Preface:
In early 2008, people in the US
especially across the world are shorn to pieces financially owing to the
massive sub-prime problem. In that context and in the context of this
article, the following saying is memorable.
"Everybody wants it. Nobody
understands it. Money is the great taboo. People just won't talk about it.
And that is what leads you to subprime. Take the greed and financial
misrepresentation out of it, and the root of this crisis is massive levels
of financial illiteracy."
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On the heels of my previous
article 'Being
Rich - Mind is the womb', let me bring this follow-up.
Rich Dad, Poor Dad is Robert
Kiyosaki's and Sharon Lechter's first best-selling book. It advocates
financial independence through investing, real estate, owning businesses,
and the use of finance protection tactics - that's according to Wikipedia.
Assets make money - Liabilities take money.
What
this book teaches also revolves around what our writer cited in the
above mentioned article - 'It is all in the mind'. Those who have become
rich knew how to force their money to make more money for themselves. The
book teaches you that assets are what puts money in your pocket and that
liabilities take money out of your pocket. In the same vein, the author
writes that a home is not an asset.
Also the book
informs against being an employee rather than creating something on your own
such as owning the system or means to making money. Book discusses a concept
called 'rat race' a phrase that the writer uses to explain the situation of
people expecting more salary to solve their problems. But more salary
eventually would lead to more expense and the fact that this cycle gets
repeated.
Recommendation is
to understand how to get your money work for you and multiply on its own for
your benefit rather than making money for your employer. This, the author
argues can't happen through employment. Book says, everyone makes the
mistake of the 'rat race' of more salary and thus hope for more income but
instead meets with more expense and this cycle goes on and on without any
real financial achievements on the ground.
Assets according
to the author are items such as rental property, stocks etc. Only things
that can put money into your pocket and a liability as anything which
produces expense such as one's home, new widescreen TV, a new car etc.
Poor PhD holder vs Rich uneducated.
Book talks about two fathers, one the book author's real father and other his friends.
Author's father is a top employee in the education department in
the American state of Hawaii. Though he is intelligent, highly
educated and holding a top job, he is one who can never solve his financial
troubles far from being rich. Finally he died a poor man deep in debt.
The other father -
rich father of the book,
even though he is uneducated, knows how to make his money work for him. One
who thinks about being rich in such a way that it is all minds work, first.
The Poor Dad in the story is based on Kiyosaki's real father, a PhD holder
and graduate of Stanford, Chicago, and Northwestern University, all on full
scholarship, who was also the head of the Education department of the state
of Hawaii.
Father of his friend who teaches the author how to make money, teaches him to
become one of the richest men in his state through real estate investments.
The author learns about money from his rich father (that's how his friend's
uneducated father is known in the book) and uses the principles he learns to
get rich which ultimately lead him to money.
It is always "if you study well
- you can become a doctor or engineer and get rich" doctrine which we are
introduced to by our parents.
Worldwide, most parents try to
use this theme to force their children learn well. The doctrine is alright
as long as they leave the 'get rich' part. Because that doctrine is
simply not true except for some IIM or IIT guys who earn tremendous amount
of money these days from Indian and overseas appointments right after they
finish their courses.
Parents, please do
teach them to make money - that's a separate course. Teach them about
saving, investing, explain to them how accumulation of savings can
appreciate substantially over time.
You have to learn
additional ideas and develop a mindset to teach them to invest and multiply
their savings and yours'. Teach them to enter into real estate, stock
investing etc or encourage them to start a business if they have
entrepreneurship in them once they are young and had achieved some level of
success in a profession. Hence, stop at the study well get a good employment
part. Don't go further and give them the false hope that a job will make
them financially free.
I do believe that
if I received some teaching ten to fifteen years before with a forced
practical introduction to money making themes such as buying real estate,
investing in stocks, systematic saving etc, I would have learned how money
gets made. However, the problem is that often, unless you get hurt, you
don't learn that a fire is a fire. No amount of teaching will change some
people, also because they are not searching for that kind of education at
that point. Its is when I realised only money can solve part of my current
problems I started to do anything about it.
Pay Yourself First.
Book also advocates the idea of 'pay yourself first'. Author says pay your
bills later and first do your investments, make yourself comfortable because
you are earning for you and ones investments are far more important than his
expense such as TAX, Water, Electricity bills etc. You may
not be able to hold it for long but the idea is that, you do understand the
importance of paying yourself first and earning for you.
Particularly, 'home is not an
asset' is an interesting observation for people from Kerala, who
spend their lives savings on an often unnecessarily large home. A house must be constructed only by one who really need it.
Otherwise, all your savings must go into investments which is likely to show
the best appreciation. For those who really does not need a house, understand
that you are destroying your potential to reach financial freedom by wasting
your earnings which can appreciate over time by investing it.
Even for
those who need one, limit its size to one that would suffice rather than one
that can be showcased or boasted of. Gujaratis are known to live in rented
houses early part of their lives to be able to create businesses that can
make money and finally make them financially comfortable.
"According to Kiyosaki and
Lechter, wealth is measured as the number of days the income from your
assets will sustain you, and financial independence is achieved when your
monthly income from assets exceeds your monthly expenses."
In the book, each dad had a
different way of teaching their sons. One uses the 'study well - get rich'
doctrine and the other used 'study well - make money, learn to make your
money work for you' doctrine. In one instance, the rich dad tells his
student - the author, to a question on how to make money, - "use the one
between your ears". He means to say - use your brain to think. This matches
with our previously cited authors, "its all in the mind" doctrine.
What the Author said: Great Money lessons; His
Quotations.
