Lessons I learned from Rich Dad, Poor Dad by Robert Kiyosaki
The vast majority of people work very hard, but they never seem to earn enough; just enough to make ends meet. Rich Dad, Poor Dad book explains how we can potentially escape this “rat race” and achieve financial independence.
The norm is that everybody should go to school, earn high grades and a piece of paper that says you’re fit to work a good job, right? NOPE. This is if financial independence is what you’re aiming at. Comparing to other countries, our education system is shit, and its obvious as to why so many people struggle financially. Our schools teach people how to work for money, except they don’t teach them how money can work for them. #fail The lack of financial skills taught in school meant that even highly educated people (like ivy league grad) generally do not know how to handle money (but they know how to spend it to go into debt). Consequentially, the majority of people get trapped in work to pay their bills and are chasing paychecks all their life. And with tech companies that provide perks (ie. Facebook and AirBnB), people stay at work longer and not realize they are miserable.
Corollary, Robert Kiyosaki illustrates in his bestselling book Rich Dad, Poor Dad that there is a way out. Potentially a way to get ahead. #believe The fundamental trouble with working for money is that a job is a short term solution to a long term problem. #debt People believe that if they get that raise, or get a new job they will finally have enough (or so they think). However, if you do not know how money works, you can never have enough (duh). Money alone will not solve anything, it will even get most people into more debt. So what is the secret to financial independence? Close the doors..
“Know what an ‘ASSET’ is, acquire them and become rich.”
That’s it! Simple, huh? The trouble is that people are not properly taught how to spend their money. At least, spending it wisely. Many do not know the difference between an asset, something that puts money into your wallet, and a liability, something that drains money from you. Kiyosaki’s primary point is that the only way to become financially independent is to accumulate income generating assets which can pay for your expenses. Nonetheless, many people rather buy a new car, phone, computer (liabilities) instead of investing that money in stocks or real estate (assets). Recently my friend posted an info-graphic about this which shows the difference in returns if you would have bought Samsung stocks instead of one of their products or services.
The presentiment of straying from the universally accepted life path plays a big role in the financial decision making process. Despite, if you don’t want money to control you like it does for most people, then you will have to do things differently from the crowd. #readthebook
If you already own a house, you’re already generating $$$ with that asset. The best investment you can make, right? NOPE.
Rich Dad, Poor Dad lists several reasons:
- Most people work all their lives paying for a home they’ll never own
- Property taxes can suddenly be increased without notice (if you don’t read and submit your ballot, this happens).
- Howbeit a tax deduction for interest on mortgage payments, all expenses are paid with after-tax dollars
- Houses do not always go up in value (this is where periodic property refinance and appraisal comes in)
- Opportunity costs are prodigious, because when all your money is tied up to your house, there will be no money left to invest in income generating assets. Period.
Be Savy, Invest to get Rich
I’ve heard from the people around me that their expenses always seem to keep up with their income, yet they complain about not having enough for luxurious things. #highrollers They do not understand why they earn more than they used to but still have no money left at the end of the month. #brokeasajoke They struggle financially because when their income goes up, so does their credit card bills! Their assets do not increase, but their liabilities continue to. They don’t seem to understand that they work to make their boss rich, they work to pay government taxes, and they work for the bank to pay off their debts. Working harder means that you’ll will have to hand over an even bigger share of your efforts to these three parties. #time #effort The rich get richer because their assets generate more than enough income to cover their expenses, and part of the income is then reinvested into new assets (like another property), therefore increasing their generated income collaterally. On the stock market, net income that is reinvested is called retained earnings. Reinvesting income into new assets triggers the power of compounded interest, to which Einstein once famously referred to as the “eighth wonder of the world”.
Income generating assets, but what falls into that category? Here‘s some examples:
- Businesses that don’t require you to physically be there
- Mutual funds
- Real estate
If you’re scared about investing, think of it as another word for gambling. My advice is to read up about going low-risk with a high-return strategy used by the big wigs of investment.
Now that you are aware of these fundamental issues of working for your dough, I’ll sum up the takeaways I got this book which can help you achieve a life of where you are independent of your paycheck and social security. #truth #preach
- For the majority, their profession is their income. For savy people, their assets are their income.
- If I want something, I have to generate enough cash flow from my assets to cover these expenses. Buy luxuries last, not first or #GoforBroke
- Excess cash flow generated by my assets should be reinvested into other assets (ie. stocks and bonds)
- Aim to acquire more assets, not a higher income.
- Keep expenses low and reduce your liabilities.
- Create a corporation to protect your assets and reduce tax expenses. An employee earns, gets taxed, and then spends what is left. A corporation earns, spends everything it can, and then gets taxed on what is left. This is the biggest legal loophole that the rich or savy use!
- Know a little about everything. Investment knowledge pays the best interest. Dabble a bit in accounting, investing, markets, the law, sales, marketing, leadership, writing, speaking, and negotiating. #ForeverScholar
- Work to learn, don’t work to earn. Are you in a job where you can learn one or more of the above aforementioned?
- Invest in learning about investing before purchasing an investment. #DoYourHomework
- Become what you study, so choose your study materials decisively. Find the best in their field and network; then study and emulate.
- Every rich or savy individual has lost money at some point, but many poor people have never lost a dime. Playing not to lose $$$ means you will never make $$$. #Faith
- Failure #inspires winners but defeats losers. Make a plan with different approaches. When something doesn’t work, let it #inspire you to try a different approach. Learn and move on. #getoverit
- Be in control over your emotions. Do not let fear or opinions of the general public dictate your actions. When stock prices decline, people run like ants When the local market has a sale, people horde as much as they can.
- Most sellers ask too much. It’s rare that the asking price is lower than something is worth (even if they’re bankrupt)
- Surround yourself with people who are smarter than you (‘cuz overtime, you’re going to be smart too!)
- Saying “I can’t afford it” shuts down your brain. Asking “How can I afford it?” opens up your brain and triggers your financial genius to come up with a creative solution. #creatives
- Pay yourself first. Each month, first invest a certain amount of money into income generating assets before you pay your bills. Came up short? Use this pressure to pay to inspire you to come up with innovative ways to get enough money to pay the bills before the bill collector comes knocking at your door. This is a difficult, but very important principle. However, it does not mean you should be irresponsible. Always pay your bills. Just pay yourself first, not last. If you pay yourself last, you’re going to be broke as fuck in the end!
- Have a purpose. Why do you want to earn more passive income? Be aggressive. Personally, I don’t want to work all my life and play some. I want to have control over how I decide to spend my time. Also, I want to support my family financially, because then I can invest in their future. Write it down and mount it ‘cuz this will be your #motivation.
- Listen. Ask questions, absorb new ideas and methods. Constantly arguing with your mouth won’t get you anywhere.
- Following the crowd and timing the market leads to being broke as fuck. Investments are made when you buy, and not when you sell.
In summary, there is much knowledge to be gained if you are able to look past these layers. If you found this useful, please share this article with people that you care about, because I’m confident that applying these principles consistently can lead to stunning results! #RichDadPoorDad