I work all night, I work all day, to pay the bills I have to pay
Ain’t it sad
I work all night, I work all day, to pay the bills I have to pay
Ain’t it sad
And still there never seems to be a single penny left for me
That’s too bad…
Money, money, money,
Must be funny,
In the rich man’s world!
-ABBA (Swedish Band)
This song comes to mind when I sit down to write about money. Maybe I’ve been living in Sweden too long, or I’ve watched Mamma Mia a lot!
How extensive is your financial knowledge? If you think of your financial journey, where would you place yourself on the scale below? Where would you like to be?
How were you raised to think about money? For most people, much of what we learn about finances comes from our parents. For some, you had a good example to learn from. For others, you still have a lot to learn. Think about what you want to teach your children about money. Sharon Lechter, who is an Investor, Business Executive, C.P.A, and mom, explains that today we are facing global and technological changes as great or even greater than those ever faced before. No one can foresee the future, but one thing is for certain: Changes lie ahead that are beyond our reality. Whatever happens, we have two fundamental choices: play it safe or play it smart by preparing, getting educated and awakening your own and your children’s financial genius. Are you ready to prepare, learn, and play it smart?
One man who decided to play it smart was Richard T. Kiyosaki, author of the book, Rich Dad Poor Dad. At 9 years of age, Richard grew keenly aware of financial disparity and decided to do something about it. He embarked on a journey that would forever change the course of his path. He took the one less traveled, as his favorite poet, Robert Frost wrote:
“Two roads diverged in a wood, and I —
I took the one less traveled by,
And that has made all the difference.”
Richard’s own dad was highly educated, had a substantial income, but struggled financially all his life, and died leaving bills to be paid. Richard’s best friend’s dad similarly had a substantial income, but he became one of the richest men in Hawaii, and left tens of millions of dollars to his family, charities, and his church when he died. Richard’s friend’s rich dad taught him over a period of 30 years, starting at age 9. Choosing not to listen to his (poor) highly educated dad’s advice and attitude about money was a painful decision, but it was a decision that shaped the rest of Richard’s life. And that made all the difference.
Richard explains, one of the reasons the rich get richer, the poor get poorer, and the middle class struggles in debt is because the subject of money is taught at home, not in school. Most of us learn about money from our parents. So what can a poor parent tell their child about money? They simply say “stay in school and study hard.” The child may graduate with excellent grades but with a poor person’s financial programming and mind-set. Furthermore, schools focus on scholastic and professional skills, but not on financial skills. Richard explains, the staggering US national debt is due in large part to highly educated politicians and government officials making financial decisions with little or no training on the subject of money. How will a nation such as the US survive if teaching children about money continues to be left to parents — most of whom will be, or already are, poor?
Richard learned this truth from his friend’s rich dad: if you learn life’s lessons, you will do well. If not, life will just continue to push you around. People do two things. Some just let life push them around. Others get angry and push back. But they push back against their boss, or their job, or their spouse. They do not know it’s life that’s pushing. Life pushes us around. Some give up. Others fight. A few learn the lesson and move on. They welcome life pushing them around. To these few people, it means they need and want to learn something. They learn and move on. Most quit, and a few fight. If you learn this lesson, you will grow into a wise, wealthy and happy person. If you don’t you will spend your life blaming a job, low pay or your boss for your problems. Or if you’re the kind of person who has no guts, you just give up every time life pushes you. You’ll live your life playing it safe, doing the right things, saving yourself for some event that never happens. The truth is, you let life push you into submission. Deep down you were terrified of taking risks. You really wanted to win, but the fear of losing was greater than the excitement of winning. This is the advice Richard has carried with him as he embarked on his own path and became wealthy as a result.
There are 6 lessons Richard learned regarding money from his rich dad:
Lesson #1: The poor and the middle class work for money. The rich don’t work for money. The rich have money work for them.
Only working for money gets you stuck in the pattern of going to work to pay bills, and the more money one makes, the more one spends, so the cycle continues of working to pay bills. There are two emotions driving them: desire and fear. To get out of the cycle, you need to be honest, confront the fear of not having money, use your mind and emotions in your favor, delay your reactions, and do your own thinking. Being rich does not solve the problem. There are rich people who are still bound by fear, they fear losing their wealth. The joy that money brings is short lived. You need to master the power of money, not be afraid of it, nor a slave to it. The way to do this is to choose what you think rather than react to emotions.
The main cause of poverty or financial struggle is fear and ignorance, not the economy or the government or the rich. A human’s life is a struggle between ignorance and illumination. Once a person stops searching for information and knowledge of one’s self, ignorance sets in. That struggle is a moment-to-moment decision — to learn to open or close one’s mind.
Here is how you let money work for you:
- Do not spend your life living in fear.
- Never stop exploring your dreams.
- Avoid working hard for money
- Avoid thinking that money will buy you things that will make you happy.
- Do not let money run your life.
- See opportunities that others miss.
- Start a business that generates money, even when you are not there.
Never stop using your mind and imagination to identify an opportunity to make money. You will see opportunities others will miss because they are looking for money and security.
Lesson #2: If you want to be rich and maintain your wealth, it’s important to be financially literate, in both words as well as numbers.
In life, it’s not how much money you make, it’s how much money you keep. Money without financial intelligence is money soon gone. It is more important to work on educating yourself financially than to be concerned with money. The greatest wealth is financial education.
Rule: You must know the difference between an asset and a liability. An asset is something that puts money in my pocket. A liability is something that takes money out of my pocket. If you want to be rich, simply spend your life buying assets. If you want to be poor or middle class, spend your life buying liabilities. It’s not knowing the difference that causes most of the financial struggle in the real world.
Richard admits he is still challenged by the idea that a house is not an asset. Why is a house not an asset?
- Most people work all their lives paying for a home they never own.
- Even though people receive a tax deduction for interest on mortgage payments, they pay for all their other expenses with after-tax dollars.
- Property taxes.
- Houses do not always go up in value.
- The greatest losses of all are those from missed opportunities. If all your money is tied up in your house, you may be forced to work harder because your money continues going to expenses, instead of to potential assets.
This does not mean you don’t buy a house. It is important to understand the difference between and asset and a liability. If you want to buy a bigger house you need to first buy assets that will generate the cash flow to pay for the house. The rich get richer due to their assets.
Lesson #3: To become financially secure, a person needs to mind their own business.
There is a big difference between your profession and your business. A problem with school is that you often become what you study. The mistake in becoming what you study is that too many people forget to mind their own business. They spend their life minding someone else’s business and making that person rich. To become financially secure, a person needs to mind their own business. Your business revolves around your assets, as opposed to your income. The rich focus on their assets while everyone else focuses on their income statements. The primary reason the majority of the poor and middle class are financially conservative and don’t take risks, is because they have no financial foundation. How do you start minding your own business?.
- Keep your day job, but start buying real assets.
- Keep your expenses low, reduce liabilities.
What are assets? The following include several categories:
- Businesses that do not require my presence.
- Mutual funds.
- Income-generating real estate.
- Notes (IOUs).
- Royalties from intellectual property such as music, scripts, patents.
- Anything else that has value, produces income or appreciates and has a ready market.
Lesson #4: Understand the history of taxes and corporations.
The real reality is that the rich are not taxed. It’s the middle class who pays for the poor, especially the educated upper-income middle class. The rich don’t comply, they react. They have money, power, and intent to change things. They don’t just voluntarily pay more taxes. They search for ways to minimise their tax burden. They hire smart attorneys and accountants, and persuade politicians to change laws or create legal loopholes. They have the resources to effect change. The poor and middle class do not have the same resources.
Financial IQ is the synergy of many skills and talents. But it is the combination of 4 technical skills that are the basis for financial intelligence. Financial IQ includes these areas of expertise:
- Financial literacy. Accounting. The ability to read numbers.
- Investing. The science of money making money.
- Understanding Markets. Supply and demand.
- The Law. The awareness of accounting, corporate, state and national rules and regulations.
If you aspire to great wealth, it is the combination of these skills that will greatly amplify your financial intelligence.
The rich who own corporations:
- Pay Taxes
People who work for corporations:
- Pay taxes
Lesson #5: The rich invent money. They see opportunity where others may not.
One thing in common in all of us: We all have tremendous potential, and we all are blessed with gifts. Yet, the one thing that holds all of us back is some degree of self-doubt. Some are more affected than others.
Financial intelligence is simply having more options. It is not so much what happens, but how many different financial solutions you can think of to turn a lemon into millions. It is how creative you are in solving financial problems. Most people only know one solution: work hard, save and borrow. So why increase your financial intelligence? You want to take whatever happens and make it better. Luck is created. Just as money is. If you want to be luckier and create money instead of working hard, then your financial intelligence is important. If you are waiting for the right thing to happen, you might wait for a long time. What is money, after all? It is what we agree it is. If you can grasp the idea that money is not real, you will grow richer faster. The single most powerful asset we all have is our mind. If it is trained well, it can create enormous wealth seemingly instantaneously.
Money is invented, created and protected using financial intelligence.
Great opportunities are not seen with your eyes. They are seen with your mind. You need to be trained financially to recognize opportunities right in front of you.
How to invest wisely:
- Find opportunities that others miss. See with your mind, what others miss with their eyes.
- Learn how to raise money. It’s what you know more than what you buy. Investing is not buying, itäs a case of knowing.
- Learn to organize smart people. Intelligent people work with or hire a person who is more intelligent than they are. When you need advice, choose wisely.
Lesson #6: Work to learn — don’t work for money.
Unfortunately, today, the sad truth is great talent is not enough. When it comes to money, the only skill most people know is to work hard. Richard’s rich dad said, “you want to know a little about a lot.” Job security meant everything to Richard’s educated dad, learning meant everything to his rich dad. Richard recommends to young people to seek work for what they will learn, more than what they will earn. Look down the road at what skills you want to acquire before choosing a specific profession and before getting trapped in the “Rat Race.” The “Rat Race” is the pattern of get up, go to work, pay bills, get up, go to work, pay bills. Being caught in the trap of the lifelong process of bill paying, is like the little hamsters that run on metal wheels. Richard invented a game called Cashflow, which is a fun, yet educational board game that teaches about how to get out of the rat race and into the fast track of life, where your assets exceed your liabilities.
It is important to groom yourself for success. This means to learn all aspects of business systems. This means working as several companies, to gain a wide variety of experience, learning, and skills. The management skills needed for success are:
- The management of cashflow.
- The management of systems (including yourself and time with family).
- The management of people.
The most important specialized skills are sales and understanding marketing. The ability to sell — communicate to another person — that is the base skill of personal success. It is communication skills such as writing, speaking, and negotiating that are crucial to a life of success. The better you are at communicating, negotiating and handling your fear of rejection, the easier life is. We also need to be good teachers as well as good students. To be truly rich, we need to be able to give as well as to receive. Giving money is the secret to most great wealthy families. The most important law of money: “Give and you shall receive.”
To be honest, this was a difficult article to write, perhaps the most challenging yet, simply because I have much to learn about finances. It was also very eye opening to understanding my husband. Patrik has a higher Financial IQ than I do, way higher. My Financial IQ is not very high, mostly due to lack of interest and I always said I’ll leave the finances/investments to my husband. I am thankful my parents taught me to be financially responsible. To earn, save, and give money away. I worked, saved, and paid for my first car. I graduated college debt-free. I always pay off my credit card in full for the month. I always live within my means. I started saving for retirement in my first job out of college. Now, together with Patrik, we have a budget, live within our means, save, give away, and have small investments. We are taking risks. We do have a mortgage, but we are not maxed out to our capacity. We like to play the game Cashflow on our date nights, and we enjoy it. Whoever wins, we say we are winning together, because after all, we are doing this together, trying to get out of the rat race!
What can you do to increase your financial IQ? What steps do you need to take to get out of the rat race? What is the financial legacy that you are creating now and will leave to your children for generations to come?