In his iconic book Rich Dad, Poor Dad, author Robert Kiyosaki explores the idea that financial literacy is the biggest difference between affluent people and their less fortunate counterparts. He claims that rich people teach their children better (more efficient) money management practices, which allows them to get ahead in life.
Fortunately, he also claims these insights can be learned and used to one’s own advantage. In fact, he goes a step further and claims that once you master the art of money management, even when you’re down on your luck, you’ll bounce right back. According to him, a great understanding of finances will always triumph against bad luck, while poor financial habits are impossible to shake off.
With that in mind, here are his book’s top seven tips and insights.
Understand the difference between assets and liabilities
Every financially independent person has assets and liabilities. Assets bring you money, and liabilities cost you money. Your credit payments, bills, taxes, and expenses are liabilities, while your salary and passive streams of income are your assets.
Now, the biggest problem with focusing too much on the salary is the fact that you have a finite amount of time and energy. You can’t take too many jobs before you can no longer physically take them. Also, Kiyosaki argues that this is a suboptimal way of making money. Sure, it’s great for the accumulation of initial capital, but it’s very limited, and you’ll reach your potential relatively soon.
This is why assets are so amazing. After all, they can passively generate income, and you can (potentially) own an infinite number of assets.
By increasing your assets and lowering your liabilities, you’ll already create an excess of cash on a monthly basis. Then, you can spend this money recklessly, or you can make it work for you. Speaking of which…
Make money work for you
Kiyosaki claims that every dollar that you own needs to become an employee in your service, working toward buying you a new Lamborghini. This will only happen if you invest smart, and by investing smart, we mean committing your assets to generating many streams of passive income.
So, how can you create a passive income?
Well, there are a few ways to do so, and the most traditional are buying property that you can rent out or buying stocks that pay dividends. However, in the modern age, there are so many other ways in which you can create this type of income.
First of all, you can create a piece of intellectual property and collect royalties. You can write a story and sell it on Amazon via KDP, post your music on SoundCloud, or sell your photos on one of many stock photo sites. You can also write an e-book or sell a course.
Anything that you can create or buy that will keep generating income is an asset, and with several different assets, you’ll already be far better off.
Value education
Investment in self-education is one of the most unconventional investment avenues; however, it generates immense value in the long run.
Imagine a craftsman sitting on a fence regarding whether it’s worth enrolling in a course or starting to learn a trade. Now, imagine if they could jump in time and see just how much money (total net gain) they achieved from this one skill. Imagine if they could see the number like on a stat page in a video game. Chances are that they wouldn’t think twice before investing time and money.
If you knew that you could monetize a skill well, turn it into a career, or use it as a USP (unique selling proposition), chances are that you wouldn’t spare an effort. However, while you’re still unconvinced about the cost-effectiveness of the process, you might still have some doubts.
In his book, Kiyosaki advises taking an internship even though it’s not paid as much. In his mind, you should see the experience and knowledge as a pay, not a financial gain.
Take calculated risks
The only way to make a huge amount of money in your lifetime is to take a calculated risk occasionally. You see, someone starting from a position of wealth can afford to invest in huge companies, knowing full well that the dividend on their number of stocks will be quite substantial.
The problem is that when you’re starting without that kind of initial capital, you might have to look for ways to try something new. For instance, while the majority of your investment money needs to go towards low-yield assets, there’s nothing wrong with looking for alt coins to buy with a portion of your investment money.
Now, there are a few rules you need to follow in order to avoid investing in a gambler-like manner.
- First, you should only invest what you can afford to lose.
- Second, you should never put all your money into a single investment (no matter how lucrative it may sound).
- Third, do your fair share of research before investing.
By following just these three rules, you’ll already be ahead.
Prioritize entrepreneurship over security
Entrepreneurs take risks. They assume responsibility and have no guaranteed income from their business endeavors. It’s far easier just to get a job and have a boss to make all the hard decisions in your stead. Sure, this is not nearly as rewarding financially, but you have a fixed income (or at least an income that’s easy to predict).
Fear is the main reason why more people aren’t taking this route. Unpredictability is a significant factor in decision-making. Many people are willing to accept less only if it means that they won’t be exposed to too much risk. This is the main thing that separates entrepreneurs from the rest.
Financial independence has its merit
You don’t want to do things for the wrong reason, and when trying to make a lot of money, you need to understand why it matters to you. Sure, having a lot of resources is an objectively good thing; however, what does it mean for you personally?
By having a lot of money, you’re harder to bribe, and you don’t have to agree to compromises you don’t feel comfortable with.
The reason why this is so important is because this is not going to be easy. Therefore, you need the right kind of motivation – intrinsic, something that actually matters to you, no one else.
Learn how to sell
One of the most interesting examples that Kiyosaki mentions in his book is one of his friends who was a writer and asked him for business advice. He told her to enlist in a sales course. When she looked at him puzzled, he took the book she had in front of her on the restaurant table, turned it around to the author’s bio section, and read the words “best-selling author” aloud. That’s right, best-selling, not best-writing.
The truth is that the skill to sell something goes far beyond retail. By learning how to sell, you’ll also learn how to sell (pitch) an idea. You’ll also become a master negotiator, which is a crucial skill when running your own enterprise.
Even as an investor, you’re constantly buying (from someone trying to sell you their new stock, commodity, or crypto). With that in mind, the idea of learning some of the tricks and persuasion methods they’re using is quite logical. Developing your sales skills is, universally, a great idea.
Financial literacy is one of the most important skills to master
While we’ve addressed some of the most important points in the book, it’s an incredibly immersive read, filled with examples and great explanations. As such, it’s definitely worth reading it cover to cover (even several times). Still, just reading will not cut it. Instead, you should go out and apply some of the tips mentioned in the book. All the knowledge is unverified until you take it to the streets.
