Learning How To Get Rich

Maybe not everyone wants to be rich, but I am pretty sure that most of us want to earn enough money to meet our life style needs. However, do we know how to make and retain/grow money, or many of us are trapped in a rat race where as we earn more money on our jobs, we have to work harder and harder in order to make more money to cover our expenses. Do our children get the right financial education in order to avoid the rat race? Or by instilling traditional values of going to college in order to get a good paying job and get promoted on the corporate ladder, we only commit them to a life of a rat race and not to financial independence?

Robert T. Kiyosaki addresses some of these questions in his bestselling book Rich Dad Poor Dad.. Typically, I am not attracted to “how to get rich” books. This book was given to me as a present by my parents probably because they were attracted to the promotional phrase on its cover – “What the Rich Teach Their Kids about Money That the Poor and Middle Class Do Not!” I was immediately skeptical – how Robert Kiyosaki knows what every rich person teaches his or her kids and do all the rich people teach their kids the same thing?! People get wealthy in so many different ways – there is more than one method to get rich. Anyway, what is the definition of being “rich”?

To my surprise, however, I liked the book, and I recommend reading it, provided you are reading it for the overall concepts and not for applying some of the specific advice (which it is short on anyway). I suspect that some facts in this books that are presented as real were actually fiction. For example, the entire Rich Dad story is highly unlikely to be realistic. I also have to warn that some of the financial recommendations in this book are simply technically inaccurate. For example, Kiyosaki claims that corporations are great tax shelters and that is the main tool the rich use to buy themselves luxury cars and vacations tax free. The fact is that corporations are not a fitting financial/legal tool in every instance. I started and owned a consulting company, and my accountant and I concluded that it was more beneficial and simpler for me to expense business mileage for my business related trips rather than for my company to buy or event lease me a car. I also had to be very careful with corporate income to avoid double taxation (i.e., paying taxes on corporate profits and personal income). I do not want to go into details of all the technical inaccuracies in this book. John T. Reed covered many of these inaccuracies in the following web page: http://www.johntreed.com/Kiyosaki.html (I recommend referring to this site only after reading the original book).

So given all this, why did I like this book? First of all, I like Kiyosaki’s definition of who is rich – someone who is not dependent on an employer to maintain his or her lifestyle. Kiyosaki makes a point that many people who we think are rich because they live in large expensive houses or drive expensive cars are not necessary rich – they may be completely highly in debt trapped in a rat race to maintain their life styles. He tries to convince his readers that their goal should be to structure their finances in such a way as to not to depend on an employer for maintaining the life style they seek. I agree with Kiyosaki that our goal should be avoiding the trappings of the rat race – i.e., avoiding structuring our financial lives in such a way that as we make more money we need to make even more money being dependent on the source of our earnings (which is typically an employer).

Kiyosaki proposes several principles and lessons about how to get rich. Two most fundamental principles of his philosophy are a) Make money work you instead of working for money, and b) his four quadrant accounting principle: Income, Expense, Asset, Liabilities – he describes how one should leverage assets to generate income while minimizing expenses and liabilities. According to Kiyosaki one can make money working for himself by focusing on acquiring investment assets that generate income over time while minimizing expenses, liabilities and work. Of course, this may not be literary accurate – rich people also work hard to make money. However, as I wrote earlier, if you focus on his overall concepts, this book may open your mind to new approaches of making money.

I also like that Kiyosaki emphasizes financial education. He emphasizes the need to invest effort and money in educating yourself about making money. I agree that investing in education about making money is important. We spend considerable time and effort learning our profession. We also spend time learning various topics related to our hobbies – we take skiing lessons or music, for example. Since I got involved with working dog training, I spent many hours learning about animal behavior, reading dog training books and watching DVDs. However, many of us, me included, spend very little time learning about making money for the sake of making money (e.g., learning stock investment, real-estate, etc.) To become financially independent, we all need to invest more of our intellectual capital in this area as well. Kiyosaki also advocates teaching our kids elementary principles of finance and how to avoid the trapping of the rat race.

I recommend reading any such book with an open mind and at the same time with skepticism. Recommendations of any book may not fit every individual situation and no book’s recommendations should be applied literally in every personal situation. It is great when a book can inspire a new course in life, but every change should not be done hastily without the appropriate consideration of personal situation and ramifications. This book can inspire and motivate you to improving your financial situation, but if taken too literary, it can also mislead and do some damage.