I’ve been listening lately to Robert Kiyosaki’s Choose To Be Rich, and I have to say that it is outstanding.
Probably one of the top three book on building wealth I’ve come across, and as you know I’ve read (or listened to) a lot.
He gets into all sorts of topics in the book, but here are three ideas that stood out in my mind.
Hopefully you will find them as insightful as I did. They may even challenge some closely held ideas that you have!
- Having Lots Of Money Doesn’t Make You Rich
Being rich is much more about your mindset and your financial intelligence than it is about how much money you have.
Take Richard Branson for example. The man is a billionaire, but if you took all that money away from him he would still have all the knowledge. He would still know how to start businesses, invest wisely, etc. In fact, if he had to start from zero today I’m quite sure Richard Branson would have lots of money again in less than five years.
Take the opposite example though: what about a person who wins the lottery but doesn’t understand how to be rich? Is it any wonder that 1 in 3 lottery winners are flat broke in five years? Even though they had all the money in the world, they still had the mindset and financial intelligence of a poor person, so they lost their money. They were not “rich”.
If you understand how to build wealth than you are rich, no matter how much money you have.
A person who make $100,000 a year and spends $100,000 a year is not rich. They are thinking like a poor person and remaining stuck in the rat race. In fact, a person who makes $40,000 a year and invests $20,000 is richer.
- The Longer You Can Go Without Working, The Wealthier You Are
As alluded to in point #1, rich people save and invest a portion of their money. What do they invest in? Passive income streams that pay them whether they work or not.
If you have no savings, then it doesn’t matter how much money you make per year; you aren’t wealthy. If you stopped working today, how long could you continue to pay for your current lifestyle? A month? Six months? A year?
The longer you could go, the wealthier you are. And the wealthiest people are those that are financially free. That means their passive income streams are enough to cover their expenses. Effectively, they could go on forever at their current level of living without working again. Thats why I set a goal this year to get to at least $2,000 per month in passive income buying real estate.
- Rich And Poor People Focus On Different Types Of Income
According to Kiyosaki, there are three types of income: (1) earned income from a job, (2) portfolio income from stocks or bonds, and (3) passive income from real estate or other income generating assets.
Poor and middle class people focus on earned income. There are two problems with this.
First, you only get paid when you work. And there are a fixed amount of hours in the day, which means there is a cap on how much money you can make via earned income. The second problem with earned income is what Robert Kiyosaki calls “50% money”. Essentially the government takes 50% of every earned income dollar you make. Money is taken out of your paycheck before you ever get it, and then more money is taken out when you pay taxes.
Poor and middle class people focus on earned income, and try to get rich by working twice as hard.
Rich people on the other hand focus on the other two types of income, portfolio income and passive income. These are not dependent on the number of hours in a day, so they grow indefinitely, and they are far better in terms of taxes too. The highest capital gains tax rate is 15% and in real estate you can often pay zero taxes or defer the taxes forever.
If you get a chance, check out Choose To Be Rich. I think you’ll really enjoy it.
What other favorite books do you have on building wealth? Leave me a comment below.