Robert Kiyosaki is a very successful businessman and author, having penned the extremely popular “Rich Dad Poor Dad” personal finance book series. The first book in the Kiyosaki’s series was written and presented as a series of parables between two fathers, one of whom is poor due to an inability to understand financial planning, the other of whom is very financially successful thanks to an understanding of investing and business.
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The book series has sold millions upon millions of copies, and the cornerstone of each book is an advocacy for financial education via life lessons.
Recently, the “Rich Dad Personal Finance Team” operating the Rich Dad Poor Dad website culled together a series of financial literacy lessons from the books, lessons to set readers on a path toward financial success.
Don’t have time to read the entire book series? Start your financial journey with these wealth-building lessons from Robert Kiyosaki’s best-selling series.
How History of Money Affects You
To understand how money works, you need to understand the basic history of money, and how currency has evolved from simple bartering to complex cryptocurrencies. Understanding the history and power of money enables you to be less confused and threatened by it.
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Understand Your Personal Finances
Kiyosaki has argued that the foundation of financial literacy is your ability to read and comprehend your own personal financial statements, treating them as your financial report cards as an adult.
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3 Kinds of Income
The Rich Dad ethos breaks income down into three types: passive (money made without work being done), capital gains (money generated via a portfolio) and paycheck income (money earned through work).
Cash Flow Before Capital Gains
Speaking of assets versus liabilities, a crucial aspect of the Rich Dad approach is to invest with a focus on assets. That is to say, invest first for cash flow, and only once that is achieved is it worth considering the risk of capital gains with potential liabilities.
The example provided by the Rich Dad Personal Finance Team is a real estate one: Buying a property and renting it out creates cash flow, making the property a valuable asset. Pursuing a capital gains investment with such a property would mean buying it with the plan that its price would increase for a higher sale later; such an investment makes the property a liability, as it isn’t generating cash between your purchase of it and your selling it later on.
Which CASHFLOW Quadrant Are You In?
The Rich Dad CASHFLOW Quadrant essentially splits the business world in two. On the left of the diagram are workers who pay high taxes and sell their time for money; on the right are business owners and investors who pay less in taxes and create passive wealth. In the Rich Dad ethos, these are the only two types of people in the world.
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Savers End Up Losers
A rather interesting idea in the Rich Dad world is this one: Because the value of the American dollar continues to decrease in the face of inflation, its value only decreases over time. From this perspective, those who only save money (rather than invest it and use it to generate more income), are literal losers, as their savings lose value over time.
Wealth Number: How Long Could You Survive?
The Rich Dad wealth number is a ranking of how long you could last financially if you stopped working completely. For instance, if you made money entirely via passive income and could continue indefinitely without working, your wealth number would be infinite. However, most people have a far lower number than that and would not last long without a regular paycheck.
Know the Difference Between an Asset and a Liability
The Rich Dad team highlights how the line between assets and liabilities can be blurry to some — for example, a house is a financial liability, but it can easily be confused for an asset. To be clear, liabilities cost you money, while assets make you money.
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Know How To Determine an Asset’s Strength
Given that assets are what make investors money, it’s important to know their strengths, requiring study as well as knowledge as to which assets are best for you.
The Difference Between Fundamental and Technical Investing
The Rich Dad philosophy breaks investing into two types: fundamental investing (basing investments on objective analysis of financial performance) and technical investing (using technical signifiers to gauge the “moods” of a market).
Understand When To Diversify
The Rich Dad team suggests that investment diversification for the sake of said diversification can be risky and dangerous. Rather, they suggest becoming an expert on each investment type, one at a time, is the best bet — even if it takes longer. That will lead a smart investor to know when and how to diversify.
Learn How To Choose Good Financial Partners
Partners can make or break you financially. Knowing how to choose the right financial partner for you (if any) can be the difference between financial success and financial ruin.
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This article originally appeared on GOBankingRates.com: ‘Rich Dad’ Robert Kiyosaki: 12 Best Lessons for Building Wealth
