Pretty cool book, if not THE best business and finance book out there. It was first published in 1997 and it’s as relevant today as it ever was. I first read it years ago and I still find myself picking it up to have a quick flick through.
Lesson 1: The Rich Don’t Work for Money
So how are they rich? Because they make money work for them, not the other way around. This can be a difficult thing to get your head around. Society has told us all our lives that we need to go out and get a good job so we can earn decent money. But you’ll never get rich from going out working for someone else. The rich make their money work for them……while they’re sleeping. It’s called passive income. Say you invest in a flat and rent it out – that investment is now working for you and there’s very little else you need to do in terms of ‘work’. Even better, if you’ve taken out a loan to pay for it, your tenant is now paying it off for you. That’s ‘good debt’!
It’s easier said than done mind you. Most people will play it safe and get a good job, exchanging their time for money. If you’re scared of losing money then you’ll never really have any.
Lesson 2: Why Teach Financial Literacy?
You’ve got to understand the numbers. If your business isn’t growing and you’re not becoming wealthy then you need to be able to understand why. Where is your money going? Cash is king and if you don’t understand your cashflow, your money won’t be working for you as well as it could be.
This is where financial literacy comes in. We’re not taught about money at school so most people are thrown out into the world without a decent understanding of how it works. All they’ve been taught is that they need to get a good job so they can earn money. They get the job and earn the money so that they can buy the house and the car and the holidays and whatever else. This is the cashflow pattern of a poor person. They don’t understand how money works so they never really have any. They stay poor and are often in debt.
A rich person does things differently because they understand money. They know the difference between an asset and a liability and they make their money work for them by collecting ASSETS, not liabilities. An asset will make you money and a liability will take it from you. It’s pretty simple when you put it like that but a lot of people think they’ve got an asset when they’ve actually got a liability. The home you live in and pay a mortgage on is not your biggest asset. It’s actually your biggest liability. If you were to rent it out, THEN it would become an asset. The rich collect assets, not liabilities.
Lesson 3: Mind Your Own Business
Nobody will look after you like you look after yourself. Focus on your ‘asset column’ and making it grow and don’t get bogged down by how much you’re making in your ‘income column’. You’ll never get rich working for someone else, you’ll just make them rich. Mind your own business and collect assets. INVEST YOUR MONEY IN ASSETS…..it really is that simple!
Lesson 4: The History of Taxes and the Power of Corporations
This comes down to financial literacy again. If you know how to structure your affairs you’ll pay a lot less tax and you’ll protect your money much better. In the old days taxes came in to harvest money from the rich but nowadays it’s the middle class who suffer the most. The rich know how to minimise their tax expense through forming companies (corporations in the US) and taking the advice of tax experts. Companies also offer ‘limited liability’, protecting the owners personal wealth from legal challenges. They’re really easy to set up so don’t be put off because it sounds complicated!
Lesson 5: The Rich Invent Money
This one is a bit of a head f*ck. Money isn’t real, it’s just an idea. The more real you think it is the harder you’ll work to get it and the more of your life you’ll waste in the process. Don’t work hard, work smart! You could work really hard at a job for weeks or months on end and earn £10k for your efforts. Or, you could have a great idea and make £10k instantly. The rich invent money and the poor and middle class work for it. It’s just about thinking more creatively.
Lesson 6: Work to Learn – Don’t Work for Money
Invest in yourself and the money will follow. If you focus on one specific skill then you’ll get really, really good at it….congratulations you’ve made yourself the perfect employee!
Instead, learn a little about a lot. Develop financial literacy, an understanding of sales and marketing, people skills and a good management style. If you need to know anything specific then hire an expert! The rich surround themselves with people who know more than they do.
Grow a pair, get out there and make your money work for you. Don’t waste your life making someone else rich…
And if you want to pick up a copy of Rich Dad Poor Dad, then Amazon has it for just £5.99. It’s also available on audible as you’d expect with one of the more popular business books.