Ian Berry IT Blog

Rich Dad, Poor Dad is a great book on personal finance, investment and financial acumen, containing the lifetimes learnings of two men; their beliefs, wisdom and ultimately their financial outcome. Robert Kiyosaki had an extraordinary upbringing with a biological father who believed in studying, working hard and getting a secure job for life, whilst another father figure (a friends dad) left school early, believed in working hard for yourself, setting up businesses, finding investments, building wealth and continuous learning – who do you think ended up with a better financial position?

Robert highlights the importance of becoming financially literate, which our education systems don’t teach and compares the two approaches in his upbringing; at the dinner table of Poor Dad, financial discussions were forbidden, whilst at the dinner table of Rich Dads, financial discussions were encouraged and supported. Poor Dad encouraged studying hard and finding a good company to work with benefits (for life), whilst rich dad encouraged finding a good company to buy. Rich Dad forbid the words “I can’t afford it”, rather encouraging “how can I afford it” to get the brain searching for ways to generate more income and wealth. “If you don’t learn it, you become a slave to money”.

On setbacks, Rich Dad would say “There is a different between being poor and being broke. Broke is temporary. Poor is eternal”. “The poor and middle class work for money. The rich have money work for them”. It’s very hard to generate wealth when only working for an income – the risk of a single employer and the government taking so much of your pay in taxes leading to The Rat Race – a cycle of people controlled by the emotions of fear and greed. Fear of not having money leads us to work, including in jobs we don’t want to do, and greed is spending all our pay checks each week, and as we get raises and promotions, up goes our spending – a vicious cycle. “Its not how much money you make. Its how much money you keep”. Saving and investing your income is “like planting a tree”,  you plant it, water it and watch it grow;  eventually becoming self sustaining and producing an abundance of fruit.

“Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets”.

Rule 1: You must know the difference between an asset and a liability, and buy assets.

• An asset puts money in your pocket, a liability takes it out.

Working only for an income, you end up:

1. Working for a company (time)
2. Working for the government (taxes)
3. Working for the bank (mortgage & credit cards)

Working harder in this situation to get ahead is not a great option.

Generating Wealth & Tending to your Business

Robert defines wealth as the number of days a person can survive without working (for money) before running out i.e. – financial independence. Ideally this is a balance of wealth generating income (high) and daily expenses (low). You don’t necessarily need high wealth if your expenses are low.

Mind your own business – be aware of where you are at and have a financial plan on generating wealth – revisit frequently and ensure you’re running your personal wealth like a business. Failing to do this will result in you never truely generating wealth, being prosperous or becoming financially free (like Poor Dad financial struggle). Look to keep expenses low, reduce liabilities and invest in a solid base of assets such as:

• Businesses that do not require your presence
• Stocks
• Bonds
• Income generating real-estate
• Notes (IOUs)
• Royalties from intellectual property
• Anything else that produces income or appreciates

Get ever dollar working for you. Think of every dollar in your asset column as a dollar working for you to produce income, further growing assets. “If you work for money, you give the power to your employer. If money works for you, you keep the power and control it”.

There is an old acronym for a job – Just Over Broke.

Richard discusses the history of government and tax – including how to minimise your tax position through incorporating (i.e. corporations). Corporations can do things that ordinary tax-paying citizens can’t – like paying (nearly all) expenses before paying taxes (i.e. to reduce taxable income) and protecting from lawsuits (using trusts etc to protect personal assets from litigation etc). In summary:

Differences Between Poor, Middle Class & Wealthy People

The Poor have an income generated from salary and all outgoing to weekly expenses, with no assets.

The Middle-class have an income generated from salary, all ordinary expenses (including tax) and have liabilities such as mortgage, car loans, credit card debt etc. however don’t have any income generating assets.

The Wealthy class have income generated from from multiple sources including salary, multiple income generating assets and have liabilities such as mortgage, car loans, credit card debt etc. Through investing in wealth generating (often non-taxable) assets – wealth increases and asset accumulation grows.

Building Financial IQ

Financial intelligence (financial IQ) is made up from knowledge in the following areas:

1. Accounting
2. Investing
3. Understanding markets
4. The Law

Build up your knowledge and use experts in these areas (be aware you get what you pay for).

Learning to embrace failure is important and you should not despair – valuable lessons. “People who avoid failure also avoid success”. First you have to try – fail – learn and repeat. Create experiments which are small and make many to aid the speed of failing / learning, and moving closer to success. Fail fast, try again sooner.

There are generally two types of investors:

1.  A common investor who invests in known, packaged investments (mutual funds, stock, bonds etc)
2. A creative investor who seeks to find and create unique opportunities, looks for bargains, puts the difference investments pieces together and understands risk/rewards – often non-standard/non-typical investments. They find opportunities others have missed, learn how to raise money (i.e. outside direct bank funding) such as connecting a seller and buyer by “tying it up / taking over a position” and organise smart people to work for & advise them.

Career & Learning

Sometimes you can be highly educated / trained / experienced / specialised in one skill (i.e. a doctor, lawyer, teacher, IT etc), but it pays to keep learning, especially in other fields such as marketing and sales. Often highly skilled people “are one skill away from great wealth”. Its a good idea to develop specialisation in a field, however, it should just be the beginning, leading to developing more diverse and generalised skillset – “you want to know a little about a lot”. As an example – McDonalds do not make the best burgers (i.e. specialisation), however have excellent business systems, marketing & selling (i.e. good across many areas). Poor Dad encouraged specialisation whilst Rich Dad focused on learning a lot about many things including running a business and investing. The main skills for success are:

1. Management of cash flow
2. Management of systems
3. Management of people

Most important specialised skills are sales & marketing.

Generating Wealth & Making It Happen

Once people have become financially aware / literate there are some common obstacles preventing generation of wealth:

1. Fear – the fear of losing is far greater than desire to be rich. Be inspired by failure and learning.
2. Cynicism – Cynics criticise whilst winners analyse and look for opportunities
3. Laziness – Either by lack of work ethic, or more often by being too busy to tend to your business. Ask “how can I afford it” rather than saying “I can’t afford it” to get the mind thinking.
4. Bad Habits – Pay yourself first – designed to motivate you to find (or save) money to pay all your other expenses.
5. Arrogance – What you don’t know (or what you think you know, but don’t)  loses you money

1. Find a reason greater than reality: the power of spirit – find a purpose which is a combination of wants / don’t-want’s & passion
2. Make daily choices: the power of choice – with every dollar we get in our hand, we hold the power of choice – to spend on liabilities, or to invest in assets or to be rich, poor or middle class
3. Choose friends carefully: the power of association – those who you surround yourself with; you become.
4. Master a financial formula and then learn a new one: the power of learning quickly – you can work for money as a formula, or you can learn other methods to generate income & create wealth – then rinse & repeat.
5. Pay yourself first: the power of self-discipline
6. Pay your brokers well: the power of good advice
7. Be an Indian giver: the power of getting something for nothing – look at an investments quick-wins, getting your money back fast and review at what you get for free all for limited risk
8. Use assets to buy luxuries: the power of focus – use the returns on your investment to buy luxuries as a form of motivation
9. Chose heroes: the power of myth
10. Teach and you shall receive: the power of giving

• Stop doing what you’re doing
• Look for new ideas
• Find someone who has done what you want to do
• Take classes, read and attend seminars
• Make lots of offers (with necessary escape clauses)
• Visit different areas to look for deals
• Look in all markets
• Look in the right places
• Look for people who want to buy first, then look for someone who wants to sell
• Think big
• Learn from history
• Action always beats inaction

You can review and purchase Rich Dad Poor Dad on Amazon.com.au.