Posts for February 2012
Lessons From… Rich Dad Poor Dad (Summary #5)
About The “Lessons From” Series
The “Lessons From” series are bite-sized summaries of books about financial literacy for parents raising money-smart kids.
With Summary #5, we continue the series on a book called Rich Dad Poor Dad: What The Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! by Robert T. Kiyosaki, Sharon L. Lechter. (Link to Summary #4)
Today we learn that money can be created, and your financial IQ is the way to create it.
Chapter 5 – LESSON 5: THE RICH INVENT MONEY
“Often in the real world, it’s not the smart who get ahead, but the bold.” There are lots of poor people that are extremely talented and many rich people with relatively little genius at all. We tend to think that more money comes along with being more educated, more talented, or adding more value to society. The truth about money is quite different.
“The poor and middle class work for money,” Rich Dad would say. “The rich make money. The more real you think money is, the harder you will work for it. If you can grasp the idea that money is not real, you will grow richer faster.”
The foundational basis for creating wealth changes over time: “Land was wealth 300 years ago. So the person who owned the land owned the wealth. Later, wealth was in factories and production, and America rose to dominance. The industrialist owned the wealth. Today, wealth is in information. And the person who has the most timely information owns the wealth.”
Making money is a talent in and of itself. And it’s one that can be learned just like any other skill. However, most people don’t take the time to learn financial skills. It scares them, it bores them, or they just hope if they work hard and save what they can, with a little luck their money situation will work itself out.
“Few people realize that luck is created, just as money is. And if you want to be luckier and create money instead of working hard, then your financial intelligence is important.” The world is always handing you opportunities of a lifetime, every day of your life, but all too often we fail to see them. Here’s how the author suggests we take advantage of them:
- Financial intelligence is simply having more options. If the opportunities aren’t coming your way, what else can you do to improve your financial position?
- I constantly encourage people to invest more in their financial education than in stocks, real estate, or other markets. The smarter you are, the better chance you have of beating the odds.
- So why bother developing your financial IQ? Because if you do, you will prosper greatly. And if you don’t, this period of time will be a frightening one. It will be a time of watching some people move boldly forward.
- It is what you know that is your greatest wealth. It is what you do not know that is your greatest risk.
- The single most powerful asset we all have is our mind. If it is trained well, it can create enormous wealth…
Chapter 6 – LESSON 6: WORK TO LEARN— DON’T WORK FOR MONEY
“Job security meant everything to my educated dad. Learning meant everything to my rich dad.” As we learned in Lesson 5, it is shocking how little some talented and educated people earn. I can be a world class author, but if I don’t know the first thing about marketing and selling, I might be the world’s best kept secret, and live in poverty.
The solution is to expand your skill set. Get out of your comfort zone and pick up some skills in sales, accounting, investing, and law. Selling in particular as a profession is generally looked down upon in our society, but every one of us is selling every day, even if we are simply selling our ideas to others. The author positions marketing and sales as some of the most important foundational skills for your financial IQ:
- I have mentioned before that financial intelligence is a synergy of accounting, investing, marketing, and law. Combine those four technical skills and making money with money is easier than most people would believe. When it comes to money, the only skill most people know is to work hard.
- Rich dad encouraged me to do exactly the opposite. “You want to know a little about a lot” was his suggestion.
- Instead of simply working for the money and security, which I admit are important, I suggest they take a second job that will teach them a second skill. Often I recommend joining a network-marketing company, also called multilevel marketing, if they want to learn sales skills.
- The most important specialized skills are sales and marketing. The ability to sell—to communicate to another human being, be it a customer, employee, boss, spouse, or child—is the base skill of personal success. Communication skills such as writing, speaking, and negotiating are crucial to a life of success.
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Coming Next Time… OVERCOMING OBSTACLES and GETTING STARTED
Or dive right in yourself: Rich Dad Poor Dad: What The Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!
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P.S. This book summary has been completely rewritten and published on the Kindle platform. If you’d like to have this summary available at any time on your Kindle app or device, it’s available here.
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Choices and Their Consequences
By Bob Masterson
Cameron C. Taylor wrote a book entitled 8 Attributes of Great Achievers which examines the lives of famous individuals throughout history and what attributes they shared to help make them successful in life. The most important attribute was their ability to accept responsibility for the choices they made in life. According to Cameron, ”With each choice comes a consequence. No amount of rationalizing or complaining will alter the consequence. If you pick up one end of a stick (choice), you also pick up the other end of the stick (consequence of that choice).” If you choose to purchase an item that you cannot afford instead of saving for it, you will incur debt and interest payments. If an emergency arises shortly after, you may not have the ability to pay for it. Studying hard for an exam means you won’t have as much time to spend with friends, but the result is a higher grade. That higher grade might lead to a college scholarship.
Gary Ryan Blair, aka “The Goals Guy” states “Every choice carries a consequence. For better or worse, each choice is the unavoidable consequence of its predecessor.” Helping children to understand this when they are young will help shape them when they are adults. “Learning what to choose, and how to choose, may be the most important education you will ever receive,” states Dr. Shad Helmstetter in his book titled Choices. “No one else can ever make your choices for you. Your choices are yours alone. They are as much a part of you as every breath you will take, every moment of your life.”
Each day we must make tradeoffs. One choice may not necessarily be better than the other, but will carry with it different consequences. As parents, we need to help guide our children, but let them make the final decision and accept the consequences that go with it. These consequences are lessons learned that will make our children stronger. Just like learning to walk, a child will fall many times, but each time is a learning experience on the way to walking without any support or help. Money lessons for kids are no different. While the stakes are small, allow your child to fail. Let them learn from and take responsibility their choices. Winston Churchill stated it best when he said “the price of greatness is responsibility.”
The “Ben Franklin Balance Sheet” is a very effective means to help make those difficult decisions. It is often taught in sales courses as a tool to help close a sale, but it works just as effectively when trying to make a yes or no decision in your own life. How it works is you take a piece of paper and divide it into two columns and list all the reasons why you should do something in one column and all the reasons why you shouldn’t do it in the other. Once completed, one column will usually have more reasons than the other, giving you a quick visual cue as to a direction to lean. Use this tool with your kids the next time they want to make a purchase.
Copyright Choices and Their Consequences © 2012. All rights reserved
Lessons From… Rich Dad Poor Dad (Summary #4)
About The “Lessons From” Series
The “Lessons From” series are bite-sized summaries of books about financial literacy for parents raising money-smart kids.
Today with Summary #4, we continue the series on a book called Rich Dad Poor Dad: What The Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! by Robert T. Kiyosaki, Sharon L. Lechter. (Link to Summary #3)
The first few chapters were foundational, so we focused on them individually in each of the previous summaries. For the next chapters in the book, we are going to provide a higher level summary. In the author’s own words…
Chapter 3 – LESSON 3: MIND YOUR OWN BUSINESS
About the poor and the middle class:
- …most people work for everyone but themselves. They work first for the owners of the company, then for the government through taxes, and finally for the bank that owns their mortgage.
- When downsizing became the “in” thing to do, millions of workers found out their largest so-called asset, their home, was eating them alive. … What they thought were assets could not help them survive in a time of financial crisis.
- Reminder from Summary #3 on what an asset is: assets put money in your pocket. Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets.
About the rich:
- The rich focus on their asset columns, while everyone else focuses on their income statements.
- Start minding your own business. Keep your daytime job, but start buying real assets, not liabilities or personal effects that have no real value once you get them home.
- As your cash flow grows, you can indulge in some luxuries. An important distinction is that rich people buy luxuries last, while the poor and middle class tend to buy luxuries first. … Buying a luxury on credit often causes a person to eventually resent that luxury because the debt becomes a financial burden.
- … you are now ready to learn the biggest secret of the rich—the secret that puts the rich way ahead of the pack.
Chapter 4 – LESSON 4: THE HISTORY OF TAXES AND THE POWER OF CORPORATIONS
- … rich dad fashioned himself as an expert on the history of taxes. Rich dad explained to Mike and me that originally, in England and America, there were no taxes. … Although it was intended to punish the rich, in reality it wound up punishing the very people who voted for it, the poor and middle class. … The problem was that the government’s appetite for money was so great that taxes soon needed to be levied on the middle class, and from there it kept trickling down.
- The rich created the corporation as a vehicle to limit their risk… It is the knowledge of the legal corporate structure that really gives the rich a vast advantage over the poor and the middle class. A corporation is merely a legal document that creates a legal body without a soul. Using it, the wealth of the rich was once again protected. It was popular because the income-tax rate of a corporation is less than the individual income-tax rates.
- Every time people try to punish the rich, the rich don’t simply comply. They react. They have the money, power, and intent to change things. They don’t just sit there and voluntarily pay more taxes. Instead, they search for ways to minimize their tax burden. They hire smart attorneys and accountants, and persuade politicians to change laws or create legal loopholes. They use their resources to effect change. … The poor and middle class don’t have the same resources. They sit there and let the government’s needles enter their arm and allow the blood donation to begin.
- Rich dad constantly reminded Mike and me that the biggest bully was not the boss or the supervisor, but the tax man.
- A corporation can do many things that an employee cannot, like pay expenses before paying taxes. … Employees earn and get taxed, and they try to live on what is left. A corporation earns, spends everything it can, and is taxed on anything that is left.
- As part of your overall financial strategy, we strongly recommend owning your own corporation wrapped around your assets.
And that… is one of the biggest secrets that puts the rich ahead of the pack.
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Coming Next Time… LESSON 5: THE RICH INVENT MONEY and LESSON 6: WORK TO LEARN – DON’T WORK FOR MONEY
Or dive right in yourself: Rich Dad Poor Dad: What The Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!
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P.S. This book summary has been completely rewritten and published on the Kindle platform. If you’d like to have this summary available at any time on your Kindle app or device, it’s available here.
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Lessons From… Rich Dad Poor Dad (Summary #3)
About The “Lessons From” Series
The “Lessons From” series are bite-sized summaries of books about financial literacy for parents raising money-smart kids.
Today with Summary #3, we continue the series on a book called Rich Dad Poor Dad: What The Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! by Robert T. Kiyosaki, Sharon L. Lechter. (Link to Summary #2)
Chapter 2 – Lesson 2: Why Teach Financial Literacy
The author explains why financial literacy is so important, and the secret to how the rich really do “get richer”:
- I am concerned that too many people are too focused on money and not on their greatest wealth, their education.
- Most people fail to realize that in life, it’s not how much money you make. It’s how much money you keep.
- “If you want to be rich, you need to be financially literate.”
- Rule #1: You must know the difference between an asset and a liability, and buy assets. If you want to be rich, this is all you need to know.
- “Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets”.
- …“assets put money in your pocket.” Nice, simple, and usable.
- If you want to be rich, simply spend your life buying assets. If you want to be poor or middle class, spend your life buying liabilities.
- Because students leave school without financial skills, millions of educated people pursue their profession successfully, but later find themselves struggling financially.
- They don’t understand that their trouble is really how they choose to spend the money they do have. It is caused by financial illiteracy and not understanding the difference between an asset and a liability. More money seldom solves someone’s money problems. Intelligence solves problems. There is a saying a friend of mine says over and over to people in debt: “If you find you have dug yourself into a hole… stop digging.”
- …schools were designed to produce good employees, instead of employers.
- Why the rich get richer? The asset column generates more than enough income to cover expenses, with the balance reinvested into the asset column. The asset column continues to grow and, therefore, the income it produces grows with it.
“The real tragedy is that the lack of early financial education is what creates the risk faced by average middle-class people. The reason they have to play it safe is because their financial positions are tenuous at best. Their balance sheets are not balanced. Instead, they are loaded with liabilities and have no real assets that generate income. Typically, their only source of income is their paycheck. Their livelihood becomes entirely dependent on their employer. So when genuine “deals of a lifetime” come along, these people can’t take advantage of them because they are working so hard, are taxed to the max, and are loaded with debt.
… the most important rule is to know the difference between an asset and a liability. Once you understand the difference, concentrate your efforts on buying income-generating assets.
…remember this simple observation:
- The rich buy assets.
- The poor only have expenses.
- The middle class buy liabilities they think are assets.”
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Coming Next Time… LESSON 3: MIND YOUR OWN BUSINESS
Or dive right in yourself: Rich Dad Poor Dad: What The Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!
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P.S. This book summary has been completely rewritten and published on the Kindle platform. If you’d like to have this summary available at any time on your Kindle app or device, it’s available here.
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Lessons From… Rich Dad Poor Dad (Summary #2)
About The “Lessons From” Series
The “Lessons From” series are bite-sized summaries of books about financial literacy for parents raising money-smart kids.
Today we continue the series on a book called Rich Dad Poor Dad: What The Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! by Robert T. Kiyosaki, Sharon L. Lechter. (Link to Summary #1)
Chapter 2 – Lesson One: The Rich Don’t Work For Money
The author’s Rich Dad had a unique way of teaching:
“You work for me, I’ll teach you. You don’t work for me, I won’t teach you. I can teach you faster if you work, and I’m wasting my time if you just want to sit and listen, like you do in school.”
“The poor and the middle class work for money. The rich have money work for them.”
“I want to teach you to master the power of money. Not be afraid of it. And they don’t teach that in school. If you don’t learn it, you become a slave to money.”
“The pattern of get up, go to work, pay bills, get up, go to work, pay bills… Offer them more money, and they continue the cycle by also increasing their spending. This is what I call the Rat Race.”
“And as you get older, your toys get more expensive. A new car, a boat and a big house to impress your friends. Fear pushes you out the door, and desire calls to you. Enticing you toward the rocks. That’s the trap.”
“Unfortunately, for many people, school is the end, not the beginning.”
“Great civilizations collapsed when the gap between the haves and havenots was too great. America is on the same course, proving once again that history repeats itself, because we do not learn from history. We only memorize historical dates and names, not the lesson.”
“If schools taught people about money, there would be more money and lower prices, but schools focus only on teaching people to work for money, not how to harness money’s power.”
The author’s rich dad explained that the rich really did “make money.” They did not work for it.
The author’s Rich Dad believed the best reason to get a job was to learn something, not for the paycheck: “Keep working boys, but the sooner you forget about needing a paycheck, the easier your adult life will be. Keep using your brain, work for free, and soon your mind will show you ways of making money far beyond what I could ever pay you.”
The author also created a business when he was only 9 years old that rented a small library of comic books to the neighborhood kids: “The best part was that our business generated money for us, even when we weren’t physically there. Our money worked for us.”
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Coming Next Time… LESSON TWO: WHY TEACH FINANCIAL LITERACY
Or dive right in yourself: Rich Dad Poor Dad: What The Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!
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P.S. This book summary has been completely rewritten and published on the Kindle platform. If you’d like to have this summary available at any time on your Kindle app or device, it’s available here.
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How to Prepare Your College-Bound Teen for Financial Self-Support
By Lori Hutchison
College is an in-between time in life, when you are no longer a child but not yet an adult. Many parents continue to support their children financially during these years, and some parents choose to no longer support their children at all. However you decide to handle your college student’s livelihood is a personal decision, but it would be smart to consider handling it in a way that will fairly prepare them for self-support as an adult.
There are a few basic monthly expenses that college students should be made aware of. Examples of these expenses include rent, water, electricity, cable, internet, cell phone, car insurance and gas, health insurance and groceries. Even if you are not expecting your college student to pay for these items, they still should be made aware of the amount of money that is needed to maintain these everyday luxuries.
If your college student seems to have too much time on his or her hands once school begins, ask them to find a part-time job. Many parents worry that a part-time job will distract their children from their studies, but this is often not the case. Maintaining a part-time job gives a college student the opportunity to earn their own money to buy things they may want, like new clothes or concert tickets. Working a low-wage job will also help them understand how difficult it can be to pay for the everyday luxuries listed above. If your child insists that working is hurting his or her grades, ask them to at least find a volunteer or work study opportunity through their college.
The best way to prepare your college-bound child for self-support is to slowly wean them from your wallet. The road to self-support can be a scary and bumpy one, at best. Whether it is before high school graduation or during their college years, you should give them time to make mistakes and learn the ropes.
Here are a few steps my parents took to teach me about self-support:
- To help build my credit, they opened a joint account on one of their credit cards with my name. They allowed me to keep it in my wallet but warned me of punishment for abuse. I was only allowed to use it for emergencies, and I had to pay them for the purchase.
- I was told to get a part-time job in high school. This is how I learned the basics of banking. I had my own checking and savings account, which I over drafted at least five times in the first three months. I got the hang of it, though, and have never over drafted since then.
- I was very fortunate, because my parents paid for everything except the “wants” when I was in college. I was also given a $25.00 allowance for food and gas every week (this was when gas was $0.85 per gallon). To pay for new clothes and other items, I held a part-time job. This taught me the value of smart spending and money management.
- My parents made me aware of the cost of everything they paid for (my tuition, insurance, housing, etc). Knowing this amount made me appreciate what they were doing for me, because I knew that I would never be able to pay for that with my part-time, minimum wage job.
If you use these tips, your child will eventually learn how to take care of themselves, and they will also have a greater appreciation for the things you have done for them. Money will be something they take seriously and use wisely.
Lori Hutchison teaches high school English and owns the site www.mastersinteaching.net. In her spare time, she enjoys writing guest blog posts about various topics of interest.