“NICE CAR AND NICE HOUSE DOES NOT NECESSARILY MEAN YOU KNOW HOW TO MAKE MONEY”
– Robert T. Kiyosaki
Rich Dad Poor Dad is one of the best books of all time on personal finance. In this book, Robert Kiyosaki teaches you to get rich. Let’s discuss some of the key learnings of this book which can help us get rich. They are listed below.
BUY ASSETS NOT LIABILITIES
What most people think is an asset is actually a liability. Assets bring you money whereas liability takes money away from you. People think that their house is their greatest investment.
But actually, your house is a liability. It shouldn’t be your greatest investment. If you want to be rich this is the main thing that you need to know. It’s that simple. People, in general, don’t know what an asset is. As I said earlier, assets bring you money. Your smartphone, automobile, furniture etc. are not assets.
figure1: asset v/s liability
But having a share in a company, bonds etc. are assets as they put money in your pocket (company pays you a dividend, bonds pay you interest). Let’s look at how a rich person acts when making money compared to a poor person. The rich get their income and straightaway they buy assets. They buy assets such as stocks, bonds and real estate. Now, in the long run, these assets will create even more cash in the future which can be again invested to create more asset. So for buying assets you need money. This money comes paychecks from your employer.
The middle class earns their money from a good job, but the moment they get their salary, they spend it on liabilities which they think are assets. Possessions such as TVs, cars and vacation homes are liabilities.
FOCUS ON BUILDING YOUR ASSETS
People are generally happy when they get a rise in their pay or when they get a promotion. They think that their problem will be solved. But in reality, as their income increases their expense also increases promotionally. Moreover, your share of tax also increases. So focus on increasing your assets rather than waiting for your pay to increase. Avoid unnecessary expense.
Increase your asset and it will put money in your pocket which can be reinvested in turn to increases the asset furthermore. I find this to be an interesting subject. If the average person were to get a pay cut by 2%, he would be furious. On the other hand, if he loses 2% in the stock market (which is his assets) he shrugs it off by blaming bad luck or bad asset managers. Yet, for some people, it’s even worse to lose 2% of their assets than to lose 2% in salary. Salary levels are taken personal, while asset levels are not. This is a common problem for poor people.
Figure 2: Cashflow
DON’T PUT FEW EGGS IN TOO MANY BASKET
Don’t diversify with too little money. There is no reason to diversify your portfolio if you only have a small fortune. If you want to become rich, you must first be focused. Look at the top richest people in the world. These people became rich, not by being diversified, but by being focused. Don’t do what the poor and middle-class do, which is to put their few eggs in too many baskets. Instead, focus, and put them in a few ones. Aim to get a yield that will have an impact on your life and go for diversification as soon as you’ve acquired wealth that will be tough to earn back through your daily job.
NEED FOR FINANCIAL LITERACY
The main problem with today’s schooling system is they don’t teach the student about personal finance. Their main source of personal finance lessons is from their parent who is actually financial illiterate and poor. Money is a form of power. Even more powerful though, is financial education. Money without financial intelligence is money soon gone.
Even though after winning a lottery, poor people will automatically go back to their previous state or plummet to a worse state. This is due to the lack of personal literacy. They tend to buy up more liability than an asset.
There are 4 parts of financial literacy that you should focus on, according to Robert Kiyosaki.
1. Accounting: Accounting is the ability to read numbers read – be it numbers from an annual report, or from your personal bank account.
2. Investing: This is the science of money making money.
3. Understanding the markets: At least, you should understand the basic rules of supply and demand.
4. Law: Understanding the tax advantages and personal protection provided by corporations
Don’t be afraid to spend your money on education that will improve your knowledge and develop the skills necessary to beat your weaknesses.
Don’t work for money. Make money work for you.
Don’t work for money. Make money work for you.
BUILD YOUR ASSET!