Who wants to be wealthy? I believe everyone does even if they will admit it or not. Even if not wealthy at least financially free. According to the author, in order to be financially free, it takes a different way of thinking and seeing reality than the average joe. The average joe is represented by the Author’s Poor Dad who still believes in the dogmas of get an education so you can get a high paying job, stay with one company for 30 years and retire with a pension, invest passively in the stock market such as mutual funds and 401ks, save your money for retirement, move up the corporate ladder, by a house with a 30 year mortgage, invest for the long term and raise your kids with the same mindset. The opposing view is represented by the Rich Dad, who believes a person should invest in hard assets, don’t work for money work to learn, try multiple types of jobs and positions, create a business, invest in the short term, a house is a liability, only buy assets that produce cash flow, become financially literate and teach your kids the same game.
As you can see the Author’s Rich Dad and Poor Dad had vastly different opinions, views and ideas about finances which led to opposing results. Robert Kiyosaki’s Poor Dad was highly educated, obtained many degrees plus was the head of the education in the Hawaii school system. Though he was very accredited in education, he was let go from his position in his older age and died with nothing. No nestegg, no inheritance to leave his kids or grandkids and no relaxing retirement. Just broke and broken.
Meanwhile, his Rich Dad did not finish the 8th grade but learned by working and gaining experience in several different industries. Learned by taking seminar classes, change his thinking from “I can’t afford it” to “how can I afford it?” Better yet from “Find a good company to work for” to “Find a good company to buy.” This way of thinking from Rich Dad is an extreme discrepancy from the way of thinking from the Poor Dad, in turn made Rich Dad the richest man in Hawaii. The major difference between the two was between their thoughts and the words they chose. One leads to one result while the other leads to a totally different outcome. The author had a choice to make, which Dad to listen too? He had to make this decision before he fully saw the results, but you have the advantage of being able to make the choice after you have read the results from both fathers. Now which one will you choose? The advice of the Rich Dad or the Poor?
The Power of Thoughts & Words:
The author demonstrates how thoughts and words can be great influences on our choices which creates our life’s circumstances. When we monitor our thoughts and words we can start to see if our thoughts and words is that of a rich person or that of a poor. Furthermore, we have the choice to change those thoughts and words or leave them as is. A person with a poverty consciousness may say “I work for money,” while an individual who has a mindset of prosperity states, “Money works for me.” See while one side, will spend the majority of their lives working for money, receiving a paycheck but never getting ahead, while the other will invest their money to create money so they never have to work for a paycheck again, but work to create a life or better yet a lifestyle. Both sides are difficult and have their share fare of issues, one attracts issues at the front end of their journey while the other struggles on the back end. One will work very hard in the beginning but will have a larger pay off towards the end while the other will work less in the beginning but will have to struggle at the end of life. Life was meant to be enjoyed and not to be a struggle. The person who is disciplined, responsible, saves more, invest more, spends less, make sacrifices and pays the price up front will end up getting all the rewards towards the end while the person who takes time off, who relaxes, who splurges, who spends tremendously, who goes for popularity and the group usually is the person that will have to work, while his buddies are already retired. The way to our life’s goal is solely determined by the way we think and the words we habitually say.
Robert Kiyosaki journey to financial literacy:
One day Robert was coming home from school and felt very down about himself when he realized that the other kids in class were financially opulent. Their parents drove the nicest cars and lived in the nicest part of town, while Robert and his one friend Mike lived in the more impoverished areas of the city. They weren’t broke just middle class, but this infuriated Robert because he didn’t understand why Mike and him were so different than the rest of the kids in school. He asked a teacher how was he able to make more money, when the teacher responded that they do not teach about the accumulation of money in school. Which in turn made the young Robert ask, “Why?” The teacher’s response was for him to ask his father since he was the head of the school board in Hawaii, so Robert did just that. When he got home he continued his inquiring by asking his father the question. “Why don’t we learn about money in school?” His dad explained that school was there to prepare young men and women to get a job, but not to teach about becoming wealthy. Continuing the conversation, his dad informed him that if he wanted to learn about earning money, he would have to go speak to a Rich Person, which he recommended Mike’s dad.
Robert being headstrong and curious, he asked Mike, if his dad could teach them about making money. Mike agreed and went to ask his father. Mike’s dad, at the time was not wealthy, but people knew about him from the steps he was making in the ways of buying and investing in businesses across the state of Hawaii. Mike’s dad agreed to teach the boys but only if he could teach his way. He refused to go the traditional route of fact giving and memorizing for tests but encourage teaching by real life experience. The boys agreed. He asked them to start working in a store for one of his employees on Saturday’s when Robert had baseball practice. Knowing this Robert became discouraged because he wanted to play but his determination to learn about money prevailed, so he agreed. The boys worked every Saturday for 10 cents an hour. After several Saturday’s Robert became irate. Upset that he had to miss fun activities to work for an abysmal salary. Sound familiar? For some of us it is our norm.
“Life pushes you. Every push is life saying wake up, there something I want you to learn.” -Robert Kiyosaki
Robert stormed into his Rich Dad’s office declaring that his wages were unfair, his methods were not teaching but abusing child labor laws plus, so Robert was ready to quit. The man grinned at the young man comparing him to some of his employees or ex-hires. He stated that if someone else is always the problem you will never become the solution. A new job won’t equate to more money, furthermore, even if the pay increased this still will not solve the young man’s financial crisis. More income usually equals more spending which equals more debt. You are in a financial trap and there is only one way to escape it, the man continued to explain. Thinking. Only thinking can solve the problems. Thinking for yourself, thinking ahead, thinking of new strategies, thinking outside the box, thinking abundance, thinking positively, thinking faith, thinking in expectations and thinking resourcefully. We become what we think about and if we think of victimization, lack, unfairness, struggle, poor or just enough to get by, then that is exactly what we will produce. The only way to get out of this bind is to think differently.
Wealth Secret #1: The Rich don’t work for money
When people first are introduced to this concept I can see a puzzled look on their faces, which is highly understandable. In order to get money you must work correct? Well this is what is called a Paradigm. Paradigm is a belief about something involving how one perceives life and the world around them. Furthermore, a belief is just a thought or an idea that we keep thinking, so in order to reach our financial goals we must shift our paradigm. When Rich Dad says the rich do not work for money, he means the rich, the wealthy and the affluent work for a deeper reason, a concrete “why,” and has a big picture idea about what they want to accomplish. This type of drive requires a burning desire! A burning desire is a feeling that you must reach a goal. It surpasses wishing and hoping but a determination that will not know quit. When we have the fire in our bellies such as this we become more purposeful, which will allow us to want to change our paradigms, which will lead us to mentors who will teach us how to adjust our paradigm from one of an impoverished mindset to an opulent one. This is what happened to Robert Kiyosaki, he had a burning desire to learn about money so he did, from his Rich Dad.
The greatest book I have ever read was Richest Man in Babylon by George S Clason, who quoted, “A part of all I earn is mine to keep,” meaning all Rich people understand that they never received 100% of their money, even before the cash hits our bank account we pay Uncle Sam, in other words our taxes. Plus we spend, so we pay the clothes makers, shoe makers, the phone companies, the cable companies, the car companies, the renters and even for our children's education. We pay everyone but not ourselves, which is the number one cause of all financial issues. The epidemic is because we are constantly working for money while the wealthy make money work for them. Through investing, investing in your mind, investing in stocks, investing in business or even investing in real estate. The biggest difference between the haves and the have nots is that the wealthy spend their money differently. The have nots spend their money on consumption, racking up consumer debt, putting big purchases on credit cards, buying homes and even bigger homes when they get an increase in revenue. The haves, spend their money on items that can produce income or cash flow, while using that additional cash flow to pay for consumption. What’s even more important, is since they spend their money on investments and business, they get major tax breaks and benefits while the average working person does not. Better said, the more money you make the less you pay in taxes but the less you make, even if you are struggling, the more you pay in taxes, in the same country, under the same laws. We must educate ourselves on the laws to reach our full potential because once you know how the game is played you can play it well.
Fear & Greed
The two major emotions that keep the poor, poor, is fear and greed. They are a two headed monster, one adding to the other’s fury. The mindset becomes there’s not enough, there’s a shortage or there was an upbringing where resources were scarce. This turns into, I got to get more, I must look out for me and mine or I need to hold on to everything I have mentality. Understand these motivations are lead by the emotions of fear and greed which returns to you the dreaded rat race. Going through the work for money consciousness of “I need a job,” verses “I need to create a service.” Furthermore, we then continue to believe in the paradigm that more money would fix the problem resulting in us digging deeper into the rat race with no chance of escape. Moving up the corporate ladder just to find out it led to nowhere.
If we started the process of being honest with ourselves, truly, we would come to the conclusion that we are motivated by fear and greed. The fear of not having enough, not being noticed or not feeling important. The greed of thinking about yourself versus all selves as a whole. The irony is that when you look out for number one you get none, but when you do more you get more. Most of us will not be honest about our feelings about money, we react emotionally, forbidading the subject of money be discuss at the dinner table or believing it is in bad taste to speak about desiring money, even though everyone does. The difference is the wealthy, think of mastering money, not becoming in trance by it but knowing it is a tool to provide, share and consume.
The Money Trap:
The money trap is the hook that baits the fish in believing money is real. Currency is not necessarily money. Through bardor you can trade task for clothes or service for shelter. Money was created to produce a simpler system of exchange but through the eyes of the trap it's much more than that. It is like the donkey being allured by the carrot attached to a string around its head. It will keep chasing but to no real end. The money trap is caused by two elements:
The fear of not having money: It is similar to the man that becomes infatuated with a girl to the extent that he becomes desperate to keep her. Money is the beautiful girl and we become the desperate dud. We chase her, constantly dream about her and will even tell lies to be with her. We don’t understand that internally we have become dependent on her while not learning to know what she wants so she becomes the one chasing you.
Letting emotions guide our thinking: Instead of mastering money, money has mastered us. It tells us when to get up, when to go to sleep, where we can go to eat, where we can sleep, where we live, where our kids go to school, even sometimes who you vote for. The emotions surrounding money causes us to lose our sense of value to what is important and what truly creates wealth. Instead of analyzing money or studying it, we become emotional, chase it, steel for it or even go further.
Once the young Robert understood the nuances of the money trap he started to calm his anger toward Rich Dad and began to listen. In order to verify if the young child understood the man, Rich Dad denied him any compensation for working on Saturday. He said, “once you are getting no income, this predicament forces are minds to think, not just hold our hands out for payment but think about how to create payment. Most people will never be wealthy because the thought of them working for free is appalling, while the wealthy realize the Rich don’t work for money, they work to create a service that produces money.
In the midst of working for free, Robert and his friend Mike realize that every evening the store clerk would throw away old comic books. This was a grave waste, they thought, when an idea hit them. They asked the clerk if they could have the comic books which the clerk replied, “yes but you can not resell them.” This would have stopped most people because they can only think in terms of one transaction while the wealthy think of multiple transactions with the same client or customer. Instead of selling the comic books they opened up a library, charging each kid ten cents to read, which in turn made the young entrepreneurs $9 a week, far exceeding the miserable ten cents an hour, they were previously working for. This completely changed the boys mindset, no longer were they to be a slave for a wage, but the producers of services in order to create their own wage. With this changed mindset, it resulted in Robert retiring at age 47 with full financial freedom and Mike becoming a multi-millionaire, taking over Rich Dad’s empire.
Wealth Secret #2 Buy Assets not Liabilities
In order to reach your financial goals, become wealthy and exceed in the realm of money, you must create wealthy habits and a primary wealthy habit is buying more assets than liabilities. This sounds simple enough but unfortunately, many people do not know the difference between an asset and a liability so they purchase a higher percentage in liabilities and lower to none in income producing assets. The best way to know where you are in terms of assets and liabilities is to create a balance sheet.
Create a balance sheet or print one online, I believe you can find one at Richdad.com. Either way, once you have this balance sheet take your time to gather up all of your expenses. Make two columns, one for your liabilities and one for your assets. Your liabilities will be anything that is taking money from your pocket, this could mean your home, your car payments, your cable, your internet, your club membership, your kids schools, or your tv subscriptions. Anything that is a recurring charge to your account is a liability. Once that is complete, review all of your assets, anything that puts money in your pocket, this could mean your business profits, your rental properties, your stock portfolio, your savings account, your intellectual property or your long term investments. Anything that produces cash flow on a monthly basis. Compare the two. The plan, in order to reach financial freedom is two have your asset column larger than your liability column. Better yet, ideally we would want our asset columns to pay for everything in our liability column and then some.
The major difference between the poor, the wealthy and the middle class is how they spend or circulate their money. Most of the poor and middle-class believes their house is an asset but if you are living in it and it is costing you monthly payments, it is a liability. Consider this when you purchase a home to live in; you will (a) have lost of time. Meaning you are locked in for a 15 to 30 year contract where you are in an agreement to pay someone or some entity for over a decade or a multitude of decades is just not financially intelligent because you become pigeon held to one investment and location. (B.) Lost in additional assets. Once you spend a majority of your savings on a home and have to make monthly payments this reduces our ability to make other investments. The reason most middle class citizens do not own other properties or posses income producing assets is because most of their money is tied up in a home, car or some other liability. (C.) Lost of education. The enemy of great is good. When people settle into their dream home and picket fence, we get into the habit of feeling like we “figured it out already.” Meaning there is nothing left to learn and they understand life just to find out life it has past them by, where they must retool or adjust their paradigm in order to succeed in changing times. The wealthy are always continuing their education, retooling and watching how the market is changing in order to adjust their strategies accordingly.
The major point is this, in order for someone to reach financial freedom, they must spend more time purchasing income generating assets while decreasing their liabilities. As your assets grow your income grows. The trick is to use those assets to purchase more assets to increase more income etc. The issue becomes most people when they gain more income they tend to spend more on liabilities which do not increase their income so the flow of cash stops while expenses increase. This is the tactic of the poor and middle class not the wealthy. In order to reach financial freedom the strategy should let all funds circulate through your asset columns, use the funds from one asset to spill into another and then another, while allowing the excess to be spent on any purchased liabilities while reducing said liability.
Wealthy vs. Non-Wealthy
In order to have wealth, we must define it. How do you define wealth? The author describes it as the amount of months you could survive if you stopped working. Wealth is measured by the difference between the asset column and the liability column. For example, let’s say you have $2000 going out from your liability or expense column while you have only $1000 a month coming in from your asset column, this equals that you are only wealthy for a ½ a month. Again wealth is defined by how long you can sustain a life without working. In order words wealth is not measured by digits its measured by time. You’re biggest wealth indicator is time, how much free time, how much family time, how much work time, how much travel time, how much time do you really have? For the poor and middle class not much. When your assets covers all of the expenses of your liabilities, then and only then are you financially free. How long you can sustain shows how wealthy you are. Once your assets pays for your life, you are no longer dependent on a wage, which means you are finally free, which means you are finally rich.
When you are operating in the employee column, you are using the majority of your time, not to become financially free, but to help make someone else that way. The problem is not that you are assisting someone or entity to become prosperous, it is that you did not take the time to become prosperous yourself. What makes things worse is that employees are heavily taxed, which means they pay more taxes than those who own a business or invest in real estate. In some cases, according to the author, some people, especially those who are self employed work from January to May, just to pay their taxes. The harder you work, the more you are taxed. I learned this from 1st hand experience. I was working two jobs, my 9-5 during the week and a part-time jewelry store on the weekends. At the end of the year, I went to do my taxes which they claimed that I owed money to the government. To my shock, they said that I moved up to a higher tax bracket, working two jobs so I owed the government versus getting a return. This is part of the trap while self-employed are taxed even more severely. Lastly, the employee trap is that you are convinced you need a nice mid-size sedan, or a nice home plus some nice things so you charge your credit cards, you get a loan or you get a mortgage. Now, you owe to the bank, so you go to work to pay the bank. The wealthy work for themselves, the non wealthy works for everyone else.
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