Is Financial Freedom Only For the Rich?
I used to think that financial freedom is only for the rich. I don’t believe that anymore. Why? This summer I read a book that caused a paradigm shift for me: Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!
Multi-millionaire Robert Kiosaki, author of the #1 best-seller book Rich Dad Poor Dad, wrote, “In 1994 we were financially free. Kim was 37. I was 47. Most people thought we had made millions of dollars to “retire” on. That was not the case. Instead, we followed what my Rich Dad had taught me about money and investing. And the two keywords are Cash Flow.
Our formula was simple: have more cash flowing in every month from our investments than was flowing out in living expenses. In 1994 we simply had $10,000 per month in cash flow coming in every month, primarily from our rental real estate investments, and $3,000 per month going out in living expenses. At that point, thanks to Rich Dad’s principles, we were financially free.”
Rich Dad Poor Dad in a Nutshell.
Understand the difference between assets and liabilities. Assets put money into your pocket, but liabilities take money out of your pocket.
The rich and the poor teach their children different strategies.
Poor dads teach their children to stay poor: Get a good job with a high income and buy expensive items (i.e. houses, cars, and high-tech toys) all of which are liabilities because they take money out of your pocket. And no matter how high the income, the expenses often times increase to match it.
Rich dads teach their children to be rich: Acquire assets (i.e. businesses, stocks, bonds, real estate, precious metals) so they can one day generate income to replace their job.
Acquire financial literacy: Increase your understanding of accounting, investing, industry markets, and the laws.
Below is a video clearly and succinctly summarizing Rich Dad Poor Dad.
Investment IS Risky!
No doubt about it: Investment is risky! However, we are taking risks all the time whether we know it or not. It’s risky to walk because we risk falling. It’s risky to drive because we risk getting into an accident. And it’s risky to save our money in the bank because we risk losing it to inflation and bank bankruptcy. We can’t avoid it, but we can manage it. If we invest in real estate, we risk losing it to foreclosure should the renters not pay AND we have no reserve. However, not investing in it may risk us NOT gaining 10-20% per year. We can learn to minimize risk in this situation by making a great purchase, screening for great tenants, and have a 6-month reserve of funds to cover late rent, vacancy, unexpected repairs, etc. When we are able to manage our risks, we can make an informed decision to invest successfully.
Legal Methods to Save Money When Investing
Believe it or not, having investments doesn’t have to incur many extra expenses. For example, Fidelity enables us to buy and sell stocks free of commissions. When selling, gains can offset losses dollar-for-dollar. In real estate investment, appreciation grows tax-free until the property is sold. Furthermore, the following can be deducted on your personal or business tax-returns annually:
- loan interests
- property tax
- property management fees
- repairs/maintenance costs
- homeowner’s insurance
- real estate investment-related expenses:
- travel to monitor your current rental properties or to scout out potential properties
- books and conferences attended
- laptops/phones/apps needed
- children/relatives/friends who work for you
What’s left after all these deductions is very little, so it doesn’t increase your taxes by much. On the other hand, having a rental property WILL increase your wealth year by year.
Rich Dad Poor Dad was published almost 25 years ago, but few of us have ever heard of it. The lessons there are not new, but they were NOT taught in the 16 years of schooling that most of us have been through. Why? The aim of elementary schools, middle schools, high schools, colleges, and universities was not to make people rich but to train students into good EMPLOYEES so others can be rich. Learning is great, and degrees are fine, but schooling will not make you financially independent. If you want to do more than Just Over Broke, you need to generate passive income through real estate, precious metals, stocks, affiliate marketing, etc. If you haven’t read Rich Dad Poor Dad, you need to do it right away. Besides gaining financial literacy, you’ll enjoy reading interesting anecdotes and discover ideas for generating passive income.
Ask Yourself . . .
If you were financially free, what would your life look like?
What would you do with your time?
Where would you live?
Where would you travel to?
What charities would you donate to?
How would your family benefit?
Kiosaki reminds us, “Often, in the real world, it’s not the smart that gets ahead but the bold.”
For further reading: The Millionaire Next Door