Money makes the world go round" is a phrase that we all have heard at least once in our lifetime. The importance of money in our daily lives is undeniable. However, financial literacy is not something that is widely taught in schools or even at home. In his best-selling book, "Rich Dad, Poor Dad," Robert Kiyosaki shared valuable lessons about money and financial independence that he learned from his two fathers.
We'll explore some of the key money lessons from the book and how you can apply them to your life.
Robert shares his experience growing up with two father figures; his real dad, who was an academic and struggled financially, and his friend's father, who was a successful entrepreneur and investor. He compares how both men approach money management and investing and emphasizes the importance of financial literacy, investing in assets, and building passive income streams.
10 money tips to learn from ‘Rich Dad, Poor Dad’
1. Change your mindset about money
One of the fundamental changes in mindset that Kiyosaki advocates is shifting from the employee mindset to the investor mindset. The employee mindset is focused on job security, a steady pay check, and working for someone else. The investor mindset, on the other hand, is focused on creating passive income streams and building wealth through assets.
Another important aspect of changing your mindset about money is learning to manage your cash flow. Kiyosaki argues that most people focus on increasing their income but fail to manage their expenses effectively. He suggests that instead of living pay check to pay check, we should aim to have positive cash flow by reducing our expenses and investing in assets that generate income.
In essence, instead of thinking of money as something to spend, think of it as a tool to build wealth.
2. Let your money work for you
"Rich Dad, Poor Dad" emphasizes the importance of creating passive income streams and investing in assets that generate income. In the book, Robert states that the wealthy don't work for money; instead, they make money work for them.
Kiyosaki differentiates between two types of income: active income and passive income. Active income is the money earned from a job or working for someone else. On the other hand, passive income is the money earned from assets that generate income, such as rental properties, stocks, and businesses.
He stresses that creating passive income streams is essential to achieving financial freedom. Instead of relying solely on active income, which is limited by the number of hours you can work, he suggests that we should invest in assets that generate passive income. By doing so, we can build long-term wealth and eventually achieve financial freedom.
3. Learn financial literacy
Kiyosaki emphasizes the importance of financial education in building long-term wealth. He argues that our educational system doesn't teach us about money and finance, which leaves many people financially illiterate. To build wealth, it's essential to educate yourself about investing, taxes, and other financial concepts.
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4. Start small and be patient
In the book, Robert shares his experience of starting small and gradually building his wealth. He explains that many people make the mistake of trying to get rich quickly, often by taking on high-risk investments or starting a business without proper planning. However, these strategies can often lead to failure or financial ruin.
Instead, Kiyosaki advocates for starting small and gradually building your wealth over time. He suggests that by taking small steps, such as investing in low-risk assets or starting a small business with minimal capital, you can gradually build your wealth and achieve long-term financial success.
Furthermore, Kiyosaki stresses the importance of being patient in the pursuit of financial success. He acknowledges that building wealth takes time, effort, and discipline, and that there will be setbacks and obstacles along the way. However, by staying patient and persistent, you can gradually build your wealth and achieve your financial goals.
5. Take calculated risks
Taking risks is a key lesson from "Rich Dad, Poor Dad" that highlights the importance of taking risks in order to achieve financial success. However, it's important to note that Kiyosaki doesn't advocate for reckless or impulsive risk-taking. Instead, he suggests that we should take calculated risks – risks that have been carefully considered and evaluated.
In the book, Kiyosaki explains that many people are afraid to take risks because they fear failure or losing money. However, he argues that taking calculated risks is necessary in order to achieve financial success. By taking risks, we can explore new opportunities, learn from our mistakes, and grow our wealth.
Kiyosaki provides examples of calculated risks such as investing in stocks, starting a business, or purchasing real estate. These are all ventures that involve risk, but with careful planning and evaluation, the risks can be minimized and the potential rewards can be significant.
6. Avoid debt
One of the key takeaways from "Rich Dad, Poor Dad" is to avoid debt. In the book, Kiyosaki explains that many people are burdened by debt and that it can be a major obstacle to achieving financial success. While some forms of debt, such as a mortgage for a primary residence, may be unavoidable, Kiyosaki suggests that we should avoid consumer debt and other types of high-interest debt as much as possible.
Consumer debt, such as credit card debt and car loans, can be particularly damaging to our financial health. These types of debt often carry high-interest rates, which can make it difficult to pay off the debt and can lead to long-term financial stress.
7. Focus on cash flow
Cash flow is the lifeblood of any successful business or investment, and that generating positive cash flow is essential to achieving financial freedom.
In the book, Kiyosaki differentiates between assets and liabilities. Assets are defined as things that generate positive cash flow, while liabilities are things that generate negative cash flow. For example, a rental property that generates rental income is an asset, while a car loan or credit card debt that requires monthly payments is a liability.
Kiyosaki argues that focusing on cash flow is important because it allows us to generate income that can be reinvested to create more wealth. By focusing on assets that generate positive cash flow, we can create a cycle of reinvestment and growth that can lead to long-term financial success.
Kiyosaki also draws attention to the importance of understanding the difference between cash flow and capital gains. While capital gains can be a source of wealth, they are often dependent on market fluctuations and can be unpredictable. Cash flow, on the other hand, is a more stable and reliable source of income that can provide long-term financial security.
8. Surround yourself with successful people
Kiyosaki explains that by surrounding ourselves with successful people, we can learn from their experiences, gain valuable insights, and be inspired to achieve our own goals. This includes seeking out mentors and advisors who can provide guidance and support, as well as networking with other successful people who can provide opportunities and connections.
He also underscores the importance of avoiding negative influences and people who may hold us back from achieving our goals. This includes people who are pessimistic, critical, or unsupportive of our aspirations.
9. Don't rely on a single source of income
Robert encourages readers to think about creating multiple streams of income through investments, businesses, or other sources of passive income. By diversifying our income streams, we can increase our financial security and build long-term wealth.
One example of creating multiple streams of income is through investing in real estate. Kiyosaki shares his own experience of purchasing rental properties that generate monthly rental income. This creates a steady stream of passive income that can supplement other sources of income. The book also encourages diversifying your income streams to reduce risk and increase income. Look for ways to generate passive income, such as rental properties or investments.
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10. Give back
Finally, "Rich Dad, Poor Dad," encourages us to give back to others. The book states that true success involves not only building wealth for us, but also using our resources to help others and make a positive impact in the world.
Kiyosaki encourages readers to find ways to give back, whether through charitable donations, volunteering, or using their skills and resources to help others. He also emphasizes the importance of giving without expecting anything in return, and of finding ways to give that align with our personal values and interests.
Common personal finance mistakes to avoid
Spending more than you can afford is a common mistake that can lead to debt and financial stress. To avoid this, make a budget and stick to it.
● Not saving enough
Not saving enough money for emergencies or long-term goals can leave you financially vulnerable. Aim to save at least 20% of your income.
● Ignoring debt
Ignoring debt can lead to late fees, high-interest rates, and damage to your credit score. Create a plan to pay off your debts as soon as possible.
● Impulse buying
Impulse buying can quickly add up and deplete your savings. Before making a purchase, ask yourself if it's a need or a want.
● Not investing
Not investing your money can mean missing out on potential growth opportunities. Consider investing in a diversified portfolio of stocks, bonds, and other assets.
● Living beyond your means
Living beyond your means can lead to financial stress and debt. Instead, live below your means and save for the future.
● Neglecting retirement planning
Neglecting retirement planning can mean insufficient money to support yourself in your golden years. Start saving for retirement as early as possible.
● Failing to shop around
Failing to shop around for the best deals can mean paying more for goods and services than necessary. Always compare prices before making a purchase.
● Not having insurance
Not having adequate insurance can leave you financially vulnerable in the event of an accident, illness, or other unforeseen circumstances. Make sure you have the right insurance coverage.
● Ignoring your credit score
Ignoring your credit score can make it difficult to get approved for loans and credit cards in the future. Check your credit score regularly and take steps to improve it if necessary.