There are some must-read books on personal finances that will help you develop good saving and investing habits.
One of them is Robert Kiyosaki’s Rich Dad, Poor Dad, a must-read if you want to learn about personal finance.
Now I’ve interviewed Robert three times on my podcast and while I don’t agree with many of his views on Real Estate, and I definitely don’t agree with his views that we’re heading forth an economic Armageddon, I respect the lessons I learned from him many years ago on personal finance.
You see…many people work hard but never seem to earn enough; they remain in what is called the “rat race” and never achieve financial independence.
The main reason this occurs is that people are not financially literate.
They learn poor habits from their parents and those around them as they grow up and then when they go to school the education system teaches them how to work for money but don’t teach them how to make money for themselves.
In the 90s Robert Kiyosaki wrote his bestselling book Rich Dad Poor Dad and shows his readers a way out, a way to get ahead financially.
In his book, he says the fundamental trouble with working for money is that a job is a short-term solution to a long-term problem.
People believe that if they get that raise, or get a new job they will finally have enough.
However, if you do not know how money works, you can never have enough. Money alone won’t solve the problem according to Kiyosaki, it will even get most people into more debt.
So what’s his secret to financial independence?
Well, let’s look at 10 lessons I learned when I first read this book over 30 years ago.
The rich make their money work for them
You must have heard the phrase “live to work or work to live”.
This is one of the basic concepts addressed in the book Rich Dad Poor Dad.
Most people work to survive.
If they have money problems, they ride them out or ask for a raise.
Unfortunately, this is the vicious cycle most middle and working-class people fall into.
On the other hand, the rich don’t work for their money.
They buy assets that generate income.
This is one of the book’s most important lessons.
Kiyosaki says if you work for money, your mind will start thinking like an employee.
If you start thinking differently like a rich person, you will see things differently.
He believes you should think like a business person or an investor, even if you have a job.
He explains that the rich work on building their assets, and every dollar in their asset column is their hard-working employee.
The problem is, if your money isn’t working for you and making money while you’re asleep, you’ll never be rich.
Another important lesson from the book is that “It’s not how much money you make that matters. It’s how much money you keep.”
Financial education is your greatest asset
According to this book, money isn’t your greatest asset.
‘The single most powerful asset we all have is our mind.
If it is trained well, it can create enormous wealth” says Kiyosaki.
He believes that if people are prepared to be flexible, have an open mind, and learn, they tend to get richer.
“Intelligence solves problems and produces money, but money without financial intelligence is quickly lost,” says Kiyosaki.
Sure some people get a raise or a financial windfall, but unless you’ve grown to be the type of person that can handle that amount of money or income, the money will soon disappear.
So an important message from this book is to become financially literate.
You see… you could be highly educated and successful in their profession, but you could still be financially illiterate.
Kiyosaki makes a big fuss about how important financial education is and that our schools and colleges don’t teach us financial education.
He says many financial problems arise as a result of a lack of financial education and I agree.
So start your financial education or continue it by reading books and listening to podcasts like this but be careful who you listen to – choose your mentors wisely.
For example, the recent property boom brought out a whole new generation of enthusiastic amateurs wanting to give advice on how to become successful in property.
They just don’t have the life experience, or perspective, to give others advice yet.
Know the difference between assets and liabilities
“An asset is something that puts money in your pocket and a liability is something that takes money out of your pocket,” Kiyosaki explains in his book.
He says that rich people acquire assets (shares and property investments) and poor people add liabilities (commitments and obligations).
Kiyosaki says don’t buy liabilities on your way to financial freedom.
People buy liabilities and think these are assets, but they are not.
Many people buy luxuries first, like big cars, heavy bikes, or big houses to live in.
But the rich buy assets first and the income from their assets buy luxuries.
In short, the poor or middle class buy luxuries first, and the rich buy luxuries last. It’s called delayed gratification.
Don’t be controlled by emotions
Be in control over your emotions says Kiyosaki.
Do not let fear or the opinions of the general public or the media dictate your actions.
Kiyosaki reminds us that when share prices decline, people get scared, run away or sell up.
However, when the local supermarket has a sale, people buy as much as they can.
You see…most people’s lives are controlled by the two emotions of fear and greed.
Fear keeps people in this trap of working hard, earning money, working hard, earning money, and hoping that it will reduce their fear.
They’re scared of investing or taking a leap of faith and opening up a business.
Secondly, many people are driven by the greed of wanting to get rich quickly.
That’s why it’s important to have a plan, either a Strategic Property Investment Plan for your investments, or a Business Plan for your business.
It’s very difficult to make sound financial decisions unless you know what you want to achieve and your time frames.
If you don’t have a plan, when things get rough you tend to default to what other people are doing, what the media is telling you, or what other people are saying.
So having a plan help you not be swayed by the emotions of fear and greed.
Work to Acquire Life Skills, Not for Money:
Another of the book’s great teachings is that work is to be used as a platform to improve the skills you have.
In other words, work to learn, don’t work to earn.
Find a job where you can learn life skills.
Kiyosaki thinks people are, “one skill away from great wealth.”
He stresses that learning can make you much more knowledgeable and can provide you with unique skills to improve your professional situation.
He suggests you know a little about a lot.
Learn something about accounting, investing, markets, the law, sales, marketing, leadership, writing, speaking, and negotiating.
An investment in knowledge pays the best interest.
Kiyosaki tells us life skills are equally important for financial success and are not taught in school.
You should acquire these life skills to help yourself on the path to financial freedom.
Effective communication and people management skills make the tasks easy to seek meaningful information from your investment adviser.
Failure inspires winners and defeats losers
Kiyosaki tells us the rich take risks while the poor people are scared to fail.
He says every rich person has lost money at some point, but many poor people have never lost a cent.
Interestingly, just like the poor, the rich also have a fear of losing money, but the main difference between the rich and the poor is how they manage fear.
For many people, the fear of losing money is much more terrifying than the joy of having money.
Playing not to lose money means you will never make money.
“Winning means being unafraid to lose.”
Kiyosaki teaches us not to be afraid of losing and to be bold enough to admit and learn from our failures.
He says it’s the biggest secret of winners.
It’s the secret that losers don’t know.
The greatest secret of winners is that failure inspires winning; thus, they’re not afraid of losing.
“Failure inspires winners and defeats losers. When something does not work out the way you planned, let it inspire you to try a different approach. Learn and move on.”
Learn to manage risk
In his book Kiyosaki teaches us that “Investment is not risky, not knowing the investment is risky. If you want to reduce the risk, then increase your knowledge.”
He explains that this type of knowledge will not come from going to college; it will come from reading books or sitting with people who understand “the investment.”
Mind your own business
Kiyosaki also encourages his readers to start a business.
He says, if you have a job, keep your job and start a part-time business and work it.
Never leave your job until you build your own business.
Don’t struggle all of your life for someone else.
Start your own business and grow it.
Find a reason
Everyone wants to be rich, but many of us don’t want to struggle.
Kiyosaki tells us we must have a clear purpose in mind.
“Why do you want to earn more passive income?”
For many people, it’s because they don’t want to work all their life.
They want to have control over how they spend their time.
Others want to support their children financially, yet others want to give to the community or charity.
Write down your “why” because it will keep you motivated.
If you don’t have a reason, then it is difficult to stay on the path to wealth.
Remember…it’s not your fault if you were born poor, but it will be your fault if you die poor.
Pay yourself first
If you can’t get control of your own finances, then it’s difficult to get rich.
If you lack financial discipline, then it is impossible to become rich.
So, pay yourself first.
Each month, first invest a certain amount of money into income-generating assets before you pay your bills.
What happens if you come up short?
Use this pressure to pay to inspire you to come up with innovative ways to get enough money to pay the bills before the bill collector comes knocking at your door says Kiyosaki.
This is a difficult, but very important principle.
However, Kiyosaki isn’t suggesting you should be irresponsible.
Always pay your bills.
Just pay yourself first, not last.
If you pay yourself last, you would feel no pressure, but you would probably not come up with new sources of income either.
Of course, this is exactly what the taxman does.
He takes money out of your pay packet each week before you receive it, knowing that if he doesn’t do that it will be very hard to get the money from you at the end of the year.
These are some of the many financial lessons in Robert Kiyosaki’s great book Rich Dad Poor Dad.
If you haven’t read it I really recommend you do, however, I don’t agree with Kyosaki’s views on residential real estate investing or that your home is not an asset.
On the other hand, he is talking about property in the United States and that’s very different here in Australia.
However, there is a lot of knowledge to be gained if you are able to look past that layer.
And you’ll find an interesting question that Robert Kiyosaki poses to the readers of his book.
“Wealth is a person’s ability to survive so many numbers of days forward… or if I stopped working today, how long could I survive?”
How long could you survive if you had to stop working today?