Guess what? You don’t need a high income to become wealthy...
At least according to Robert T. Kiyosaki’s Rich Dad Poor Dad, a fictional story about two dads (Robert’s dad and his friend's) who have opposing views on money. Poor Dad is highly educated and well-payed employee, preaching that wealth should be attained by studying, getting good grades, finding a high paying job, and working hard. On the other hand, Rich Dad teaches Robert about the concept of making money work for you, rather than working for your money. Rich Dad teaches with examples and experience, rather than lectures, to illustrate his points. The book is simple to read and makes it easy to understand complex, concrete topics. Rich Dad Poor Dad is crazy good for beginners looking to get a better handle on personal finance, feel free to check it out here.
1. It starts with Mindset:
Turn every “can’t do” into “can do”. Even telling yourself “I can’t afford it” prevents any possibility of growth. Instead, rephrase the statement to, “How can I afford it?”. This way your brain can switch from being stuck to finding a solution. In the book, Kiyosaki found a way to use old comics to earn money while he was working for free at his friend’s dad's store. Instead of complaining that he had to work for free, he switched his mindset to create a solution to earn money. He didn't focus on his environment was unfair, rather he created an advantage that only existed in the exact environment that he was in.
2. Financial Literacy is Key 🔑 (and @notbusinessmajors is here to guide you):
Financial literacy builds the foundation for growing wealth. Robert writes, “Intelligence solves problems and produces money. Money without financial intelligence is money soon gone.”
In fact, according to the National Endowment for Financial Education, 70% of lottery winners go broke within just a few years. School teaches us that we must work for money (employment), but forgets to mention that the way you make, keep, and manage money should evolve overtime. It's important to learn how to create wealth in ways other than just trading time for money.
Financial literacy also guides us towards financial independence because we become mindful of factors like inflation. For example, if we just held our money as "cash under the mattress", it would lose around 2-3% in value every year! In order to combat this, it's important that we set up investments/assets that can beat inflation and grow in value.
If you are interested in getting started with investing, here are our 3 favorite brokerages + some fun benefits:
Public - Social investing, see what other investors (including us) are investing in. Public allows you to purchase slices of stocks for as little as $1. Get started with a free $10 in stock of your choice here.
Robinhood - Super popular brokerage app amongst young people! Really great app to get started with, beginner friendly, and awesome resources like Robinhood Snacks, a daily podcast covering everything Wallstreet. Free stock here.
3. Intelligence comes with experience so take (calculated) risks:
According to Kiyosaki, the wealthy take risks because opportunities in life come and go - opportunities that could open a door to make them billionaires. Think, “you miss 100% of the shots you don’t take”. Robert’s first risk was an $18,000 condo in Hawaii that got him 25 dollars a month in rental income. $25/mo isn't exactly the most appealing use of $18,000, but the experience allowed him to learn about to make $100, $1000, $10,000+ in rental income every month with future properties. His first property set the foundation on which he built his empire.
4. Focus on You (like seriously mind your own business):
Rather than fixating on what others are doing, remain focused on your own end goal. By investing time and energy into yourself and activities/people that matters to you, you’ll automatically find yourself achieving personal goals. Think of everything else as a distraction put in place to keep you from reaching those goals.
The goal is to become rich not look rich. Have you noticed that some of the wealthiest people on the plant wear simple, no-brand name clothing? They understand that these "luxury" brands don't sell to the rich, but the wannabe-rich. If you allow status-symbols to dictate your purchasing patterns early on, it'll be difficult to generate more wealth down the line.
5. Start viewing taxes differently:
Once we realize that the system exploits individuals and benefits corporations, we can take certain steps to save huge $$$ on taxes. As an individual you are taxed on your income before you can spend the money. But according to Robert, corporations tend to earn, then spend, which allows them to only get taxed only on the remaining amount. This is why you must get educated on 4 things: law, accounting, investing, and the market. This will help you plan for taxes, thus allowing you to augment your wealth further.
For example, the decision of whether to sell our stocks in under one year or hold them for longer, can save us tons in taxes. Learning these rules is what allows us to save money which we can later invest to create even more wealth.
6. Work for Life Skills, Not Money:
Robert believes most people are, “one skill away from great wealth.” Skills like management of systems and people, networking, public speaking, confidence, etc. are just as important as financial literacy for financial success - but yet again, are not emphasized in school. These are skills you must go out of your way to work on.
Getting out there are creating meaningful and long-lasting connections can be the difference between getting a promotion, finding a new business partner, learning about that awesome podcast, and so much more.
7. Control Your Emotions:
Humans are susceptible to 5 traits: arrogance, cynicism, bad habits, laziness, and fear. Only 10% of our lives are what actually happen to us, 90% is how we react to the 10%. It's important to mention that these emotions arise due to underlying conflicts which should probably be worked on and not suppressed in the pursuit of financial success. For example, really understanding the motivations behind our purchasing patterns, not just telling ourselves "stop buying Chipotle every night".
Learning to channel your emotions will be an important factor in achieving your financial goals. A trained mind is made to achieve a lot more than a short-sighted, impulsive one. But don’t worry, like everything else this comes with experience. If we only focused on the short term, investing $1000 in the US stock market for one year would only get us $7. But investing $1,000 annually for 30 years would net over $100,000. Playing the long-term game will generate huge value.
If you want to take the emotions out of investing, you might be interested in a Robo-advisor. Quite literally, they are "robots" that use algorithms which decide how to best invest your money based on your preferences. If you have a low-risk tolerance, your robo-advisor will create a different portfolio than if you had a higher-risk tolerance. Understanding your risk-tolerance is just like understanding your emotions. You should be comfortable with where your money goes, otherwise you'll just be in constant stress and fear.
One of our favorite robo-advisors is Wealthfront. They really think of everything: Long term portfolios, rebalancing based on your preferences, pulling excess cash from your checking accounts, and so much more. You'll get your first $5,000 managed for free, for life, when you use this link.
8. Assets vs Liabilities:
We have a couple videos about this over on TikTok @notbusinessmajors so check it out. According to Rich Dad Poor Dad, the middle class and poor tend to misinterpret liabilities as assets, which is what keeps them on the hamster wheel of trading time for money. Assets are something that put money into your pocket whereas a liability is something that takes money out. Liabilities are cars, designer wear, and houses (if they aren't making you money). Assets include stocks, bonds, treasuries, businesses, and rental income.
If we only spent money on liabilities, then whenever we want to buy something we will have to use income from our job. So, if you earned $30 an hour, buying a new $300 Apple Watch would be equivalent to working 10 hours. When we trade time for money, we will always find ourselves running short on cash to fund the lifestyles we want. Instead, investing in assets can create the value for you. Purchasing a rental property that creates $300 in profit every month with little to no daily work means that you could purchase that same Apple Watch with little to no effort!
Rich Dad Poor Dad is one of those books that will inspire you to be the best version of yourself. It’s a quicker read than most and written in simple english. If you're ready to give it a read, we've linked the book here.
As a final note, we wanted to mention that even though Kiyosaki’s reputation is controversial, his first book Rich Dad Poor Dad still stands as one of the top personal finance books of all time. We also want to provide caution about Rich Dad Poor Dad groups that sell outrageously expensive courses in the name of "building wealth". Remember, there is no such thing as "get rich quick", stay safe and be cautious. We seriously hope you check it out and as always @NotBusinessMajors is here as you continue along your financial journey!