1. Build Your Mental Wealth Muscles
This is my absolute favorite lesson from the book. The author would constantly hear his poor dad saying, “I can’t afford that.†However, his rich dad said that instead of saying you can’t afford something, ask yourself…
“How can I afford this?â€
The first statement requires no thinking. You want something. You don’t have enough money. Therefore, you can’t afford it.
The second statement is so much better. You want something. You don’t have enough money. So, let’s find some way that I can create enough money to be able to afford it. The difference between these two statements is incredible!
“Forcing yourself to think of how to make extra money is like going to the gym and working with weights. The more you work your mental muscles, the stronger they get.â€Â               Â
So, let’s say you wanted to buy a new big screen TV, but you don’t have enough money. What can you do to be able to afford it? Let’s come up with a plan…
I don’t know you, but I bet one thing you could do is find some unneeded junk around the house and sell it on eBay. With that alone, I bet you would have enough for your big screen. Or, at least half of it anyways!
Another thing you could do is start a savings plan for it. I bet you could easily save five dollars here or five dollars there. Cut back a little on your usual spending habits. Then, use those savings to help pay for the big screen.
The point is, next time you want something you can’t afford, use your mental wealth muscles to find ways that will make you be able to afford it. The more you use these muscles, the better they get. And the more money you will find yourself accumulating.
2. Increase Your Financial Intelligence
It’s a fact, schools don’t teach students nearly enough about money as they should. You learn history and you learn how to find what x is equal to, but you never learn what financial options that you have.
I’ve learned that increasing your financial intelligence is a self-study. High school or college is never going to teach you as much as you should know. You’re going to have to pick up the books and learn it yourself. So…
What areas of financial intelligence do you need to learn? Rich dad suggests four main categories. Those are…
- Accounting – You’ve got to be able to read financial statements.
- Investing – You have to learn to grow your assets until you are financially free.
- Understanding Markets – You have to know supply and demand and how to take advantage of it.
- Law – You need to learn to protect yourself. And also know what you are and aren’t allowed to do.
Being heavily schooled in these four subjects is essential towards wealth. You’ve got to go to the library or go online and find books on these subjects.
One thing is certain, you can never learn enough about these subjects. It should be a lifetime study. Each book you will read will hopefully give you one more piece to the financial puzzle. With each book you read, you will learn something new that will help you on the road towards financial independence.
It doesn’t matter where you are at financially right now. Get started learning what very few people know about acquiring wealth.
3. Spend More Money On Assets, Less On Liabilities
Rich Dad, Poor Dad talks heavily about distinguishing between an asset and a liability.
In case you don’t know, an asset is something you buy that grows in value over time. A liability is something that loses value over time.
The best example of a liability that I know of is your car. With every time you drive it, it loses value. The mileage that it accumulates makes it worth less and less, should you ever decide to sell it.
Most people spend a majority of their income on liabilities. Whether it be a car, a nice new TV, video games, etc. You should spend as much as you possibly can on assets instead of liabilities. So, what are some examples of assets that you can buy? Well, there are basically four main categories…
1. Investing – Whether it be in stocks, bonds, or anything else. A smart investment will grow largely in value for you over time.
2. Business – You can save up money to start your own business. This is a great asset that can earn you a ton of money. You can even hire other people to run the business for you, you just need to have the money to get it started.
3. Real estate – The fact is that many people make a fortune through real estate. It’s a high-risk, high-reward kind of business.
4. Other – Anything that you think will grow in value over time, and you enjoy buying, is a great asset for you. For example, if you love collecting baseball cards, they will be worth a lot more 40 years from now than they are today.
Do everything possible to set up multiple streams of income. By having as many assets working for you as you possibly can, your money will start to grow for you exponentially. The more you have invested, the faster it will grow.
Be smart and make it a habit of spending as much as you can on assets , and as little as you can on liabilities.
4. Why You Should Own A Business
There is a big difference between owning your own business and working for one. This big difference, for the most part, deals with taxes.
Taxes are the largest expense for a majority of people. It can easily cost you 30% if your income. Meaning that you are working 3-4 months out of the year just so you can pay for taxes.
When you work for a company, there is very little you can do about this tax situation. It’s basically inevitable that you are going to have to pay the maximum in taxes. However…
If you have your own business, you have many more options!
The greatest loophole there is when it comes to taxes is tax deductions. When you have your own business, anything that is considered a business expense can be put as a tax deduction, which further decreases the amount of taxes that you have to pay.
From my own experience with building websites (a home-based business), tax deductions have done wonders for me. All of my hosting fees, my high-speed Internet, and all of the personal development books that I purchase are all tax deductible!
Many of these things I would purchase even if I didn’t have a website to run. But because I do have an income-producing website, it makes these things tax deductible! Saving me lots of money whenever tax time comes around.
Even if you own a business, you are still probably going to have to pay some taxes. But the percentage that you are going to pay will be far lower when compared to what you would have to pay if you worked for a business instead of owning one!
5. Get A Job To Learn
Most people get a job to earn a paycheck. But a better way to think about getting a job is what you will learn from it.
Having a job is an opportunity to get first-hand experience learning and applying new skills. By having a job, you get to learn time management so you can get as much done as possible. You also improve communication skills when you interact with other employees.
Everything about a job can be used as a learning experience.
Choose a job, not for how much it pays, but for what you will learn from it. If a job will teach you the skills that will help you make a fortune later in life, then don’t worry about how much it is paying you. It will work out in the end.
Basically, keep the long term future in mind when you are choosing a job. Is this job going to help you in the long term? If it isn’t, it’s time to go searching for something that is.
6. Why You Should Pay Yourself First
You’ve probably heard the term “pay yourself first†before. But if you haven’t, it basically means to set aside some of your income first, before you pay your bills and the other things you have to pay for.
So, if you decide to save 10% of your income, you first take 10% out of your paycheck, then you do your best to live off of the other 90%.
It’s easy to see why this is a great strategy. Especially if you use that 10% to buy assets that will help you become financially free. But what are some of the other advantages of “paying yourself first.†Well…
As we have already learned, it’s important for us to build our “mental wealth muscles.†And, as it turns out, paying yourself first is a great way to build those muscles.
You probably already have a strong motivation to pay all of your bills on time. That way you don’t have to pay any late fees, or receive phone calls asking where the check is. Well, when you pay yourself first, you have even less money to pay off those bills! So, the secret is you can use that motivation to help you find ways to be able to pay your bills on time.
Whether it be reducing your spending, or finding ways to earn more money, either way it works out very nicely for you!
By paying yourself first, you force yourself to be better with money so you can still pay your bills on time. And not only that, it’s nice psychologically when you know that a percentage of your income is yours to keep! I don’t know about you, but I like thinking that my money is mine and that nobody can take it from me.
Pay yourself first. Set aside 10-20% of your income and live off the rest. This will automatically force you to be smarter with money and also build your mental wealth muscles to find ways of earning yourself a fortune.
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Money Lessons From Rich Dad
Diana Clement ~ NZ Herald
Not everyone can be a financial expert. And in the same way you might go to a doctor for medical advice or a careers coach for guidance on how to climb the corporate ladder, many people choose to get professional financial advice from someone qualified and experienced.
A number of professions offer advice and some overlap. These include accountants, lawyers, financial advisers (also called financial planners), insurance advisers, stockbrokers, and mortgage brokers.
You can also get free advice from budget advisers associated with the Federation of Family Budgeting Services. If you’re in debt, this can be a very good place to start because it costs nothing.
Or, if you need a kick up the pants as well as advice, you might consider employing a financial coach or mentor. Their role is to keep you on the straight and narrow and focused on achieving your financial goals.
Seeing your coach is like getting a weekly or monthly financial reality check. Have you done what you said you would do? Are you fooling yourself with myths and excuses?
Banks and life insurance companies also employ people who can give you “advice”. But only about the products that their particular company sells, which may not be best suited to your circumstances. Before you choose an adviser it’s important to understand the way your adviser gets paid.
In the case of accountants and lawyers it’s usually on a per-hour basis, which should, unless you’re really unlucky, mean that you’ll get advice best suited to your needs. A small number of financial planners charge by the hour and either don’t take commissions, or reinvest them for you.
Many Kiwis aren’t prepared to pay up front for financial advice. If you do, however it will save you wondering if you’re getting the best advice.
Typically, financial advisers get a commission or cut from products you invest in and sometimes charge an ongoing annual management fee. In some cases this has led financial planners to recommend inappropriate products to clients. However, most are professional in their dealings with clients and offer best practice advice.
Most advisers use what is known as modern portfolio theory, which uses diversification to optimise the return from investors’ portfolios. Usually investors will be given a portfolio containing a mixture of cash, shares, bonds and property, weighted according to their risk and return.
Because of the way most advisers are paid, they tend only to recommend those investments that pay commission and residential property investment is often left out of the mix. They will, however, include commercial property syndicates, which do give investors exposure to property.
In New Zealand, many financial advisers use what are known as “Wrap Platforms” or “Master Trusts”, which are effectively one big investment umbrella sheltering lots of smaller investments. Wraps and master trusts enable advisers to chop and change investments under the umbrella with ease when the economic or investing climate changes or the individual’s investment needs change.
Mortgage brokers are paid a commission by lenders. Many will have a panel of lenders they use, giving home buyers and investors a better range of choice than they would get going to the local bank. They won’t, however, recommend lenders who don’t pay commission such as the BNZ or Kiwibank.
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Financial advice: buyer beware
KLRN and Security Service Federal Credit Union are looking for kids with a little bit of business savvy. Throughout the month of April, kids six to 12 can shout out their business successes at the KLRN Web site, or they can pick up an entry at Security Service Federal Credit Union.Each week, one kid will be chosen to win $100. A grand prize winner will get $500 and be submitted to PBS for possible inclusion on an upcoming episode of Biz Kid$, a show that teaches kids about money.
More here:
Calling all Bizkid$
~ Annette Sampson ~
The strategy To stash some cash for emergencies.
Do I need to do that? Are you kidding? Hasn’t all the mayhem on world debt and sharemarkets this year brought home the fact that spare cash is a good thing to have? Whether you believe the latest rally is the turnaround point or not, the fact remains that the easy money of recent years has dried up and the resulting credit squeeze has put meaning back into the old adage that cash is king.
There’s not a lot the experts agree on but on one point they are unanimous: the uncertain times aren’t disappearing any time soon. We’re still seeing the unwinding of dodgy lending practices, a recession in the US looks increasingly likely and Australia can’t seem to work out whether the porridge is too hot, with inflation the main problem, or about to become too cold as all those interest rate hikes start to bite.
A cash buffer gives you the security of having money on hand if your personal circumstances take a turn for the worse and the ability to take advantage of opportunities when other people are strapped for funds. In falling markets, investors with liquidity can snap up bargains as cash-strapped investors are forced to sell.
How much of a buffer should I have? Denis Orrock, the general manager of InfoChoice, says his Depression-era dad always advocated having three months’ income set aside to help you get back on your feet if something went wrong. He says that’s still a reasonable ballpark figure, though how much you need will depend on things such as how much debt and other commitments you have.
“[Having a buffer] also frees you up and gives you more choice in life,” he says. “You often see people who don’t like their jobs but can’t afford to leave. But people make decisions if they have money set aside and want to make changes. They reap the benefits of their savings.”
Financial planner Laura Menschik of WLM Financial Group says in uncertain times you need to look at what you can do to make yourself as comfortable as possible. This could mean having cash set aside but it could also involve paying down your debts so that you have money to draw on if you need it.
“If you pay off all your credit cards, you know that you can use them in an emergency,” she says. “Reducing your debt over time gives you access to finances when you need them.”
If you have a home loan with a redraw facility, Menschik says pumping extra money into your mortgage is a very effective buffer as you reduce the size of your loan now (and the interest charged) but can still redraw the excess payments if you need the cash.
“It’s hard to say how much you should set aside as everyone’s different and it’s all about your comfort zones,” she says. “But you need liquidity available to cover extraordinary expenses such as a medical emergency.”
Menschik says the last thing investors want is to have to sell their investments to raise money during a down market. As we’ve seen recently, having spare cash is even more important if you have a loan that could be subject to margin calls.
So where should I stash this cash? If you have a mortgage with a redraw facility, putting the extra cash into your mortgage effectively allows you to “earn” the mortgage interest rate tax-free – as your savings reduce the interest payable on your loan. But if you want to build up cash savings, Orrock says the simplest option is to look at a high-yield savings account or term deposit.
“If you trust yourself, an online high-yield account can give you good interest with your money at-call,” he says. “But if you don’t trust yourself to leave it there, term deposits are offering attractive interest rates and you don’t have to lock your money away for long periods.”
Orrock says term deposit rates have risen as the banks have looked to increase their funding from deposits. Investors can now earn about 8 per cent on 180-day term deposits and even more if they lock their money away for a year.
He says innovations such as Suncorp’s term deposit product linked to its online savings account have made term deposits simpler and more flexible. With the Suncorp product, he says, you can nominate your term and get attractive interest rates.
Orrock says at-call online accounts are paying 7 to 8 per cent interest, typically with no minimum deposit. If you need to save to create your cash buffer, you can commit to regular savings through an automatic savings plan.
This story was found at: http://www.smh.com.au/articles/2008/03/17/1205602290166.html
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In case of emergencies, break into stash of cash
US-based psychologist Kathleen Gurney, a leader in the field of money personalities says everyone fits into one of these nine money personalities.
ENTREPRENEURS: This is a very male dominated group that favours investing in the stock market.
HIGH ROLLERS: They are thrill seekers who enjoy the ride of financial risk.
HUNTERS: These are often women. Usually highly educated, with a live-for-today financial style.
ACHIEVERS: These are often conservative and not interested in risking assets they have worked hard to accumulate. They’re big on insurance and like to take charge of their money.
MONEY MASTERS: They get contentment and security from money and are the top wealth accumulators. They tend to act on sound advice and don’t rely on luck.
PERFECTIONISTS: They hate making mistakes and as a result they often don’t make decisions about their money. They find it difficult to find suitable investments thanks to having tunnel vision.
PRODUCERS: They have a lack of self confidence in money management and do not profit from risks because they can’t evaluate them carefully.
OPTIMISTS: They can cope with risk, but are more interested in enjoying their money than taking risks. They have few anxieties and tend to outsource the management of their money.
SAFETY PLAYERS: They are the really risk averse investors who put their money into really safe and secure investments such as the bank. They don’t take enough risk to make their money grow.
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What?s your money personality?
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