I was never a reader. People find it hard to believe how I made it through school without reading a single non-fiction book(of course everyone has read at least one fiction book). Reading fiction books, even classics just never appealed to me. On top of that, it takes me approx. 5 pages before I fall into a deep sleep. So to say that a book changed my life is a serious statement. Having a lot of free time during this lockdown leads me towards new hobbies. One of em’ is reading books. The first book which I read was “Warren Buffet Way†the book was quite complicated and I’ve also summarised the whole book in one of my articles so do check it out, after completing that book the next book which came to my mind was “Rich Dad Poor Dadâ€. It was an interesting enough title and I was interested in reading who these two people were. I took a week to complete that book and this book opened my eyes to the world of wealth, Caution this book won't make you rich financially, so if you wanna be financially rich then just close this tab because you're in the wrong room. This book will give you a clear understanding of how to escape from the "Rat Race", and differentiate assets and liabilities, at the end making you financially literate, the header of this article states that "Will Make you Rich" I meant you'll be rich by knowledge.
For example: when a group is stuck on a no man's island a person with millions of money in his bank account is not the richest, the richest one is the one who knows about building a boat and escaping. So always remember that real wealth is knowledge. Let me tell you the four lesson which I learnt from Rich Dad Poor Dad that improved my financial knowledge or let's say this as a whole book review for Rich Dad Poor Dad.
#1 Most People Work For Money, But The Rich Make money Work For Them
This lesson is considered a myth for many, but it’s true. Talk to anyone about how to make money and the conversation will end up in getting a job. That is not wrong thinking either at least not early in your life. But the first step towards making money/ building wealth is generating basic income. If you have no asset and no skill you can sell to the public in exchange for money, then the job is certainly the most convenient way of making money.
But the main difference between the rich and everyone else is that they don’t stay in the job phase for very long. They realize early that to become rich I should be the one who hires people and I shouldn’t be a job holder. By contrast, most people like to stay on the safe side and live their life in the job phase. And Robert Kiyosaki considers them to be stuck in a rat race. But the rich learn to become a business owner. And running a business is more than anything else, about learning how to leverage resources and people to earn more money than one ever could by exchanging their labour for a wage.
#2 It’s not how much money you make it’s how much you keep
The thing that separates the self-made rich from others is the emphasis on saving money. One of the fundamental obstacles for most people is that the priority is given to spending the money. Saving get’s only what is left after spending. Let’s say you have an income of $2000 and you spend around 1900 on liabilities, taxes, etc and you have $100 let to put into your savings. That means only 5% of your net monthly income is being saved. And in many households, even that money is being swallowed by some unexpected expenses. For the rest, the effort of saving is completely abandoned. The situation is completely different among the self-made rich. Though financial planners may recommend saving and investing 10 or 15% of your income regularly, the aspiring rich may save and invest upto40% of their income on assets.
No question saving that much amount of money can only be accomplished only if you can successfully live well below your means. That arrangement is just temporary because once your savings and investment (assets or business) grow so does the income they generate. Let’s take an example, a guy who’s monthly income is $5000 and he invests almost 50% of his saves and income on assets like stocks and bonds this saver will accumulate over one million in 20years. And that doesn’t even reflect the fact that both his income, his savings and his investment might increase over the years. This explains how much money you keep makes a bigger difference in the long term than how much you make.
#3 The rich buy assets and other acquire liabilities which they think are assets
One of the major misunderstanding people have is that all the rich have inherited their money. But Robert has stated clearly in his book that 30-40% of rich who inherited money fail to stay rich. But let’s keep that debate aside. Look at any self-made millionaire he/she has spent most of their life acquiring assets that generate income. Other’s who are financially illiterate invest their money in something which they think as assets. Probably the best example is your home. Most of them think of their home as their biggest asset they have ever acquired. Robert’s rich dad states that if you think that your house is your biggest investment then your travelling on the wrong path.
But even your house can build value over time, it is not an income-generating asset. It costs you money to keep it. It’s not an investment until and unless you sell it. Most of the middle classes homes are heavily financed. Other non-income generating assets like carks, furniture and entertainment equipment. All may feel good to own but won’t make you a millionaire.
Assets acquired by the rich are stocks, bonds, investment fund, income-generating real estate and investment in a business. What all have in common is that they generate a constant flow of income every month and increase in value as time goes.
#4 Working for someone else could lead to financial struggle
This isn’t an attempt to demean anyone who spent a life working for others. Instead, it’s to emphasize doing so holds the very real potential for a lifetime of financial struggle for many people. When you’re an employee for someone you are trading time for money. And you don’t have all day to give your boss and hence your earnings are limited. At a basic level, you will only earn less than your effort produces. Example your boss earns $50/hour, you may receive $20/hour for each hour spent. It must be that way because your boss can’t afford to keep you on the payroll without making a profit on your work. There are also caps for how much your boss will pay for any position, regardless of the quality of your work.
But when you are self-employed there are no caps on how much you can earn. The more you earn the more you can save and invest to gain real assets. When you are self-employed you have the freedom to take your business in any direction you wish i.e: profitable, challenging or even create additional income streams. Self-employment not only removes the cap but also creates the ability to build up your assets column faster than you can as an employee.
These lessons from Robert Kiyosaki aren’t meant to make you feel that you’re in a wrong path and make your situation fell hopeless if you financially follow what others do. It is to give you some knowledge about how the rich spend and how you can do so by making you financially literate. If you follow his rules the entire monetary dynamic in your life will change better. Even if you can’t save/invest 50% of your income, set a reasonable goal. The author concludes by saying that if you wanna improve your financial situation in a meaningful way you’ll have to make more changes in the way you see and handle wealth.
If you'd like to give this book a read you can buy the book at Amazon Books.
Or if you'd like an animated review of the book you can watch this whole video.
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