A job is really a short-term solution to a long-term problem.
– Rich Dad Poor Dad
A house is a liability, not an asset.
And the difference between the rich and the poor lies in this tiny fundamental detail in conventional wisdom. The perspective of money.
I’m not rich by any stretch. But I believe I will be one day – for the right reasons. I believe in planning goals down their exact dollar amounts. It’s how I funded my dream of owning a motorcycle at 19 yrs old. It’s how I traveled through Asia for two months with my Mom on a student budget. It’s also how I funded my latest hobby of hunting and fishing to rekindle a dwindling part of my childhood.
Money, like politics and religion, is a touchy subject. There’s a stigma associated with the rich and the poor, and the division breeds tension. So much so that they often resent each other. Wishing to live the seemingly unobtainable rich and lavish lifestyle, or shaming the lower class for being poor and lazy. I’ve come to understand that money is not the root of evil. The need and love for money is the true evil.
Rich Dad Poor Dad by Robert Kiyosaki is a book that looks at the contrasting mentality between the rich and the poor – grouping the middle class along with the lower end of the spectrum. Robert Kiyosaki writes in a first person narrative about the advice given to him from his friends rich father, and the advice of his real “poor” father. It’s important to note that this book does not go into the finer details of strategic financial planning or asset allocation of your investment portfolios (aka. money jargon). Rather, it gives the reader a shift in perspective as to how the rich and poor view money, and how adopting a radically simple way in viewing money can be used to drastically shape the world around you.
Know the difference between an asset and a liability, and buy assets. Rich people acquire assets. The poor and middle class acquire liabilities, but they think they are assets – assets put money in your pocket.
– Rich Dad Poor Dad
Have your money make money.
This phrase was introduced to me by a patient while I was working at a physical therapy clinic late 2013. Rewind the clock two years earlier to 2010 and this was where I first heard of Rich Dad Poor Dad by Robert Kiyosaki. A different patient, a man in his early 40s with a wife and kid, recommended it to me. He wanted me to get out of the rat race.
Financial literacy. This is what this book teaches. Now that I’m aware of the importance of financial literacy I see it all around me. I see friends double their earnings, only to double their spending and end up with zero. I see friends set money aside and fall to the seductive sight of advertising. I see people pinch pennies on items costing a fraction of their hourly pay, only to splurge impulsively on something costing a fraction of their quarterly earnings. To me, it makes sense. I can understand, because I also play victim to these corporations stuffing their dirty hands into my pocket. But no more.
Financial literacy is about leaving the rat race. A term I’ve internalized long ago. There are three important takeaways from this book that I would like to share with you.
1. “Financial intelligence is a synergy of accounting, investing, marketing and law. Combine those four technical skills and making money with money is easier. When it comes to money, the only skill most people know is to work hard.” – Rich Dad Poor Dad
The first thing we do when we’re short on money is to get a job. When one job is not enough to pay the bills we get two, maybe three. Then we trade these three jobs for one really good job that pays really well. But our spending goes up when our income goes up. Therefore, most of us net zero dollars into our savings. We learn to save. But saving doesn’t do anything if you end up spending it anyways. What we have to do is creatively think of a way to grow our money. To have our money make money. To invest in things that actually put money back into our pocket. This leads me to number 2.
2. “An asset is something that puts money in my pocket. A liability is something that takes money out of my pocket.” – Rich Dad Poor Dad
Your house is not an asset. Your car is definitely not an asset. Your income from your job is not likely going to make you financially free (unless you’re in the $100k bracket, which you’ll also have to deal with an increase in taxes). The rich buy assets that continually generate passive income, putting money in their pocket while also paying for their expenses, for their luxuries. The poor buy liabilities thinking they’re assets and pay for their expenses and luxuries solely through their job income. That’s the difference between the rich and the poor.
3. “Pay yourself first.” – Rich Dad Poor Dad
At first, this confused me. I’m one to pay my credit cards, bills, rent, and any outstanding fees way before the deadline to avoid the chance of racking up interest fees. But I soon realized the potential of this statement. By investing in yourself first (in terms of education) so you can be more valuable, and putting money into savings and assets first, you’re forced to come up with intelligent ways to make more money for all of your wants. Or the opposite effect, curbing your appetite. The author tells you to pay your bills last, which I still disagree with, but the notion of save first, spend second is the simplest way to get this point across.
In hindsight, the information in this book covers the essentials and is suitable for newcomers and those getting their feet wet in the world of financial planning and financial literacy. The narrative is well paced for a quick read. However, the lessons of each chapter are repeated so often they are bashed into your skull so you never forget them. I’ve taken the initiative to summarize them for you above. There is a lack of depth of real world financial strategies, but I found that was not the purpose of this book. Again, Rich Dad Poor Dad by Robert Kiyosaki is a fantastic starting point for anyone wanting to learn about money (which should be everyone). The flow charts depicting the flow of money for the rich and the poor are worth the price of the book.
Overall, this short read will kickstart your journey on how money can be manipulated to work in your favour, so you never have to work for it again.