In his bestselling book, Rich Dad, Poor Dad, the author, Richard Kiyosaki, explains the fundamental differences in the way his two fathers thought about money — his real father who was ‘poor’ and the father of his best friend who was ‘rich’, despite both earning a good salary. From studying their journeys, he realised that your wealth can depend more on your actions than the money you earn. He surmised that it is, therefore, important to first change your attitude about money because your thoughts lead to your actions.
Here are 6 fundamental financial lessons from the book that can help you to build wealth and retire in comfort.
1. Manage your money
Many people are able to make money, but not everyone learns how to manage it properly. Financial intelligence starts with learning the difference between assets and liabilities. By enhancing your savings and tracking your expenses, you can become aware of your spending patterns and ensure that you have more money coming in than going out, which is what will make you richer.
Many people make the mistake of thinking that earning more money will solve their financial problems, but this could only serve to compound them if your outgoings increase exponentially too.
2. Make your money work for you
A main point that Kiyosaki makes is that the lower and middle classes work for their money, whereas the wealthy have money work for them.
Learn how money works, then work out how to make it, independent of a paycheck. Look into how you can generate more income by investing your money wisely. And don’t give the financial power to your employer, but rather keep the power by taking control of your money and making it work for you.
3. Be brave and don’t be scared to fail
Most people never win because they’re afraid of losing or failing. However, we often learn and improve by making mistakes, and failure is often part of the process of becoming successful.
You don’t have to be ridiculously intelligent to have financial success. While Kiyosaki’s father had multiple qualifications, his best friend didn’t have a proper education. A degree cum laude won’t necessarily make you wealthy if you don’t have guts and an understanding of how money works too. Generating wealth sometimes involves taking risks and dealing with a level of uncertainty. The trick is to be clever about when and how to take risks, by being savvy and learning from your experiences to assess a situation, rather than dive in blindly. The path to wealth often requires you to leverage money to mitigate your risk and maximise your profit.
4. Become financially intelligent and literate
The biggest cause of financial trouble is ignorance because this isn’t taught in many education systems or societies. Financial terms can be complex and daunting, but you can develop financial intelligence by reading about accounting and investing, and keeping informed about the markets. Kiyosaki believes that the cause of so much suffering is due to a lack of financial education. Courage plus technical knowledge will take you far.
5. Train your mind to look for opportunities
Look for creative solutions to any money problems. Maximise your options and work out what you can do to improve your financial position if opportunities aren’t falling from the sky. It is not so much a question of what happens to you, but the different financial solutions you can think of to turn things into opportunities.
6. Focus on assets over income
Concentrate on your net worth rather than your monthly salary. Start acquiring assets — such as stocks, bonds, or your own company — to earn you money, as opposed to liabilities — such as mortgages, loans, or credit cards — which cost you money. Build your asset column first, then buy any luxuries with the income generated from these.
According to Kiyosaki, you can measure your wealth by the number of days you can live off the income from your assets. And you can consider yourself financially independent if your monthly income from your assets exceeds your monthly expenses.
Making money is a question of mindset. Ensure you understand how it flows, and don’t hesitate to arrange a meeting if you need any help in applying these principles for financial freedom.
If you have the time – take a look at reading the book – Rich Dad, Poor Dad, by Richard Kiyosaki!