Hello best life seekers!
Did you do all the right things – get good grades, go to college, get a good job – but are still struggling financially? Do you feel like you’re stuck in the rat race hoping for raises or promotions? It takes more than college degrees and smarts to succeed or even survive financially in this day and age of job insecurity. In Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money – That the Poor and Middle Class Do Not!, author Robert Kiyosaki lays out solid money lessons for the real world and explains why our mental frameworks toward making money simply don’t work and instead set us up for failure.
Until I read this book, I flailed financially. I had done all the right things: got good grades, went to college, got a good job as a lawyer, had a decent salary but I was broke and swimming in debt. Even reading budget and personal finance books only helped so much. Rich Dad, Poor Dad was the eye-opening book that literally changed my world. It revolutionized how I understood money and earning power and was fundamental into taking me from six figure debt to financial freedom in less than 10 years. Read it, take in its six key concepts, and do the same for yourself.
Six Lessons to Change Your Mental Framework Towards Money
Rich Dad Poor Dad is about Robert Kiyosaki and his two dads—his real father (poor dad) and the father of his best friend (rich dad)—and the ways in which both men shaped his thoughts about money and investing. At first blush, his hokey writing style might be worth an eyeroll or two but Kiyosaki admits he isn’t a good writer but a successful businessman. That said, the simple format makes this by far the easiest way I’ve found to learn and absorb very important financial lessons. His words are pure gold.
Rich Dad, Poor Dad has six fundamental lessons to teach but I’m only going to highlight a handful. Our success depends a great deal upon our mental game and the beliefs we hold. Kiyosaki points out that beliefs and practices about money are taught at home, not at school. You learn finance from your parents. That’s why you can excel at school but suck at money. A smart kid from a poor family will graduate from college magna cum laude and start their careers with a poor person’s ideas about how to make money. Same for middle class kids – and the middle class is steeped in debt and worked to death. Financial success doesn’t happen by becoming a banker, accountant, lawyer or doctor – all considered successful career paths. Nothing at school or college teaches these people about personal finance so how can you be good at it if you’ve never studied it?
Lesson #1 – The Rich Don’t Work For Money
Living in DC as a corporate attorney, I met plenty of “smart” professionals hating their jobs while up to their eyeballs in debt and praying for raises and promotions. All of them came from poor, middle or upper middle class backgrounds but lived in the same demoralizing rat race. I was one of them until I read Rich Dad, Poor Dad.
The rich didn’t work for wages at my firm. They owned the firm. This is the key difference between rich and poor money habits. The poor and middle class believe in working for a living. The rich believe in owning companies or enterprises that make them money. They may work long hours but ultimately they reap the majority of the profits out of proportion to the wages they pay others. Think about it this way: you may work for $36 an hour or $57,500 a year but the owner, who maybe works the same amount of hours as you, takes home millions.
Key takeaway: The rich own enterprises. The poor and middle class get good grades, go to college, and get a good job at companies rather than aspiring to have their own enterprises.
Lesson #2 – The Need for Financial Literacy
Ever heard about the poor person who won the lottery and within a few years was poor again? What about celebrities and athletes making millions of dollars who go bankrupt or die penniless? We all have heard these stories. Rich Dad, Poor Dad points out that too many people focus too much on money and not on their greatest asset, which is their mind. People who believe money will solve all their problems will have a rough ride. As Kiyosaki notes, “Intelligence solves problems and produces money. Money without financial intelligence is money soon gone.”
We must become financially literate as part of our education. Most people don’t realize that it’s not how much money you make but how much money you keep that matters. Financially literacy teaches how to best keep more of the money you make and how to make it grow for you. A key distinction we must all learn is between the terms liabilities and assets. Liabilities take money out of your pocket to maintain or service while assets generate money and put it in your pocket. You want to minimize liabilities and buy assets.
We must also recognize that just because something is labeled an asset does not make it so. For instance, a car is a liability because it depreciates immediately off the lot, costs to maintain, and we pay in taxes, insurance and DMV fees for the honor of owning it. Unfortunately, we believe many things are assets that are actually liabilities. Still paying off that student loan and will for another 20 years? What about your children’s education? House loans? These are liabilities, not assets. If they don’t put money in your pocket, they don’t count as an asset. Period.
This is the very important concept of “cash flow” at work. We like to think of many liabilities as “investments in the future.” But are they when you do the math? The middle class especially loves to pile on the debt while calling it an investment. I can’t count the number of lawyers and doctors I know who not only have six figure debt from their educations but then bought too much house on top of that to fit in with their social class. When they had children, they wanted private pre-schools, then private schools, and worry about paying for college for those children. They own Land Rovers and take yearly family vacations around the world. Unsurprisingly, these people are up to their eyeballs in debt, spending money before they receive it and running full speed on the rat race treadmill. They’re miserable, anxious and stressed out and they’ll never be able to retire.
In Rich Dad, Poor Dad, Kiyosaki explains how to understand your cash flow and to manage your finances to build positive cashflow both in the way you spend and keep money by buying assets, not taking on liabilities. This concept eventually took me to the 70/30 Rule – live on 70% of net income and use the remaining 30% to buy assets. This creates positive cash flow, financial security and leads to financial freedom.
Key takeaway: The rich acquire assets; the poor and middle class acquire liabilities they think are assets.
Lesson #3 – Mind Your Business
We’re taught that a job brings security but this is a fallacy as the Great Recession has shown. It’s always been a fallacy. Companies and business go out of business, they downsize or move locations, get bought out, etc. There is no such thing as job security. In life, we must be flexible and cultivate skills that will serve us in any market and situation.
Rich Dad, Poor Dad points out this common misbelief about a good job being the key to success and wealth. The greatest job security comes from within you and your ability to learn and remain flexible. You are your business and should treat yourself as such. This means constantly learning while responsibly minding your cash flow. No one else is going to do it for you. You can work for others and build wealth using cash flow and 70/30 principles but your greatest avenue for wealth generation is also having your own enterprise.
With a job – which stands for just over broke – you spend your time in exchange for a fixed amount of money, regardless of the profits your employer makes. In addition, you’re taxed on what you earn differently than the way companies are taxed (shocker – they pay less). When you own an enterprise, your income can grow and multiply based on the performance of the company rather than on the set time you devote to it. Plus your taxes are less.
You’ll earn more this way than through incremental raises or promotions which cap your earning potential. If you would rather play it safe by working for others, remember that no job is safe, you’re ceding your earning power to the company’s owner, and handing over a larger percentage of your paycheck in the form of taxes to the government. If nothing else, you should be buying assets in the form of investments or undertaking other passive income generating activities.
Key takeaway: Treat your finances and run them like You Inc. because you are a business. Rather than work for others, own businesses and have several income streams to multiply your earning potential.
Money Lessons Only the Rich Know
The rich learn at home what the rest of us must grapple in the dark to discover. Rich Dad, Poor Dad is a primer for all of us who weren’t lucky enough to have parents teach us sound financial principles beyond how to create a budget. Kiyosaki explains more clearly than anyone I’ve read how the real world works when it comes to personal finance and wealth generation. The book includes six applicable lessons that this article only touches upon so go grab a copy.
The main takeaway that should be a personal call to action:
Financial aptitude is what you do with money once you make it, how you keep people from taking it from you, how to keep it longer, and how you make money work hard for you. This is valuable advice and it changed my life. If you follow the advice and lessons in Rich Dad, Poor Dad you’ll be on the path to financial independence in ten years. Let this book change your life like it did mine.
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