7 min read…
RDPD was my finance-101 book. I was always ignorant of how money worked and so far, I haven’t needed it. This book changed the way I see wealth. Robert Kiyosaki explains how to make money work for you, how to acquire assets instead of liabilities, and how to get out of the rat race of life and attain financial freedom.
There are four lessons I learned from this book:
1. Rather than working for money, we can make money work for us.
Most humans have a price and it is because of two primary emotions – fear and greed/desire. First, there is the fear of being without money, and second, the desire of buying all the things money can buy.
When we are driven by these emotions, we enter into a trap: wake up, work, pay the bills, repeat. We think of short-term solutions for a long-term problem and jobs are short-term solutions. We jump from one job to another, expecting a pay raise and thinking of retiring 40 years later.
The first step to getting out of this trap is to admit the truth and realize that we are in the trap. When we make fear & desire to work in our favor rather than work against us, we will begin to think beyond the paycheck.
When you choose to work for yourself or start a business, you are in control of your finances and not dependent on an employer. Your money works for you, and you stop playing the rat race.
2. Understand how Assets and Liabilities work
The root of financial ignorance is not knowing the difference between an asset and a liability.
An asset puts money in your pocket, whereas a liability takes money out of your pocket. The trick is to acquire assets and not liabilities that you think are assets. How to tell the difference between the two? This diagram encompasses a few valuable lessons:
The income statement measures your income and expenses: money in and money out. The balance sheet balances your assets and liabilities. If you want to be rich, spend your life buying assets.
Normally, the monthly salary is our income and we have regular expenses including rent, groceries, transportation, and other costs. As the years go on, we build up a liability column in the name of mortgages (car, house, education). Now, along with these expenses, we also have other liabilities that take money out of our pocket.
But, when we build our assets, those assets will make money for us. They will become our income. When we have a steady income through these assets, we are no more reliant on our day job.
3. You should mind your own business
As an employee, your working efforts are as follows:
- You work for the company – for your employer
- You work for the government – You get paid after the government takes its taxes. By working harder, only your taxes go up.
- You work for the bank – After taxes, your major expense is towards your debt.
By working harder, each of these levels takes a greater share of your increased efforts. So, you need to learn how to make your increased efforts directly benefit you.
Our educational system focuses on getting us jobs, so we end up working all our lives for someone else. Our lives revolve around the wages and the income column. But, to become financially independent, we need to mind our own business.
Warning: Minding your own business does not mean starting a company. The word business here means the income strategies that will help you build your asset column. You can keep your day job and start buying assets (real estate, stocks, bonds, Intellectual Property, notes, other passive income methods).
4. The power of taxes and corporations
The power of corporations is enormous. A corporation is not a real thing but simply a file folder with some legal documents. It is a legal body without a soul. The income-tax rate of a corporation is less than the individual income-tax rates. Besides, certain expenses could be paid by a corporation with pre-tax money.
|Employees working for corporations||Business owners with corporations|
|1. Earn||1. Earn|
|2. Pay taxes||2. Spend|
|3. Spend||3. Pay taxes|
Here are a few steps to start your journey of financial freedom:
- Stop doing what you’re doing. Take a break and assess your current reality. Stop doing what is not working and try something new.
- Talk to people who have already done what you want to do. It could be someone you know, your friends, or someone in your family. Ask them the right questions and make note of what worked and what didn’t.
- Invest in good education. Take classes, read, and attend seminars.
The book’s intention is not to make you feel hopeless about your current situation but to give insights on how money works and how rich people become rich. If you are trying to become rich, why not do it the right way?
It is not about how much you can make; it is how much you can keep. Learn to pay yourself first before paying others; save and invest smartly before you spend.
If you want to change your financial situation in a meaningful way, you need to make drastic changes. The rich people have already figured that out. Are you ready to learn those tricks?
We hope you liked this post. What is your ONE takeaway?
– Kavi & Ninja
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