So often financial education focuses on managing money, but there is actually more to it than that. You can actually grow your money too!
If you have read the book Rich Dad, Poor Dad by Robert Kiyosaki, you would realise that you can have two views with regards money – the old rules or the new rules.
These two points of view were based on those of his rich dad – his best friend’s father – who did not accept the conventional wisdom when it came to money, and grew to be very rich because he learned to understand money; and his poor dad – his own biological father – who struggled financially his entire life playing by the old rules of money.
Read on as he explains the basics under just three headlines.
1. Asset vs. Liability
Rich dad had a very simple definition for an asset and a liability. An asset puts money in your pocket, while a liability takes money out of your pocket. In writing Rich Dad Poor Dad, he used these simple definitions to explain that your house – even one that is fully paid for – is not an asset, because of the amount paid for utilities, maintenance, land use, etc.
Investment property on the other hand is an asset. Take a house rental as an example, the tenant pays the cost of keeping the house running, while the owner still makes money from the rent he gets every month!
2. Replace I Can’t with How Can I?
While a lot of money experts encourage cutting one’s expenses which is not bad, he proposes that there is an even better way to go about getting what we want.
Rather than say, “I can’t afford it”, his rich dad taught him to ask, “How can I afford it?” This he calls a mindset of abundance that forces one to think of ways to expand beyond their current means. Can you create an asset or income that will allow you to afford what you would like to acquire? Maybe it’s starting a business. Or buying something new. How can you afford it?
3. There’s Such a Thing as Good Debt
There is a difference between good debt and bad debt. The average person has only bad debt, incurred from always purchasing liabilities like TVs, smartphones, cars, and houses.
Good debt, on the other hand uses other people’s money to purchase assets that will generate even more cash. For instance, in purchasing investment property, one may pay for most of the asset with money borrowed from the bank or other sources. One benefit of investments using good debt is a higher return on investment because you used less of your money to purchase the investment, and which remains at your disposal for other fruitful pursuits.
Rather than look to reduce all debt, find ways to reduce your bad debt and grow your good debt to help buy or build assets.
He encourages you to apply even if in a small way these wisdom nuggets, when he said:
Start today, and do it every day. Because every day should be your financial literacy day.