The book Rich Dad Poor Dad by Robert Kiyosaki is an astounding book, it changed certain mindsets I have about building wealth. It is highly recommended especially if you are just starting out. But be warned, the ideology behind it might offend you and you might not agree with it. In fact, most of the principles taught in the book contradict what my parents taught me. Let’s look into some of it:
The Rich don’t work for Money
If you ask most people what is the most important thing in order to build wealth, most of them will tell you the answer is having a good JOB, a great JOB. On the contrary, a wealthy person begs to differ. Having a job is important, but that alone certainly cannot make you wealthy. To a wealthy person, a job is temporary. It helps you in the initial stage of your wealth building plan by generating cash for you to accumulate them in order to propel your portfolio on auto pilot mode (passive income). In fact, the rich believe in money working for them, not the other way around.
It is commonly held in our society that finding a good job, working hard and moving up the corporate ladder will lead us to wealth. But having a job merely supports our necessities (food, shelter). There is a quote saying “Wealth is when small efforts produce large results. Poverty is when large efforts produce small results.”
So the key is not work harder, but work smarter. Your goal is to acquire assets that can generate passive income and in a long run, you ought to be wealthy!
Stacking up your assets
What do you considered as an asset? They are things that can generate income or go up in value. Some good examples of assets are:
- Real Estate
- Stocks
- Bonds
- Unit Trust
Why assets are so important?
A true asset is where your money is working for you and provides you with cash flow. The more assets you have, the more your cash flow grows. As long as your expenses and liability is less than your asset-produced cash flow, you are growing richer. And with that, it can set you up on auto pilot mode which ultimately leads you to financial freedom!
Looking at a simplified version of an income statement, you can understand the differences between the rich and the not-so-rich.
Let’s take John, a fresh graduate as an illustration. John works in a MNC with above average income as compared to other graduates. Every month, after paying off his tax, bills and spending on his wants and necessities, he is happy because he has got more than enough. So he decided to buy a Honda Civic. Few years later, he met his dream girl and got married. At first, everything seemed okay. With the income from John and his wife, they decided to buy a house with a 25 year loan.
Soon after they bought the house, their first child was born and his wife decided to be a housewife. John soon realized that his expenses are catching up and the money that he is earning is not enough to cover his expenditures, worse still, if the second child comes along. His car expenses and mortgages are killing him. With much consideration, he decided to sign up for night classes hoping to get promoted in his job. Few months later, his boss decided to promote him because of his hard work and productivity. But things aren’t getting any better. Soon after that, his second child was born. Expenses are rising and he decided to get another job to support his family.
Sooner or later, John realized that he is stuck in the infamous rat race. The harder he work (and having higher pay), the higher the expenses due to higher tax and higher spending. As you can see from the diagram above, the cycle repeats itself.
Let’s look at the income statement of a high income group. Another illustration is Peter. Peter just got out from the Army, and with a diploma cert, he found a job in a local company. His pay was not that bad as a diploma holder. Every month, with the money he earned, he set aside a certain amount of money first then pays off his tax, bills and necessities. With the remaining cash, he then spends that little money on his wants. With the amount of money he accumulates every month, he went on to buy assets such as stocks and bonds.
After a few years, he began acquiring properties and renting them out. The income generated from his assets surpasses the income from his job. On top of that, his expenses are being paid off by the income generated from his assets. After he got married, he realized he can choose not to work and still have more than enough money in his pocket. He set up a business and invests part of his money into it. A year later, the business grew and he decided to employ staffs to take over his business while he enjoys the reaping of his profits and have enough time to spend with his family.
As you can see, the initial stage might be tough, but after you kick off and set yourself on autopilot mode, you can have all the freedom you want! Always remember to acquire assets that generate cash flow and you are on your way to financial freedom.
Start now and take action. Do not have the mindset that you do not have enough money, you are not prepared or you do not have time. Take responsibility of your finance!
“As you begin to take action toward the fulfillment of your goals and dreams, you must realize that not every action will be perfect. Not every action will produce the desired result. Not every action will work. Making mistakes, getting it almost right, and experimenting to see what happens are all part of the process of eventually getting it right.”
Jack Canfield
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