This is my go to book whenever someone asks me to recommend them a book that will help them get started on their way to financial freedom. In this review we will discuss about the 5 lessons of the rich that Robert Kiyosaki outlines which are:
#1. The rich don’t work for money
#2. The importance of teaching financial literacy
#3. Owning your business
#4. The history of taxes
#5. Why you should work to learn not to for money.
Before we start off with the lessons, one thing you should first know is that it doesn’t take degrees or years of higher education to make a rich person. There are other ways to be successful with money that not many people seem to be talking about.
Individual attitudes toward money and their tendency to be richer or poorer can be traced back to the education they receive at home. Parents are responsible for teaching the fundamentals of finance as it’s not something that school focuses on. The education at home is the driver behind the rich getting richer, the poor getting poorer and the middle class continues to struggle with debt.
The author emphasises that there are always two different perspectives when thinking about money:
- The love of money is the root of all evil vs. the lack of money is the root of all evil.
- I can’t afford it vs. how can I afford it?
- Study so you can work for a good company vs. study so you can buy your own company.
- Don’t take risks with money vs. learn to manage risks with money.
Lesson 1: The rich don’t work for money
One of the most common dreams we have as humans is to get rich. The thing is we can talk about it as much as we want but few of us really make it. We let life push us, we let our jobs , our families dictate us. Success is for those who push back. Those who acknowledge the problem, understand that changing themselves, learning and acting wiser is what’s going to get them where they want.
The most common attitude towards money is playing it safe and take no risks. The driving force behind many people’s money behavior is fear rather than passion. Fear of missing a bill payment, fear of not having enough money to pay rent,..this fear is what keeps us in the same job for years and years. You need passion if you want to learn something new or find real success. You should stop living in fear.
Another thing that makes people stay at their jobs is the desire for money and the things money can buy. However that joy from money is only temporary. Something new is only new for a short period. And suddenly after using it you want more, and to get more you need more money. Thinking that money solves all problems is not ture. The reality is the opposite.
Now what’s the lesson? The constant need for your next paycheck is what’s holding you back, it’s making your life more difficult. Use your brain and allow your mind to wander so that you can unleash opportunities that you currently can’t see. And most of the time, these opportunities are missed because you are too concerned about the security that a job and paycheck can bring. If you can get to a point where you forget about the next paycheck, you will find yourself in a better place.
Lesson 2: The importance of teaching financial literacy
Everyone is looking for a quick fix, a magic answer or a formula to get rich. The only way to get rich is to become financially literate. Education is fundamental. The author urges parents to teach their kids the basics of accounting. Keep it simple and straightforward. And for others like me who didn’t get that chance in their childhood, I’ll let you know the essentials.
The first thing you need to know is the difference between assets and liabilities. Rich people acquire assets and poor people acquire liabilities. However the poor don’t know that what they are acquiring are liabilities because they are not aware they assume they are assets. To differentiate the two ask yourself, does it put money in my pocket or take money out? An asset puts money in your pocket and provides returns, while a liability takes away even your limited coins.
Many people assume that money is the solution to anything and that money brings happiness. However money is often the problem because when given more money, people’s problems tend to increase rather than decreasing because of the instinct to spend any money they have which leads to more spending and we all know that spending more does not mean being happier. You need to know what to do when you have money and spend it wisely.
Lesson 3: Own your business
People spend their entire life working for someone else, they are in constant financial strife and they have nothing to show for it when they reach the end of their career.
Kiyosaki examined the current education system and how they are getting youth ready for the workforce. They focus all of the attention on getting a good job through learning scholastic skills. Students then go on to study engineering, science, arts, armed forces etc. Once they are appropriately prepared and have the right qualifications, they enter the workforce and start earning an income.
Kiyosaki explains that there’s a difference between having a career and having a business. Whenever Kiyosaki asks someone what their business is, they tend to reply with their job title. For example, “I’m a banker.” Kiyosaki then will ask if they own the bank. And 9 times out of 10 the reply is always, “No, I work there.”
This highlights the problem that Kiyosaki has with schooling. Schools encourage students to become what they study. A student studying cooking becomes a chef, someone studying law becomes a lawyer. People are so focused on the career and becoming what they study that they forget about the potential of owning their own business. Instead of focusing on making themselves richer, they dedicate all of their time and energy into making someone else richer.
So how do you start to mind your own business? Kiyosaki recommends to being by keeping your day job but start focusing on buying real assets. Eliminate any liabilities that you regularly spend money on. Kiyosaki points out that despite the fact that a bank manager will let you list a car as an asset, cars are actually considerable liabilities. As soon as you use a new car, the value drops 25%, and the value continues to decrease every year.
As a parent with children, it’s important to teach them about assets and liabilities. Teach them young and set them up for a successful future by explaining the difference between assets and liabilities. Encourage them to start buying assets before they’ve even left home. This is a time where any money they have is disposable, they probably aren’t married with children yet, but that doesn’t mean they should be spending their money haphazardly. It’s time to make wise investments and set themselves up for the future.
Lesson 4: The history of taxes
It’s a fact that the rich avoid being taxed. Despite the intentions of text being to punish the rich, it’s resulted in the complete opposite. The truly rich generally have knowledge of the legal structure of corporations and how this power can be used to avoid the rules that taxes employ.
In order to be rich you need to have a decent financial IQ. Get considerable knowledge in accounting, investing, understanding markets and the law.
Lesson 5: Work to learn, not for money
In order to have a significant increase in income, most people would only need to educate themselves and master one more skill. The best thing is to know a little about a lot. Not a lot about a little. There is an option for people who are unwilling to learn a new skill and are determined to become specialised in a single field. If this is the approach you want to take, ensure that you work for a company that is unionised. Specialists are well protected within labour unions.
Understand the concept of ‘grooming’ in business. A student fresh out of university will be taken under the wing of a company and ‘groomed’ to one day take over. These students will likely be moved all around the company, never specialising in just one department to ensure that they understand the entire organisation. This is something that rich people often do with their children or children of their friends. They “groom” the children so that they can have a complete understanding of business operations and how the family manages their finances. Management skills that should be taught include managing cash flow, managing systems and managing other people.
To conclude this review, I would like you to take some action steps if you agree that financial IQ is needed and that you really want to be rich. This will help you to practice what you learn so that what you have read won’t just be another blog post. You will hear people saying that self help books don’t really help and it’s true- only if what you read remains in the books without doing anything about them. If you think that what you have just read is really helpful and could add value to your life please act.
That being said, here are some steps to take after reading this book:
*Invest in your education
*Choose friends wisely
*Pay yourself first