7 Foundational “Mindsets” to Guide You to Be a “Rich” Investor
The definition of “rich” is embedded in our mind to navigate through our “investing” journey.
What does it take to let my money work for me?
Before reading Kiyosaki’s books, I thought the answer was by being a passive investor. I had the imagery that investing is an action I purchase financial products (like mutual funds, stocks, real estate, etc.) which would appreciate over time to let money work for me along with its great partner, compound interest.
After exposing myself to Kiyosaki’s work, I found that investing is not the sole answer. Because in Kiyosaki’s perspective, “investing is a personal plan.” A customized plan for an individual seeks different priorities in life, like being “secure, comfortable, or rich.”
Instead, he proposes that the key is our mind.
With the right amount of financial terminologies encapsulated in our systemic thinking, we could think like the “rich” to come up with a SMART “investment” (a specific, measurable, attainable, relatable, and time-sensitive plan).
The beauty of such systemic thinking is it widens our financial education path. It allows us to know more of what we don’t know to narrow the gap between our minds and the “money” game rules.
Along with financial experience acquired from our actions after learning, our minds can establish suitable strategies for obtaining the three foundational elements of life. Kiyosaki also illustrates just because he is determined to be rich does not imply neglecting the other two elements. In fact, to those who have their definition of being “rich” like Kiyosaki, it’s vital to have the mind work with the external world to develop an “automatic” plan for the other two elements: both security and comfortability.
In Kiyosaki’s “Rich Dad’s Guide to Investing,” he mentions seven prominent mindsets that guided me on what specific terminologies to look out for and where to start my financial education journey.
1. What income are you minding for?
The basics start on whether we know what we are working for currently.
When it comes to income, I used to think of it as “salary,” “wages,” and “paystub.” However, this is only because I lived in a restricted lens as an employee. To take a step back, “income” is any cash inflow within a given period.
There are three types of income mentioned by Kiyosaki:
- Ordinary earned income
- Portfolio income
- Passive income
Ordinary earned income is the “salary” I acquired from another individual or other people’s company in exchange for my time.
If ordinary earned income measures how much time I put into work, passive income measures my inactivity that could still beget cash inflow. This is not to say I don’t need to work at all, but it simply means the “one-time” work I put in created a substantial result that enables me to generate consistent future cash inflow.
Portfolio income, on the other hand, comes mainly from paper assets. They often remark that we have a partial share of some forms of business based on the “paper” we purchased or owned through other means.
2. Convert the ordinary to “extraordinary.”
The primary thinking is how to earn more with less work. The goal is to transform ordinary income into passive or portfolio income.
We can’t work forever since we don’t have infinite time, but we have unlimited creative ideas to turn one thing into another. What it takes is recognition: focusing on what we have instead of what we don’t have.
3. Keep it “secure!”
In addition to the basic definition of “asset” and “liability” Kiyosaki offers in “Rich Dad Poor Dad,” he introduces a new concept that situates between these two objects: “security.”
Asset: put money in your pocket
Liability: take money out of your pocket
Security: A spot where you hope to keep your money safe
We want to confront that where we keep our ordinary income “secure” has the potential of turning that security into an asset or liability. This is because the keyword in security is hope, and hope can go both ways: either act in your favor or not.
4. It’s all about you, not the investment.
Investment is risky.
One intriguing idea I learned from Kiyosaki is that investment is neutral. It’s always the investing individual who is risk-free or risky.
One question that helped me clarify this thinking is:
Who do I trust more to use my money on purchasing investment A? A financial professional? Or my two-year-old niece?
Regardless of what investment A is, my answer is the financial professional. This is because my niece is too risky compared to the financial professional.
One could have the potential experience and education to make reasonable management, while the other could end up tearing my money apart (literally).
Ultimately, I want to obtain the necessary financial education and experience to be in control of my money management. The risks only come when I don’t have sufficient knowledge to grasp what I am about to put myself into.
5. Preparation is needed, not prediction.
A true investor is prepared for whatever happens; […] they could make money despite market conditions.
The absolute prediction we all can make is “tomorrow will be different than today.” That’s it. It’s merely impossible to predict any further. Thus, a “rich investor’s” mindset should be “How can I prepare myself for any opportunities?”
Even if they missed the opportunity, they would learn something from such experience to further prepare themselves for the upcoming opportunities.
6. To be prepared means you have the education and experience.
If your financial experience and education are sending you cues that your money is not in the “secure” spot, then it’s a sign that you’re not ready to take it yet despite if the investment yields a great return on other people’s hands. (And vice versa)
Again, to carry out the investing plan, the person is more important than the investment. If I don’t even have an eye to catch an “opportunity,” this is not my opportunity to turn security into my asset. But it did demonstrate I still have learning to do.
7. Build up the capability to conduct risk analysis.
Risk is what you foresee to lose.
But wait, didn’t the fourth mindset indicate that it’s about the investing individual and not the investment is risky?
That’s correct! And this is how I understand Kiyosaki’s words:
The person who evaluates the risk uses their lens (based on their expertise and skills) to conduct the analysis. This means the person is the one who defines the investment as “risky” or not, and such a definition is backed on the individual level.
It could be that multiple people with distinct levels of financial education and experiences see the same investment with different risk levels because each has their “defined’ risk score to make their “investing (plan)” into reality.
References
- Kiyosaki, Robert T. Rich Dad’s Guide to Investing: What the Rich Invest in, That the Poor and the Middle Class Do Not! Plata Publishing, 2015.
- Kiyosaki, Robert T. Rich Dad Poor Dad. 2nd ed., Plata Publishing, 2017.
