This is a summary of Rich Dad Poor Dad chapter 8.
In chapter 8, Robert Kiyosaki talked about the obstacles that can stop even those who are financially literate from achieving great wealth. The chapter is separated into five sections, each covering one of the following obstacles: fear, cynicism, laziness, bad habits, and arrogance.
Fear
The first obstacle is the fear of losing money. No one likes to lose money. In fact, no one likes to lose anything for that matter. However, you should not let the fear of losing paralyze you and stop you from succeeding. This is a trap that people fall into all to often.
According to Kiyosaki, "The main reason that 90 percent of the American public struggles financially is because they play not to lose. They don't play to win." The only way playing not to lose can be a successful strategy is if you start investing really early. If you don't start early, then you have no choice but to take on more risk.
In Kiyosaki's words, you should "put a lot of your eggs in a few baskets instead of putting a few of your eggs in a lot of baskets." When most people decide to invest, they cling to safety and try to keep a balanced, diverse portfolio. Though this is better than not having an investment portfolio at all, Kiyosaki mentioned that the most successful people generally have to focus and go off balance first before they are able to go anywhere.
Cynicism
Kiyosaki referred to cynicism as the "little chicken" in all of us. Cynicism is a result of unchecked fear and doubt. It creates the same problems of inaction and lack of motivation that are generated by fear.
Instead of criticizing, Kiyosaki urges you to analyze a situation before coming to your conclusion. In other words, you need to do your due diligence in every situation. If you get into the habit of analyzing instead of criticizing, you'll open yourself up to a world of opportunity that will never exist for you otherwise.
Laziness
Laziness has always been one of the most negative qualities that a person can have. However, there are times when people do not realize that laziness has taken over them. This happens when people are "too busy" to take care of important issues. People use this excuse to avoid dealing with health, marriage, finances, or any other problems that are important and deserve attention.
The key to overcoming laziness, according to Kiyosaki, is to maintain a certain level of greed or desire. Though greed is generally considered a bad thing by most people, it can motivate you to get past procrastination and laziness.
Bad habits
Humans are truly creatures of habit. Kiyosaki states that your habits are even more important in determining your success than your education. One of the most important habits that he mentioned is paying yourself first.
Paying yourself first means to invest in your own assets before paying the government, creditors, or anyone else. Kiyosaki's reasoning behind this habit is simple. Your creditors will apply much more pressure than you will if they are not paid. So, even if you're short on money, paying yourself first forces you to be creative with your finances and to come up with the money in one way or another.
Arrogance
Arrogance is often the result of someone trying to ignore their ignorance. The problem is that what you don't know can cost you a lot of money. It can also shield your eyes to opportunities that can otherwise be uncovered through study and research. So, if you don't know something, find someone who does know or research the information in a book, the internet, etc...
Note: This is just a summary of rich dad poor dad. In this short space, I cannot explain things as thoroughly as you need to understand them. I just try to give you an idea of what eye-opening information you will come across by reading the actual book. Visit Amazon.com to find Rich Dad Poor Dad for the best price.
Sunday, February 24, 2008
Work to Learn
This is a summary of Rich Dad Poor Dad Chapter 7
Many people find it hard to grasp the concept of not working for money. This is because money is undeniably essential to maintaining life. So, the question is, "what does it mean to not work for money?"
Not working for money simply means that you are working to learn with a long-term goal for your business in mind. According to Robert Kiyosaki, a good question to ask yourself is "Where is this daily activity taking you?" In other words, you need to have a vision of where you want to be and organize your current lifestyle so that it is inline with your vision.
There are many talented people in the world that are only one skill away from obtaining great wealth or capturing their dreams. However, instead of developing that additional skill, they focus only on strengthening or maintaining the skills that they already have.
To illustrate why it is important to develop a broad skill set, Kiyosaki uses McDonald's as an example once more. Just about anyone can make a better hamburger than McDonald's, but the reason McDonald's can make enormous amounts of money for producing average quality hamburgers is because they have the business systems down to a science. Most people have very little knowledge of business systems outside of what they do for a living. The solution to this problem can be summed up in this quote by Robert Kiyosaki: "I recommend to young people to seek work for what they will learn, more than what they will earn. Look down the road at what skills they want to acquire before choosing a specific profession and before getting trapped in the Rat Race."
The fact is that there is such thing as being over specialized. In a way, the educational system rewards people to know a lot about a little. As people progress through school and obtain more degrees on the same subject, they feel that their skills are more valuable and that their earning potential is greater. In some cases, this can be true. However, it is risky in that those skills only pertain to one industry leaving them trapped and dependent on their employers.
Kiyosak's rich dad told him that he needs to know a little about a lot. This simply means gaining sufficient knowledge about several areas of a business. I have already discussed the importance of increasing your financial intelligence. In this chapter, Kiyosaki adds a couple more skills to the mix that are necessary for running a business. One of those skills is leadership and learning how to manage people. The other skill, proficiency in sales and marketing, is considered the most important area to specialize in by Robert Kiyosaki:
"The most important specialized skills are sales and understanding marketing. It is the ability to sell---therefore, to communicate to another human being, be it a customer, employee, boss, spouse or child---that is the base skill of personal success. It is communication skills such as writing speaking and negotiating that are crucial to a life of success."
Finally, Kiyosaki ended the chapter by emphasizing the importance of being a good student and a good teacher. He also discussed the importance of giving, as it is one of the most important laws of money.
Note: With this being just a summary of rich dad poor dad, I cannot get deep into every concept mentioned by Kiyosaki. However, I can guarantee that this book will blow your mind and give you a completely different perspective on money and life. You should have a look at it. Visit Amazon.com to find Rich Dad Poor Dad for the best price.
Many people find it hard to grasp the concept of not working for money. This is because money is undeniably essential to maintaining life. So, the question is, "what does it mean to not work for money?"
Not working for money simply means that you are working to learn with a long-term goal for your business in mind. According to Robert Kiyosaki, a good question to ask yourself is "Where is this daily activity taking you?" In other words, you need to have a vision of where you want to be and organize your current lifestyle so that it is inline with your vision.
There are many talented people in the world that are only one skill away from obtaining great wealth or capturing their dreams. However, instead of developing that additional skill, they focus only on strengthening or maintaining the skills that they already have.
To illustrate why it is important to develop a broad skill set, Kiyosaki uses McDonald's as an example once more. Just about anyone can make a better hamburger than McDonald's, but the reason McDonald's can make enormous amounts of money for producing average quality hamburgers is because they have the business systems down to a science. Most people have very little knowledge of business systems outside of what they do for a living. The solution to this problem can be summed up in this quote by Robert Kiyosaki: "I recommend to young people to seek work for what they will learn, more than what they will earn. Look down the road at what skills they want to acquire before choosing a specific profession and before getting trapped in the Rat Race."
The fact is that there is such thing as being over specialized. In a way, the educational system rewards people to know a lot about a little. As people progress through school and obtain more degrees on the same subject, they feel that their skills are more valuable and that their earning potential is greater. In some cases, this can be true. However, it is risky in that those skills only pertain to one industry leaving them trapped and dependent on their employers.
Kiyosak's rich dad told him that he needs to know a little about a lot. This simply means gaining sufficient knowledge about several areas of a business. I have already discussed the importance of increasing your financial intelligence. In this chapter, Kiyosaki adds a couple more skills to the mix that are necessary for running a business. One of those skills is leadership and learning how to manage people. The other skill, proficiency in sales and marketing, is considered the most important area to specialize in by Robert Kiyosaki:
"The most important specialized skills are sales and understanding marketing. It is the ability to sell---therefore, to communicate to another human being, be it a customer, employee, boss, spouse or child---that is the base skill of personal success. It is communication skills such as writing speaking and negotiating that are crucial to a life of success."
Finally, Kiyosaki ended the chapter by emphasizing the importance of being a good student and a good teacher. He also discussed the importance of giving, as it is one of the most important laws of money.
Note: With this being just a summary of rich dad poor dad, I cannot get deep into every concept mentioned by Kiyosaki. However, I can guarantee that this book will blow your mind and give you a completely different perspective on money and life. You should have a look at it. Visit Amazon.com to find Rich Dad Poor Dad for the best price.
Friday, February 22, 2008
The Rich Invent Money
This is a summary of Rich Dad Poor Dad Chapter 6
In this chapter, Robert Kiyosaki talks about how the rich are able to invent money. When it comes to making more money, most people have tendencies to simply work harder instead of exploring their options. The other theory people subscribe to is to put a little money away every month into some type of savings account and let the interest compounding work for them overtime. The problem with this theory is that it works extremely slow. If you take inflation and taxes on your interest into account, you'll see that you're getting a very poor return on your money.
The reason that people except such low returns for their money is generally because they don't have any other options. To emphasize the importance of having options, Kiyosaki told the story of a 45 year old manager who was fired by his employer due to a downsizing. The manager was on his knees, in front of news cameras, begging the guards to let him talk to the owners to reconsider his termination. He had a wife and two babies, and he was also afraid of losing the home that he had just bought. This manager had no financial stability outside the comfort of his job and no other options due to his lacking financial intelligence. He was holding on to the old ideas of financial stability and believing that his company would always take care of him. According to Kiyosaki, "limiting your options is the same as hanging on to old ideas." After hearing this story and knowing that there are millions in similar situations, it is easy to see that this hanging on to old ideas is dangerous.
Developing financial intelligence is simply about having more options. Having knowledge of accounting, investing, the markets, and the law will allow you to receive greater returns on your money and build up your assets much faster than the average person. In addition, not only can you learn how to get better returns on your money, you can also invent money. Due to the rapid changes in our economy and the development of the internet, this statement is more true now than it was nearly 10 years ago when Rich Dad Poor Dad was written. The key to unlocking new sources of assets and cash flow can be summed up in this quote by Robert Kiyosaki: "The single most powerful asset we all have is our mind. If it is trained well, it can create enormous wealth in what seems to be an instant."
Kiyosaki gave several examples of how he has invented money through small company stocks and the real estate market. In one of the examples, he was able to create $190,000 of real estate notes without using his own money. This is how he did it:
There was a time between 1994 and 1997 when the real estate market was depressed and the supply of homes greatly outnumbered the demand. So, a house that was normally worth $100,000 was then worth $75,000. However, instead of shopping at the local real estate office, Kiyosaki searched the county courthouse and spoke to bankruptcy attorneys to find deals. As a result, he was able to get this $75,000 house on contract for $20,000 and a $2000 down payment that he borrowed from a friend. While the acquisition was being processed, he immediately began to offer the home in the newspapers for $60,000 with no money down. The house sold quickly, he asked for a $2500 processing fee, and the remaining $40,000 ($60,000 - $20,000) was added to his asset column as a note charging 10 percent annually. If you do the math, he was receiving around $400 per month for structuring the transaction this way. He was able to complete six deals similar to this one within a 2-3 year period.
The prior example was used to show you that money can be invented if you develop your financial intelligence. As I stated before, developing financial intelligence can also help you to make your money work hard for you. This can be accomplished by learning how to invest. According to Kiyosaki, there are two types of investors. The first type of investor simply purchases an investment as if he was shopping for retail goods. These investments can be real estate, stocks, bonds, etc... and are packaged to be bought in a simple manner. The second type of investor is creative with the way he puts his deals together. Again, this was demonstrated in the last real estate example. The main idea is that financial intelligence is the key to creating money and having money work hard for you.
Note: Remember that this is only a summary of rich dad poor dad. I'm sure you'll get a much more thorough and effective understanding by reading the book. My main focus is to just outline the main ideas and concepts for you. Visit Amazon.com to find Rich Dad Poor Dad for the best price.
In this chapter, Robert Kiyosaki talks about how the rich are able to invent money. When it comes to making more money, most people have tendencies to simply work harder instead of exploring their options. The other theory people subscribe to is to put a little money away every month into some type of savings account and let the interest compounding work for them overtime. The problem with this theory is that it works extremely slow. If you take inflation and taxes on your interest into account, you'll see that you're getting a very poor return on your money.
The reason that people except such low returns for their money is generally because they don't have any other options. To emphasize the importance of having options, Kiyosaki told the story of a 45 year old manager who was fired by his employer due to a downsizing. The manager was on his knees, in front of news cameras, begging the guards to let him talk to the owners to reconsider his termination. He had a wife and two babies, and he was also afraid of losing the home that he had just bought. This manager had no financial stability outside the comfort of his job and no other options due to his lacking financial intelligence. He was holding on to the old ideas of financial stability and believing that his company would always take care of him. According to Kiyosaki, "limiting your options is the same as hanging on to old ideas." After hearing this story and knowing that there are millions in similar situations, it is easy to see that this hanging on to old ideas is dangerous.
Developing financial intelligence is simply about having more options. Having knowledge of accounting, investing, the markets, and the law will allow you to receive greater returns on your money and build up your assets much faster than the average person. In addition, not only can you learn how to get better returns on your money, you can also invent money. Due to the rapid changes in our economy and the development of the internet, this statement is more true now than it was nearly 10 years ago when Rich Dad Poor Dad was written. The key to unlocking new sources of assets and cash flow can be summed up in this quote by Robert Kiyosaki: "The single most powerful asset we all have is our mind. If it is trained well, it can create enormous wealth in what seems to be an instant."
Kiyosaki gave several examples of how he has invented money through small company stocks and the real estate market. In one of the examples, he was able to create $190,000 of real estate notes without using his own money. This is how he did it:
There was a time between 1994 and 1997 when the real estate market was depressed and the supply of homes greatly outnumbered the demand. So, a house that was normally worth $100,000 was then worth $75,000. However, instead of shopping at the local real estate office, Kiyosaki searched the county courthouse and spoke to bankruptcy attorneys to find deals. As a result, he was able to get this $75,000 house on contract for $20,000 and a $2000 down payment that he borrowed from a friend. While the acquisition was being processed, he immediately began to offer the home in the newspapers for $60,000 with no money down. The house sold quickly, he asked for a $2500 processing fee, and the remaining $40,000 ($60,000 - $20,000) was added to his asset column as a note charging 10 percent annually. If you do the math, he was receiving around $400 per month for structuring the transaction this way. He was able to complete six deals similar to this one within a 2-3 year period.
The prior example was used to show you that money can be invented if you develop your financial intelligence. As I stated before, developing financial intelligence can also help you to make your money work hard for you. This can be accomplished by learning how to invest. According to Kiyosaki, there are two types of investors. The first type of investor simply purchases an investment as if he was shopping for retail goods. These investments can be real estate, stocks, bonds, etc... and are packaged to be bought in a simple manner. The second type of investor is creative with the way he puts his deals together. Again, this was demonstrated in the last real estate example. The main idea is that financial intelligence is the key to creating money and having money work hard for you.
Note: Remember that this is only a summary of rich dad poor dad. I'm sure you'll get a much more thorough and effective understanding by reading the book. My main focus is to just outline the main ideas and concepts for you. Visit Amazon.com to find Rich Dad Poor Dad for the best price.
Tuesday, February 19, 2008
Tax History/Power of Corporations
This is a summary of Rich Dad Poor Dad Chapter 5
In chapter 5, Robert Kiyosaki talks about the history of taxes and the power of corporations. Taxes are an extremely important factor to your overall wealth simply for the fact that they are generally a person's greatest expense. In fact, most people work 3 to 4 months out of the year just to pay taxes to the government.
It used to be that Americans were anti-tax, especially in regards to federal income taxes. According to Kiyosaki, it was the idea of "stealing from the rich to give to the poor" that eventually convinced the mass public to buy into the idea of income taxes. So, as the story goes, it was the rich who were targeted as the main source of additional tax revenue. However, as the size of the government increased, so did its expenditures and its need for more capital. The most natural thing for the government to do was to place more of a tax burden on the poor and middle classes. After awhile, the rich succeeded in finding loopholes to protect more of their income from the government. However, the poor and middle class remained the oblivious victims of our income tax system.
The loopholes that the rich began to take advantage of were found through the use of corporations. In the words of Robert Kiyosaki, "A corporation is merely a legal document that creates a legal body without a soul." There is a misconception that corporations are only for big businesses with buildings, hundreds of employees, large operations, etc... However, anyone can create a corporation. It is relatively simple and would only require a little study on how to set one up.
One advantage of having a corporation is that you can pay for many of your everyday expenses with before tax dollars. Another advantage is that there are several tax deductions that are available to corporations that are not available to individuals. Also, corporations are great tools for asset protection. For more on corporations, Kiyosaki recommends a book called Inc. and Grow Rich.
Aside from the history of taxes and corporations, Kiyosaki mentioned four broad areas of expertise that you should study to increase your financial IQ. As I discussed before, increasing your financial IQ is critical to your becoming and staying rich. Below are the four areas mentioned by Kiyosaki:
In chapter 5, Robert Kiyosaki talks about the history of taxes and the power of corporations. Taxes are an extremely important factor to your overall wealth simply for the fact that they are generally a person's greatest expense. In fact, most people work 3 to 4 months out of the year just to pay taxes to the government.
It used to be that Americans were anti-tax, especially in regards to federal income taxes. According to Kiyosaki, it was the idea of "stealing from the rich to give to the poor" that eventually convinced the mass public to buy into the idea of income taxes. So, as the story goes, it was the rich who were targeted as the main source of additional tax revenue. However, as the size of the government increased, so did its expenditures and its need for more capital. The most natural thing for the government to do was to place more of a tax burden on the poor and middle classes. After awhile, the rich succeeded in finding loopholes to protect more of their income from the government. However, the poor and middle class remained the oblivious victims of our income tax system.
The loopholes that the rich began to take advantage of were found through the use of corporations. In the words of Robert Kiyosaki, "A corporation is merely a legal document that creates a legal body without a soul." There is a misconception that corporations are only for big businesses with buildings, hundreds of employees, large operations, etc... However, anyone can create a corporation. It is relatively simple and would only require a little study on how to set one up.
One advantage of having a corporation is that you can pay for many of your everyday expenses with before tax dollars. Another advantage is that there are several tax deductions that are available to corporations that are not available to individuals. Also, corporations are great tools for asset protection. For more on corporations, Kiyosaki recommends a book called Inc. and Grow Rich.
Aside from the history of taxes and corporations, Kiyosaki mentioned four broad areas of expertise that you should study to increase your financial IQ. As I discussed before, increasing your financial IQ is critical to your becoming and staying rich. Below are the four areas mentioned by Kiyosaki:
- Accounting - Ability to read and understand financial statements; allows you to identify strengths and weaknesses in a business
- Investing - Kiyosaki refers to this as the "science of money making money". This includes real estate, stocks, bonds, etc...
- Understanding Markets - There are two types of analysis that you need to understand: 1) Fundamental analysis - economic sense of the investment based on current market conditions. 2) Technical analysis - study of emotion-driven price movements and indicators
- The Law - Simply, a person with knowledge of corporations, accounting, investing, tax advantages, etc... will be able to get rich much faster than someone without that knowledge
Friday, February 15, 2008
Mind Your Own Business
This is a summary of Rich Dad Poor Dad Chapter 4
In chapter 4, Kiyosaki reveals secret #3 of the rich. The secret is to "Mind Your Own Business." To explain this concept, Kiyosaki started off the chapter with a story about Ray Kroc, the founder of McDonalds. Knowing that McDonalds is a fast food restaurant, it is easy to make the assumption that its business is in the fast food industry. However, Ray Kroc would say that his business is real estate. If you think about the location of all the McDonalds restaurants that you have seen, you will notice that it owns land on some of the most busy intersections. Though the primary focus of the business is selling fast food franchises, the company is acquiring some of the most valuable real estate in the process. Ray Kroc never lost focus of this important distinction.
There is a difference between your profession and your business. Your profession is centered around your income statement. For most people, their only source of income is their job. They also make the mistake of focusing all of their attention on their job. Instead, you need to work your job for income while also focusing on your assets. Your business is centered around your assets. The poor and the middle class have fallen into the habit of working on someone else's business their entire life and ignoring their own. The rich are in the habit of focusing on their own business and assets more than anything else. While the poor often buy luxuries and acquire liabilities to appear rich, the truly rich only require luxuries when their assets are producing enough income to afford them. That is the type of mindset you need to have to become rich. Remember that the one and only rule is to know the difference between assets and liabilities, and buy assets.
In Rich Dad Poor Dad, Kiyosaki provided the following list for types of assets you should acquire:
1. Businesses that do not require your presence.
2. Stocks
3. Bonds
4. Mutual funds
5. Income-generating real estate
6. Notes (IOUs).
7. Royalties from intellectual property such as music, scripts, patents, etc...
8. And anything else that has value, produces income or appreciates and has a ready market
Kiyosaki also provided his personal strategy for investments and business. During the early parts of his career, he held jobs for Xerox and the Marine Corps. While working these jobs, he was building his business. As far as stocks are concerned, he likes to invest in start-ups and small caps. His strategy in real estate is to start small and trade up for larger investment properties. One thing Kiyosaki also mentioned is that you should invest in things that you like. If you do not have an interest in your investment, you are not likely to maintain it properly.
Note: Remember that this is only a summary of rich dad poor dad. In particular, chapter 4 is packed full of valuable information for investing in your business assets. I hope you got the main idea here, but you probably won't have a complete understanding until you read the book. You can find Rich Dad Poor Dad on Amazon.
In chapter 4, Kiyosaki reveals secret #3 of the rich. The secret is to "Mind Your Own Business." To explain this concept, Kiyosaki started off the chapter with a story about Ray Kroc, the founder of McDonalds. Knowing that McDonalds is a fast food restaurant, it is easy to make the assumption that its business is in the fast food industry. However, Ray Kroc would say that his business is real estate. If you think about the location of all the McDonalds restaurants that you have seen, you will notice that it owns land on some of the most busy intersections. Though the primary focus of the business is selling fast food franchises, the company is acquiring some of the most valuable real estate in the process. Ray Kroc never lost focus of this important distinction.
There is a difference between your profession and your business. Your profession is centered around your income statement. For most people, their only source of income is their job. They also make the mistake of focusing all of their attention on their job. Instead, you need to work your job for income while also focusing on your assets. Your business is centered around your assets. The poor and the middle class have fallen into the habit of working on someone else's business their entire life and ignoring their own. The rich are in the habit of focusing on their own business and assets more than anything else. While the poor often buy luxuries and acquire liabilities to appear rich, the truly rich only require luxuries when their assets are producing enough income to afford them. That is the type of mindset you need to have to become rich. Remember that the one and only rule is to know the difference between assets and liabilities, and buy assets.
In Rich Dad Poor Dad, Kiyosaki provided the following list for types of assets you should acquire:
1. Businesses that do not require your presence.
2. Stocks
3. Bonds
4. Mutual funds
5. Income-generating real estate
6. Notes (IOUs).
7. Royalties from intellectual property such as music, scripts, patents, etc...
8. And anything else that has value, produces income or appreciates and has a ready market
Kiyosaki also provided his personal strategy for investments and business. During the early parts of his career, he held jobs for Xerox and the Marine Corps. While working these jobs, he was building his business. As far as stocks are concerned, he likes to invest in start-ups and small caps. His strategy in real estate is to start small and trade up for larger investment properties. One thing Kiyosaki also mentioned is that you should invest in things that you like. If you do not have an interest in your investment, you are not likely to maintain it properly.
Note: Remember that this is only a summary of rich dad poor dad. In particular, chapter 4 is packed full of valuable information for investing in your business assets. I hope you got the main idea here, but you probably won't have a complete understanding until you read the book. You can find Rich Dad Poor Dad on Amazon.
Why Teach Financial Literacy?
This is a summary of Rich Dad Poor Dad Chapter 3
In this chapter, Robert Kiyosaki provides a simple explanation of how to become rich. The main idea behind this chapter is that you need to be financially literate. To be financially literate, you have to be able to read numbers. Just as in reading words, it is not the numbers themselves but the story behind the numbers that you need to be able to extract and understand. This is where knowledge of accounting can be extremely helpful. Though accounting is perceived as one of the most difficult and boring subjects to master, as a trained accountant, I have to say that the basics of what you need to know to be rich aren't that hard to understand at all. In fact, Kiyosaki has the best basic explanation that I have ever seen in terms of accounting!
Before I go into a more in-depth discussion, I don't want you to be suprised by the simplicity of Robert Kiyosaki's view on becoming rich. It's easy for people, especially adults, to view something profound as unimportant or insignificant just because it is simple. That is why so many people have missed this concept entirely. I will try my best to explain this concept, but this is just a summary of Rich Dad Poor Dad. I am not capable of explaining this better than Kiyosaki in the short amount of space that I have. If you truly want to grasp the full meaning of these concepts, you need to read the book in its entirety. So, here it goes! According to Robert Kiyosaki, this is Rule #1 of the rich:
"You must know the difference between an asset and a liability, and buy assets. If you want to be rich, this is all you need to know. It is Rule No. 1. It is the only rule. This may sound absurdly simple, but most people have no idea how profound this rule is. Most people struggle financially because they do not know the difference between an asset and a liability."
It is really that simple. So, what is the difference? An asset is something that puts money into your pockets, and a liability is something that takes money out of your pockets. Robert Kiyosaki explains this concept and other cash flow issues very effectively with pictures.
Many people do not understand Balance Sheets or Income Statements, but this understanding is necessary if you want to become rich. Think of your Balance Sheet as an asset column and a liability column. Your Income Statement consists of the money you earn and the expenses you have to pay. The goal is to use your net income to buy as many assets as you can while limiting your liabilities. That is the most simple way to become rich.
Some examples of assets are stocks, bonds, notes, real estate, intellectual property, and anything else that brings in a continuous flow of wealth. Assets can also be created. Think about an author who writes a good book and receives royalties on every sale. The content that this author created is an asset.
A major problem arises when liabilities are mistaken for assets. Liabilities are things such as mortgages, credit card debt, school loans, car loans, etc... These liabilities make for a continuous hole in your pocket through which your hard earned money escapes you every month. Again, you have to look at the numbers and realize that it is a liability if it takes money out of your pocket. Robert Kiyosaki brought up a controversial issue when it comes to this subject. He said that when a person goes to purchase a home, their home is a liability. This is ironic because most people see their home as their greatest and only asset. However, you have a major problem if your home is your only asset. According to Kiyosaki, the decision to own a home that is too expense instead of starting an investment portfolio early effects an individual in the following three ways:
1. They lose time during which other assets could have grown in value
2. They lose additional investment capital on high-maintenance expenses
3. They lose the education necessary for them to become a sophisticated investor
The fact of the matter is that it takes time and experience to become a sophisticated investor. It is normally the sophisticated investor who makes good investments and sells the bad ones off to others. If too much of your money is tied up in your mortgage payments and home maintenance expenses, you will not have the additional cash to try your hand in the investment world. And it is only through investing that a person can become truly wealthy.
There are many definitions for wealth, but this is the one that is supported by Robert Kiyosaki in Rich Dad Poor Dad: "Wealth is a person's ability to survive so many number of days forward... or if I stopped working today, how long could I survive?" Now, of course you can try to stack up as much cash as possible and survive off of a huge lump sum of money. However, that is the type of thinking that you should try to avoid. Remember that becoming rich is not all about how much money you can make. It's about how much money you keep to invest in assets that provide continuous cash flow. So, the idea is that you should look at wealth from a cash flow perspective. Wealth is a measure of your cash flow from your assets compared to your expenses. The goal is to build up that asset column to receive income from dividends, royalties, rent revenue, etc... If you can get your monthly income from assets to cover your monthly expenses, you can live indefinitely into the future without a job. That is what you call wealthy!
Note: Remember that this is just a summary of Rich Dad Poor Dad. I try my best to explain Kiyosaki's concepts in the short amount of space that I have, but I probably cannot explain it as thoroughly as you need to understand it. You need to read the book for yourself. This summary is only meant to give you an overview of the main concepts. Click Here to find Rich Dad Poor Dad on Amazon.
In this chapter, Robert Kiyosaki provides a simple explanation of how to become rich. The main idea behind this chapter is that you need to be financially literate. To be financially literate, you have to be able to read numbers. Just as in reading words, it is not the numbers themselves but the story behind the numbers that you need to be able to extract and understand. This is where knowledge of accounting can be extremely helpful. Though accounting is perceived as one of the most difficult and boring subjects to master, as a trained accountant, I have to say that the basics of what you need to know to be rich aren't that hard to understand at all. In fact, Kiyosaki has the best basic explanation that I have ever seen in terms of accounting!
Before I go into a more in-depth discussion, I don't want you to be suprised by the simplicity of Robert Kiyosaki's view on becoming rich. It's easy for people, especially adults, to view something profound as unimportant or insignificant just because it is simple. That is why so many people have missed this concept entirely. I will try my best to explain this concept, but this is just a summary of Rich Dad Poor Dad. I am not capable of explaining this better than Kiyosaki in the short amount of space that I have. If you truly want to grasp the full meaning of these concepts, you need to read the book in its entirety. So, here it goes! According to Robert Kiyosaki, this is Rule #1 of the rich:
"You must know the difference between an asset and a liability, and buy assets. If you want to be rich, this is all you need to know. It is Rule No. 1. It is the only rule. This may sound absurdly simple, but most people have no idea how profound this rule is. Most people struggle financially because they do not know the difference between an asset and a liability."
It is really that simple. So, what is the difference? An asset is something that puts money into your pockets, and a liability is something that takes money out of your pockets. Robert Kiyosaki explains this concept and other cash flow issues very effectively with pictures.
Many people do not understand Balance Sheets or Income Statements, but this understanding is necessary if you want to become rich. Think of your Balance Sheet as an asset column and a liability column. Your Income Statement consists of the money you earn and the expenses you have to pay. The goal is to use your net income to buy as many assets as you can while limiting your liabilities. That is the most simple way to become rich.
Some examples of assets are stocks, bonds, notes, real estate, intellectual property, and anything else that brings in a continuous flow of wealth. Assets can also be created. Think about an author who writes a good book and receives royalties on every sale. The content that this author created is an asset.
A major problem arises when liabilities are mistaken for assets. Liabilities are things such as mortgages, credit card debt, school loans, car loans, etc... These liabilities make for a continuous hole in your pocket through which your hard earned money escapes you every month. Again, you have to look at the numbers and realize that it is a liability if it takes money out of your pocket. Robert Kiyosaki brought up a controversial issue when it comes to this subject. He said that when a person goes to purchase a home, their home is a liability. This is ironic because most people see their home as their greatest and only asset. However, you have a major problem if your home is your only asset. According to Kiyosaki, the decision to own a home that is too expense instead of starting an investment portfolio early effects an individual in the following three ways:
1. They lose time during which other assets could have grown in value
2. They lose additional investment capital on high-maintenance expenses
3. They lose the education necessary for them to become a sophisticated investor
The fact of the matter is that it takes time and experience to become a sophisticated investor. It is normally the sophisticated investor who makes good investments and sells the bad ones off to others. If too much of your money is tied up in your mortgage payments and home maintenance expenses, you will not have the additional cash to try your hand in the investment world. And it is only through investing that a person can become truly wealthy.
There are many definitions for wealth, but this is the one that is supported by Robert Kiyosaki in Rich Dad Poor Dad: "Wealth is a person's ability to survive so many number of days forward... or if I stopped working today, how long could I survive?" Now, of course you can try to stack up as much cash as possible and survive off of a huge lump sum of money. However, that is the type of thinking that you should try to avoid. Remember that becoming rich is not all about how much money you can make. It's about how much money you keep to invest in assets that provide continuous cash flow. So, the idea is that you should look at wealth from a cash flow perspective. Wealth is a measure of your cash flow from your assets compared to your expenses. The goal is to build up that asset column to receive income from dividends, royalties, rent revenue, etc... If you can get your monthly income from assets to cover your monthly expenses, you can live indefinitely into the future without a job. That is what you call wealthy!
Note: Remember that this is just a summary of Rich Dad Poor Dad. I try my best to explain Kiyosaki's concepts in the short amount of space that I have, but I probably cannot explain it as thoroughly as you need to understand it. You need to read the book for yourself. This summary is only meant to give you an overview of the main concepts. Click Here to find Rich Dad Poor Dad on Amazon.
Friday, February 8, 2008
The Rich Don't Work For Money
This is a summary of Rich Dad Poor Dad Chapter 2
In this chapter, Kiyosaki reveals the first lesson that he received from Rich Dad. The lesson is that the rich don't work for money. This is generally a tough concept for people to grasp because working for money is what they have been taught to do their entire lives. It's also mind boggling when you consider the fact that you really need money to live nowadays. There were times when this was not the case. People used to be able to live off of their land and were even able to hunt for food. People also used to be much more entrepreneurial in spirit when it was a necessity of life. However, since the industrial age, people have become overly dependent on their employers and the government. Now, it has gotten so bad that people barely use their minds to consider what is best for their financial situation. This is because their lives are run by two emotions: fear and greed.
Fear is the emotion that most people are reacting to when they wake up and rush out of the house for work every morning. This is what Rich Dad had to say about the effects of fear:
"Instead of telling the truth about how they feel, they react to their feeling, fail to think. They feel the fear, they go to work, hoping that money will soothe the fear, but it doesn't. That old fear haunts them, and they go back to work, hoping again that money will calm their fears, and again it doesn't. Fear has them in this trap of working, earning money, working, earning money, hoping the fear will go away. But everyday they get up, and that old fear wakes up with them. For millions of people, that old fear keeps them awake all night, causing a night of turmoil and worry. So they get up and go to work, hoping that a paycheck will kill that fear gnawing at their soul. Money is running their lives and they refuse to tell the truth about that. Money is in control of their emotions and hence their souls."
As you can see, fear is an emotion that can trap you into a hopeless, financial struggle. Desire is the other major emotion that drives people into this trap. It is natural for a person to long for the material, luxurious things that come with money. However, the pleasure that one receives from money is generally short lived. Afterwards, the void is still there and the person only desires more money. In this quote, Rich Dad talks about the solution for handling fear and greed:
"By not giving into your emotions, you are able to delay your reactions and think. That is most important. We will always have emotions of fear and greed. From here on in, it is most important for you to use those emotions to your advantage and for the long term, and not simply let your emotions run you by controlling your thinking."
By "not working for money," Kiyosaki is simply talking about the mindset that you have about money. You cannot allow the emotions related to money to control your thinking and your life. Instead of hastily reacting to your feelings, you should take the time to be truthful about how you feel and ask yourself if what you are doing is the best solution. At the end of the day, you need to figure out how to make money work for you. There are also endless opportunities for the accumulation of money, but most people cannot see them while they are blinded by fear and greed. When you are able to overcome these emotions and use your mind to think about the best financial solutions, a whole new world of opportunities will open up for you.
Note: This is just a summary of rich dad poor dad. You should read the book yourself for full understanding. It is not possible for me to cover every important concept or provide in-depth explanations on everything. Truthfully, I can only give you a taste of what you'll experience by reading the real book. Follow this link to find Rich Dad Poor Dad on Amazon for a good price!
In this chapter, Kiyosaki reveals the first lesson that he received from Rich Dad. The lesson is that the rich don't work for money. This is generally a tough concept for people to grasp because working for money is what they have been taught to do their entire lives. It's also mind boggling when you consider the fact that you really need money to live nowadays. There were times when this was not the case. People used to be able to live off of their land and were even able to hunt for food. People also used to be much more entrepreneurial in spirit when it was a necessity of life. However, since the industrial age, people have become overly dependent on their employers and the government. Now, it has gotten so bad that people barely use their minds to consider what is best for their financial situation. This is because their lives are run by two emotions: fear and greed.
Fear is the emotion that most people are reacting to when they wake up and rush out of the house for work every morning. This is what Rich Dad had to say about the effects of fear:
"Instead of telling the truth about how they feel, they react to their feeling, fail to think. They feel the fear, they go to work, hoping that money will soothe the fear, but it doesn't. That old fear haunts them, and they go back to work, hoping again that money will calm their fears, and again it doesn't. Fear has them in this trap of working, earning money, working, earning money, hoping the fear will go away. But everyday they get up, and that old fear wakes up with them. For millions of people, that old fear keeps them awake all night, causing a night of turmoil and worry. So they get up and go to work, hoping that a paycheck will kill that fear gnawing at their soul. Money is running their lives and they refuse to tell the truth about that. Money is in control of their emotions and hence their souls."
As you can see, fear is an emotion that can trap you into a hopeless, financial struggle. Desire is the other major emotion that drives people into this trap. It is natural for a person to long for the material, luxurious things that come with money. However, the pleasure that one receives from money is generally short lived. Afterwards, the void is still there and the person only desires more money. In this quote, Rich Dad talks about the solution for handling fear and greed:
"By not giving into your emotions, you are able to delay your reactions and think. That is most important. We will always have emotions of fear and greed. From here on in, it is most important for you to use those emotions to your advantage and for the long term, and not simply let your emotions run you by controlling your thinking."
By "not working for money," Kiyosaki is simply talking about the mindset that you have about money. You cannot allow the emotions related to money to control your thinking and your life. Instead of hastily reacting to your feelings, you should take the time to be truthful about how you feel and ask yourself if what you are doing is the best solution. At the end of the day, you need to figure out how to make money work for you. There are also endless opportunities for the accumulation of money, but most people cannot see them while they are blinded by fear and greed. When you are able to overcome these emotions and use your mind to think about the best financial solutions, a whole new world of opportunities will open up for you.
Note: This is just a summary of rich dad poor dad. You should read the book yourself for full understanding. It is not possible for me to cover every important concept or provide in-depth explanations on everything. Truthfully, I can only give you a taste of what you'll experience by reading the real book. Follow this link to find Rich Dad Poor Dad on Amazon for a good price!
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