My Learning from the book “RICH DAD, POOR DAD”

It’s rightly said in the book, “Most people went to school and never learned how money works, so they spend their lives working for money.”

If you have not yet read this book believe me you are missing a lot to learn about the financial literacy in your life. This post is for people who either have not read this book and need to peak inside what all can they learn, or for the people who have already read this book but who wants to refresh their learning from this book.

Lesson 1: The Rich Don’t Work For Money

As quoted in the book,

The poor and middle class work for money. The rich have money work for them

Always remember, More money won’t solve your problems. There are people who earn hell lot and yet can’t pay their bills. Most people, given more money, only get into more debt. That’s because most people don’t know how to make money work for them. It’s fear that keeps most people work for money: the fear of not paying bills, loans, EMI, the fear of being fired, the fear of not having money. Most people become slave to money — and then get angry at their boss.

Most people never study the subject of money. They go to school, have fun at their work, get their paycheck, balance their checkbooks and that’s it. Then they wonder why they have money problems. They think that more money will solve the problem and don’t realise that it’s their lack of financial education that is the problem.

The author explains very well that how People’s lives are forever controlled by two emotions: fear and greed. He very well explained, If you don’t first handle fear and desire, and you get rich, you’ll only be a highly paid slave.

Lesson 2: Why Teach Financial Literacy?

There are a lot of stories where people get rich instantly because of some lottery and they suddenly loose money and become poor. You need to understand that if you want to be rich you need to be financial literate. It’s not how much money you make. It’s how much you keep and how many generations you keep.

If you want to be rich you must know the difference between an asset and liability and you must buy assets. This may sound absurdly simple, but most people have no idea how profound this rule is. Most people struggle financially because they do not know the difference between an asset and a liability. “Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets.

Rule 1: You must know the difference between an asset and a liability, and buy assets

An asset puts money in your pocket. A liability takes money out of your pocket.

The diagrams show the flow of cash through a poor, middle-class, and wealthy person’s life. It is the cash flow that tells the story of how a person handles their money.

There is a reason to “Why the Rich gets Richer?”

The asset column generates more than enough income to cover the expenses, with the balance reinvested into the asset column. The asset column continues to grow and therefore, the income it produces grows with it. The result is that rich gets richer!

• The rich buy assets
• The poor only have expenses
• The middle class buy liabilities they think are assets

Lesson 3: Mind Your Own Business

To become financially secure, a person needs to mind his own business. Your business revolves around your asset column, not your income column. The rich focus on their assets, while everyone else focus on their income statements. The assets fall into following categories which every rich should buy:

• Business that do not require my presence I own them, but are managed or run by other people. If I have to work there, it’s not a business. It becomes my job.
• Stocks
• Bonds
• Income-generating real estate
• Royalties from intellectual property such as music, scripts, and patents.
• Anything else that has a value, produces income or appreciates, and has a ready market.

Start Minding your own business. You should keep your day time job, be a hardworking employee and start buying real assets, not liabilities.

Lesson 4: The Power Of Corporations

Corporations are considered one of the biggest secret of rich people. People actually don’t know that corporation is not a thing. A corporation is merely a file folder with some legal documents in it, sitting in some attorney’s office and registered with a state government agency. It’s not a big building or a factory or group of people. A corporation is merely a legal document that creates a legal body without a soul. Using these, the wealth of rich gets protected from tax.

Always remember, the harder you work, the more you pay the goverment. Hence, rich use corporations to save taxes as Corporation’s income tax rate is less than individual income-tax rate.

Lesson 5: The Rich Invent Money

The single most powerful asset we have is Mind. We need to train our mind with financial intelligence. If mind is trained well, it can create enormous wealth. Financial intelligence is made up of following things:

1. Accounting: ability to read numbers. Having analytical mindset.
2. Investing: It is science of money making money.
3. Understanding Market: It is science of supply and demand.
4. The law: It is the awarness of accounting corporate, state and central rules and regulations.

With the combination of above 4 skills, one can be successful in pursuit of wealth.

Rich dad believed that the words ‘I can’t afford it' shut down your brain. ‘How can I afford it?’ opens up possibilities, excitement, and dreams.

Getting Started On Journey of financial literacy:

1. Find a reason greater than reality: the power of spirit — You need a reason deeply rooted in you to become wealthy. This reason should be emotional which brings that fire inside you which don’t let you stop with first few defeats.
2. Make daily choices: the power of choice
3. Choose friends carefully: the power of association — Stay away from people who always tell you why something won’t work. Stay with people with whom you grow daily.
4. Master a formula and then learn a new one: the power of learning quickly — The skill of learning quickly is seriously pricessless. In this today’s world, it’s not what you know anymore that counts, because often what you know is old.
5. Pay yourself first: the power of self discipline — Before paying monthly expenses, allocate some money to your asset column first.
6. Pay your broker well: the power of good advice — You should not hesitate to pay people who are smarter than you in certain aspect for gaining knowledge from them.
7. Be a giver: the power of getting something for nothing
8. Use assets to buy luxuries: the power of focus
9. Choose heroes: the power of myth — Follow an expert, a person who inspired you. By having heroes in your life we tap into a tremendous source of raw genius. Find someone who has successfully done what you want to do.
10. Teach and you shall receive: the power of giving — Always remember, to move forward in life you need to give back.

The key to financial freedom and great wealth is a person’s ability to convert earned income into passive and/or portfolio income.

WORK SMART TO GET OUT OF RAT RACE!!

Thanks for reading

Raghav Chopra