By: Robert Kiyosaki
This is THE BOOK that gives most real estate entrepreneurs their start. It gave me mine. It was a paradigm shift for how I view my career and money.
Money is simply a tool. It is a tool I have a talent and passion for. I believe God has a use for my talents. This is the lens through which I read this book. To me this book is about seeking financial intelligence to be good stewards of the talents and resources we have been given.
We are not taught financial intelligence in school, we have to develop it on our own using our own minds. Once you focus on making money with your mind and not just your hands, the world opens up.
What keeps us from making this change?
- Fear of society’s disapproval prevents us from leaving the “rat race” and growing wealthy.
Rat Race: the revolving cycle of you doing all the work, while the government, bill collectors, and your bosses take the majority of the reward.
We have been taught at every stage the mantra to, “go to school, study hard, and get a good job.”
This was good advice in the 70s when you were likely to land a job right out of college, work for the same company for decades, and retire with a cushy pension. That no longer works.
That formula was one of the industrial revolution and not the information economy that we have been in since the 90s.
BUT, we still teach the same mantra. Why? We fear violating the expectations drilled into us since birth. The result? We may be avoiding poverty, but we’re certainly not growing any wealthier.
This is what the younger generation is feeling when they say, “capitalism is not working for me.” We aren’t giving them the tools for it to!
2. Fear and greed can drive financially ignorant people to make irrational decisions.
When it comes to money, everyone experiences two basic emotions: greed and fear. If you have money, you are likely to focus on all the new things it can buy (greed). If you don’t have it, you worry you might never have enough (fear).
Example: A financially ignorant person gets a raise. They could invest the extra money into stocks or other assets that would build their wealth over time. But their fear of losing money prevents them from investing due to lack of knowledge.
Instead, they use the extra money to buy a bigger house, which brings a bigger mortgage and higher bills and further hinders them from growing their wealth.
3. Despite being vital for both personal and societal prosperity, we receive no training in financial intelligence.
The prescription for the two emotions above is financial intelligence. Pensions and social security are tools of the past. We alone are responsible for our financial future.
Financial intelligence: a comprehensive aptitude for financial subjects like accounting, finance, budgeting, saving, investing, tax strategy, and so forth.
Our school systems are set up to train people in a variety of useful subjects, but financial intelligence is not one of them.
This explains why college kids frequently max out credit card after credit card. But it isn’t just youth. Highly “educated” adults make the same poor decisions. Our politicians, allegedly our best and brightest, continue to run an unbalanced budget and run us further into debt due to little financial intelligence..
4. Financial self-education and a realistic appraisal of your finances are the building blocks of growing wealthy.
Set a budget that you can live on.
Set some short-term financial goals. (i.e. get out of debt, invest $25,000 in a retirement account, buy a rent house.)
Seek out the financial knowledge to attain them. Enroll in finance classes and seminars, read books on the topic, and try to network with experts.
Bonus tip: Never take advice from anyone about a goal that has not themselves attained it.
5. To become wealthy, you must learn to take risks.
Learn by doing. Don’t be a critic from the sidelines.
Take action. Learn. Change tactics. Repeat.
Understanding and mitigating risk is like a muscle. You train and it becomes stronger.
6. Only invest in assets, which put money in your pocket; and avoid liabilities, which take money out.
Knowing the difference between an asset and a liability is a vital skill. But not the traditional accounting definitions.
The new definitions are simple.
Assets: Makes you money. (i.e. businesses, stocks, bonds, mutual funds, income-generating real estate, royalties, etc.)
Liability: Costs you money. (By this definition your house is not an asset. It costs you money.)
When you continue to invest in assets, your money begins to work for you instead of you working for your money. This is the secret of the rich.
7. Your profession pays the bills, but your business is what will make you wealthy.
Your profession is what you do 40 hours a week to pay the bills.
Your business, on the other hand, is what you invest time and money in to help grow your assets.
Your business is the extra money you save each month to invest in the stock market, or income generating real estate, or your side hustle that grows into a thriving business.
You have to prioritize “Your Business”.
Eventually, the income from your assets will pay for your standard of living. That is what we call “financial freedom”.
8. Understand the tax code to help you minimize your taxes.
The tax code is written not only to create revenue for the government but also to direct or incentivize the public to do certain things. Like create jobs, invest, build affordable housing, etc.
It is part of your financial intelligence to learn how to navigate the tax code.
The highest taxes are on W2 earned income.
Learn the legal paths to save on taxes. Business expenses, depreciation, 1031, capital gains, etc.
Write down a short term (1-2 year) financial goal that you don’t know how to attain.
Determine the knowledge you need.