Rich Dad Poor Dad : What Reach Teach Their Kids About Money That The Poor And Middle Class Do Not - Robert Kiyosaki
Rich Dad Poor Dad : What Reach Teach Their Kids About Money That The Poor And Middle Class Do Not
Why are so many people stuck in the rat race?
Are you working for yourself or others? Many people in our society are trapped in a race against themselves. A race where they constantly have to work hard to catch up with the bills and taxes. You do all the work, and your employer, the government and your bills take the rewards leaving you with little or nothing to save.
Sadly, a lot of individuals are aware of this rat race and hate to be part of it, but are scared of the backlash from society and keep racing anyway.
The conventional advice we've all heard is this: “Go to school, study hard, get a good job and all will be well.” The truth is, this advice is a clear indication of how the poor and the middle-class see financial security. The rich don't see things that way. This is no longer the recipe for a life free of financial struggles.
You can go to college, graduate with a summa cum laude, get a white-collar job and never have financial growth. Once you're stuck in the rat race, your boss — not you will get rich from your hard work.
A greater percentage of people in our society still follows the “go to school” advice to the letters and in truth, these people may avoid being poor, they never grow wealthy. Societal disapproval prevents us from quitting the rat race and building wealth.
People who are stuck in the rat race run endlessly in a loop between fear and greed, making irrational decision
Many individuals live in perpetual fear about their financial condition. Fear of not paying their bills. Fear of being fired. The fear of not having enough money. The fear of starting over. Fear of not doing what family and society expect from them.
Then there is greed. Most individuals have a price, once they get offered a high enough loan, most can’t resist the thoughts of that “safe” paycheck at the end of the month and all the things they could purchase with it.
When those two factors are set up, these individuals are trapped. Trapped in the pattern of getting up early, hurrying to work, stressing out on a daily basis and working hard on something they often not really like. Then at after a long month finally they get the paycheck and bills. Each second, days, months, years, of their lives, are run by a never-ending cycle of fear and greed. Fear of losing their job, and greed of getting that paycheck. Saving only enough to go for vacations from time to time and forget about the endless, unhappy struggle.
Most people are so accustomed to the rat race that they don’t even think about it anymore. They never question it and just yield to that cycle as something normal. Instead of defying the fear and thinking with their mind, most react emotionally to it instead.
People who are stuck in this never-ending race often don’t seem to be happy while they rush to work, scared of getting there too late and getting fired.
Rat racers are stuck in the rut of doing what they were conditioned to do. After having studied and gotten good grades, they now have a job paying well. But despite having followed all the conventional advice from teachers, family, and society, they don’t experience financial growth.
Greed takes over emotions and makes people want to raise their living standard, for example buying a bigger house, or a new car.
Financially ignorant people allow emotions to control their decision making. Fear of losing money prevents them from investing in assets or stocks because of the risk involved.
Greed encourages spending money to improve lifestyle which may seem like a safer option to investing in assets. Fear and greed hinder people from becoming wealthy in the long run.
To get out of this rat race, you have to gain financial knowledge. You have to understand the difference between an asset and a liability and buy assets instead of liabilities.
Standard education systems don’t teach financial knowledge; self-education is the key to financial success
You can't build wealth by depending solely on talent and a college degree; the world is full of poor people with great talents and is highly educated. Financial education — investing, debt, risk, accounting, compound interest, stocks and many more — is the main factor that creates the gap between the poor and the rich.
Sadly, our educational system and school curriculum are not set up for financial literacy. The rate at which high schoolers max out their credit cards these days is a clear indication of how leaving investing, savings, debts, compound interest and many more out of school curriculums is affecting our mindset.
Lack of financial literacy is a problem of both the young and old, money decisions are made by both side of the divide. The society has not equipped us with financial literacy, it is up to you to educate yourself.
You can start to work on your financial education at any time, but the earlier you start, the better.
Invest in yourself. This is the most important thing. So you can start by investing in your mind. Enroll in seminars and finance classes, read as many books as you can.
As humans, we often learn best by examples, so it's crucial for you to get a mentor. Find someone who has already achieved what you want, and asks them to teach you.
You don’t need to quit your job while you work on your financial literacy, you can take advantage of your job and gather the essential skills there, which will serve you in your own business when the time comes.
For instance, you could overcome timidity by working for a sales company. The company would probably train you with specialized people, and you would have the opportunity to overcome your timidity by selling to strangers.
If you want to build wealth, you must be willing to take risks
You need to start doing things differently in order to change your financial situation. And Knowing how to handle risks the biggest change you likely need to make. Financially successful people are risk takers. They don't fear risks, but rather they've developed an uncanny ability to manage risks and get the best of them.
Taking risk is not the same as keeping your money in the bank, it is investing in stocks and bonds. This is riskier than your usual bank savings, but they generate more income in a short time.
The truth is, predisposition to take risks is what distinguishes the wealthy. While the rich are predisposed to take risks, the poor and middle-class tend to “play it safe.” They hold on to their jobs with their last breath because they are afraid of what could befall them if they lose their paychecks.
When the fear of losing overshadows the excitement to win, people tend to play safe instead of investing in something huge. They say things like “I don’t want to lose”, but in reality, losing is part of the game.
You can never win without having lost sometimes. The fact that you've lost some doesn't mean you are a failure. It means you've encountered a situation from which you can learn and grow. If you want to build wealth, you have to be more than willing to take risks.
The road to wealth creation is long and cold; learn how to stay motivated by keeping your eyes on the prize
The path to building wealth is a long and trying one; it's easy to become demotivated when you hit a hurdle. For instance, the price of the stock you invested in might take a dip. You need to remain resolute and motivated during hard times.
One way to keep your motivation is to create a list of “wants” and “don’t wants” for reference. Your list can contain things like “I want to be free of my debts within three years.” And "I do not want to end up like my parents." This list will keep you motivated in the face of adversities.
Spending money on yourself before settling your bills is also another way to stay motivated. This may seem counterintuitive, but you will have a precise idea of how much money you need each month to meet your goals.
Don't see this as an opportunity to max out your credit card and plunge yourself into debt up to your eyeballs. Paying yourself first will create extra pressure which drives you to look for creative ways to make more money. This will also help you develop financial discipline, a quality common to all financially successful people.
Stay motivated by reading about the life of wealthy individuals like Warren Buffett, Bill Gates or Mark Zuckerberg. Their stories of overcoming challenges and adversities will keep you inspired.
Assets vs Liabilities
The fundamentally applied knowledge that differentiates the rich from the poor and middle-class is that they buy assets.
An asset is something which generates more money for you. While a liability, on the other hand, costs you money.
Assets can be anything from bonds, mutual funds, businesses, stocks, and anything else which generates income, appreciate over time and can be readily sold.
Investing in assets makes your money work for you by passively generating income. Assets generate more money for you, and once you have enough assets to cover your expenses, you can reinvest that money into further assets, generating a compound growth effect.
Unfortunately, most people categorize liabilities as assets. Houses, for instance, are considered assets for some people, when in reality they are one of the biggest liabilities you can have. Houses cost you high property taxes and a lifelong mortgage, without generating income.
Sound knowledge of how to create lucrative assets and investing in them is what will make you rich and take you out of the rat race in the long run.
Your profession is not as significant in wealth creation as your business
A profession is not the same thing as a business. Your profession is whatever you do as your day job which pays your bills, buys groceries, and generally covers your cost of living. A business, on the other hand, is where you invest money and time to grow your assets.
It is close to impossible to build wealth just with your profession, as it only covers necessary expenses, in most cases. To create wealth, you must build a business while you work at your job.
The profession of a chef is cooking. It pays the bills but is likely not to make her rich in the long run. She invests in a real estate, and invest whatever extra cash she earns each month into acquiring income-producing assets. In the same vein, a tire salesman who invests his leftover income into stock trading.
These two instances show that professions cater to monthly bills. But by committing extra income into businesses, they are growing their businesses and increasing wealth.
Your profession will fund your business at the beginning, do not quit your day job until your business shows sustainable growth. At this point, your asset not your profession become your primary source of income. And that is financial independence.
Social Knowledge of taxes is crucial
The rich have a deep understanding of taxes, and they handle them essentially different than the poor and middle class. Wealthy people wrap a corporation around their assets. By doing that, they can hire professional accountants and lawyers, which help them reduce taxes and protect them from lawsuits.
Here the difference between employees and corporations. Employees earn, get taxed and try to live on what is left. A corporation earns, then spends everything it can, and is taxed on anything that is left. This simple strategy is one of the biggest legal tax loopholes that the rich use.
You can learn how to reduce your taxes, too. It’s just a matter of educating yourself about the loopholes in the system. By learning how the tax system works, you can minimize how much is taken from you.
Overcoming obstacles that can cause financial ruins despite your financial literacy
Fear
The author explains that he has never met a wealthy person who has never lost money, but he has met a lot of poor people who have never lost a dime. The lesson is clear, becoming rich is synonymous to learning to manage the fear of risks.
Everyone has a fear of losing money, but the fear is not the problem, it is how you handle that fear what makes the difference.
Winners are inspired by a failure while losers are defeated by it. Winners aren't afraid of losing. Winners know that losing will only motivate and inspire them to work even harder. Losers, on the other hand, won’t even try because they can’t handle failure.
Most people struggle financially because they play not to lose, instead of playing to win.
Cynicism
People’s doubts and uncertainties keep them poor. Technically, getting out of the rat race very easy but doubts keep rate racers crippled. Instead of analyzing like the winners, the cynics prefer to criticize. Their critique blinds them to see the opportunities.
Laziness
Counterintuitively, staying busy is the most common form of laziness. Being busy is a way people get out of the way of facing what they don’t want to face. Deep down most people know they are only avoiding something, that’s why they often get annoyed if someone reminds them of that fact. They are too busy to take care of their wealth. Too busy to cater to their health and even family.
Bad Habits
Education is not the only factor that determines success. It consists of certain habits. The rich always work on themselves. They invest in themselves first.
Start building habits which bring you closer to your goal. Make reading a daily habit. Do something for your physical health every day. Dedicate time to the things that matter most.
Arrogance
Arrogant people often lose money because they think that what they don’t know is not important. People often use arrogance to mask their ignorance. If you want to be successful, you have to make humility a priority.
If you are humble enough, you can learn something from each person that crosses your path and every situation you encounter
Conclusion
Our educational system is not set up to teach financial literacy. So, it's totally up to you to develop yourself. Building wealth will become easier and achievable if you learn to think like the rich and understand how the financial world operates. Never hesitate to invest in developing your mind. The single most powerful asset we all have is our mind. If it is trained well, it can create enormous wealth.
Try this:
• You must know the difference between an asset and a liability, and buy assets.
• Keep expenses low, reduce liabilities, and diligently build a base of solid assets. True luxury is a reward for investing in and developing a real asset.
• The rich focus on their asset columns while everyone else focuses on their income statements. Start thinking like the rich and focus on building your asset columns.
• Keep in mind that real estate is a powerful investment tool for anyone seeking financial independence or freedom. If you get the opportunity to invest in real estates, take it!
• Connect with successful people in the business you are interested in and learn as much as you can from them.
• Money comes and goes, but if you have the education about how money works, you gain power over it and can begin building wealth.
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