How to Achieve Financial Freedom
Money Lessons from Rich Dad, Poor Dad
Have you heard of the F.I.R.E. Movement?
F.I.R.E. stands for Financial Independence, Retire Early. It’s a strategy where people save and invest aggressively early in their lives, in order to retire in their 30s or 40s.
The idea is that if you sacrifice a better lifestyle when you are young, you can use your additional income to create an evergrowing asset that generates passive income. Once your passive income surpasses your living expenses, you enter the state of financial freedom: you can choose to work, or not to work.
F.I.R.E. is a relatively new financial movement, but its lessons resonate with a 1997 best seller book by Robert Kiyosaki — Rich Dad, Poor Dad: What the rich teach their kids about money that the poor and middle class do not.
Here are some of the biggest lessons from the book.
The Rich Don’t Work for Money
They let money work for them instead.
Most people live in a vicious cycle of working, making income, spending money, then working more to make more money. And when income increases, lifestyle often inflates to match that income. Thus the endless cycle of working for money begins again. Kiyosaki calls this “the rat race”.
Ultimately, continuously trading your time for money is a terrible deal. You have to learn to make money work for you instead. But most people cannot make this a reality because of their lack of financial literacy.
Your Home is Not an Asset
The first step to achieving financial freedom is to build your financial literacy.
And the first lesson of financial literacy is learning to distinguish between an asset and a liability: an asset is something that makes you money (commercial real estate, equity and other investments), while a liability is something that costs you money (cars, big homes, and luxury items that needs maintenance).
And then, instead of acquiring liabilities, you should use your income to acquire assets, which in turn brings in more income.
Mind Your Own Business
Real assets that bring in income tends to fall in the following categories: businesses you own, stocks, bonds, mutual fund shares, commercial real estate, certificates of deposit, intellectual property, and other income-generating and liquid investments.
The majority of your financial efforts should be focused on building your “business”: your collection of assets. Find something in these categories that you understand or enjoy learning about.
Inc and Grow Rich
Nowadays, a very large portion of people’s income goes to taxes. That’s why it’s important to familiarize yourself with tax laws and learn how to save on taxes.
One of the most important ways the rich save is through tax deductions from their business expenses. In a few words, if you don’t deduct your expenses, your taxable income looks like this:
Net Income = IncomeOn the other hand, once you’ve learned how to take full advantage of your deductions, your taxable income will look like this instead:
Net Income = Income - Business ExpensesYour Mind is Your Biggest Asset
Building wealth requires financial knowledge, the sensitivity to respond to opportunities, and the courage to take calculated risks.
The best way to work on all of these abilities and greatly increase your financial aptitude is through education: not formal education, but the continuous acquisition of valuable knowledge.
Learn how to invest in different investment products, learn how to spot business opportunities, and learn how to manage diverse groups of people. Be eager to acquire knowledge in different business domains too: marketing, negotiation, and sales, etc. These skills will be valuable no matter what your profession is.
Your mind is the most worthy investment. Invest in your own education and see the profits grow.
There’s a reason my dad’s been trying to get me to read this book since middle school. This book is full of sound financial advice and is a great starting point for people who want to gain control over their finances.
Rich Dad, Poor Dad does not offer any secrets to getting rich quick, instead, it’s a strategy book for anyone who wants to get rich, slowly, but surely.
For more financial tips, actionable steps and how to get started building your assets, get the book here: https://amzn.to/2SWAI8L
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Thanks for reading. Is there anything I missed? Please let me know on Twitter: https://twitter.com/vickieli7.
