sends its stock price higher, many shareholders will be happy, even
though the company is not growing.
Whenever I hear of a company buying back its own stock, I realize it

may mean different things. A stock repurchase may mean the company has
stopped growing and the leadership does not know how to grow the
business. This is not a good sign for investors. Instead of buying more
shares as the stock price goes up, it might be time to sell.

A stock repurchase could also mean the leadership thinks its stock price
is a bargain compared to the asset value of the company. If this is the case,
then investors should be buying more as the stock price rises.
In other words, a budget surplus of a business can tell you different

things about the business and its leadership.

BUDGET SURPLUS OF AN INDIVIDUAL

Barron’s states, “An individual with a budget surplus may choose to pay

down debt or increase spending or investment.”
Notice, Barron’s offers three choices to individuals. These are: paying
down debt, spending more money, or investing. As most of us know, one of
the reasons so many people have trouble financially is because they

increase spending and debt, and reduce investment.

Two Choices

When it comes to financial IQ #3: budgeting your money, there are only
two choices—deficit or surplus. Many people choose a budget deficit. If

you want to be rich, choose a budget surplus, and create one by increasing
income, not reducing expenses.

A BUDGET DEFICIT

I have a friend in Atlanta who makes a lot of money. He has to make a lot
of money. If he stops making a lot of money, his money problems will eat
him alive. He has chosen to create a budget deficit.