When I was younger, I occasionally read self-help books about finances and preparing for retirement. I usually ended up frustrated because so little of the information applied to me. I’m one of those people who has trouble skipping chapters just because I don’t think I’ll benefit from reading them, so I’d end up reading an entire book and benefiting from only one chapter.
A year ago, when I decided to start taking my finances more seriously, I decided to give financial planning books another try. To get started, I chose Retire Young, Retire Rich by Robert T. Kiyosaki. I chose this book for one reason and one reason only: It was the only book in Barnes & Noble that was geared toward young people who want to retire early.
At the time, I had heard of the Rich Dad, Poor Dad series, but didn’t know much about it. I think it would have been helpful to read Rich Dad, Poor Dad first, since it is referenced many times throughout this book. For today, I’m going to just mention a few principles covered in the beginning of the book that I found helpful. On another day, I’ll cover the rest of the book, and give my opinions on the book overall.
This book is all about the power of leverage. It is broken into 3 parts: leverage of your mind, leverage of your plan, and leverage of your actions. Today, I just want to focus on the first section, leverage of your mind. In this section, Kiyosaki focuses on rich words versus poor words. He explains that poor people must learn to think like the rich and use the terminology of the rich in order to become rich. He talks about using debt, or other people’s money, to increase cash flow. The poor and middle class don’t get rich because they try to use their own money, whereas the wealthy have learned how to use other people’s money to get rich. He considers a mortgage on a home you live in to be a liability, because if you stopped working you would still owe money on it. However, a mortgage on a home that you use as rental property is an asset, because if you stopped working you would still be receiving income from the rental property.
The author encourages readers to spend a lot of time studying the types of leverage they decide to use, and warns that debt (and other forms of leverage) can work against you if you aren’t financially educated enough to use it wisely. He believes that anyone, regardless of their current income or profession, can eventually have a million dollars a year without working IF they learn to “do more and more with less and less.” That’s the power of leverage. He says to ask yourself how you can do what you do for more people with less work and for a better price. Kiyosaki says that his “Rich Dad” invested in apartment buildings, and increased the supply of available, affordable housing (basic economics: increasing supply leads to lower prices for consumers). “Poor Dad,” on the other hand, moved into bigger and bigger homes of his own, but never provided any housing for others. Rich Dad asks, who is really being generous, and who is greedy? Rich Dad provided for the needs of many more people than Poor Dad ever did – Poor Dad spent all of the money he made on nicer and nicer housing for himself.
One valuable thing Kiyosaki talks about is assessing risk. He claims that those who “think poor” often value job security, a big house, and saving money, whereas those who “think rich” value creating businesses, owning rental properties, and investing money. He believes that until people have a paradigm shift, and begin thinking the way rich people think, they will be poor. Poor people shop for food on sale to fill their freezers, whereas rich people shop for investments on sale to fill their portfolios. They use the same skills, but have a very different focus. Poor dads have a goal to earn more income, to have a better-paying job. Rich dads have a goal to make less earned income, but more investment income – letting their money work for them, instead of working for their money. He spends an entire chapter talking about how most people fear failure, but his Rich Dad taught him that the rewards of success (which happens approximately 1 time in 10) far outweigh the risk of failure (9 of 10 times), no matter how many times you fail before you succeed.
(To Be Continued)
What do you do to educate yourself about personal finance? What are your thoughts on this “paradigm shift,” to thinking rich instead of thinking poor? Does it make sense to use debt to get rich?