In order to be rich, accumulate assets. Most people get into financial trouble by accumulating liabilities.
Perhaps the primary message of Rich Dad, Poor Dad is increasing basic financial literacy. Perhaps I should say financial literacy for the common man and woman. The reason I say this is because the principles taught in the book are very simple--the fundamental personal finance. Some people may even say the what Kiyosaki teaches is dangerously simplistic.
Those people are missing the point. While it is true that if you want to build significant wealth, you will need to study finance and business in greater depth, what I think that "Rich Dad, Poor Dad" and "Cash Flow Quadrant" teaches well is a high level view of how cash flows through your life. And one of the first things you must do in order to begin accumulating wealth is to understand and take charge of your cash flow.
Once you understand how you create cash and understand the flow, you can begin to make simple to complex changes to accumulate more and more cashflows. And just like water that flows into a glass begins to accumulate, your wealth will rise and eventually overflow with abundance.
Here are some of the key points about financial literacy in the "Rich Dad" book:
Your greatest "wealth" is not money. It is your state of mind, your thinking and understanding--proper (not necessarily conventional) education. Once you learn how to make a lot of money, even if someone takes it all away, you still have the knowledge to re-create it and more. Even more important, if you have profound financial knowledge, there is much less chance that you will ever lose it once you create it. The lesson: invest your time and your money studying how to create positive streams of passive cash flow.
It's not only how much money you make, it's how much you keep. As cash flow comes in, you have to be watchful not to spend it as fast or faster than you make it. Track and control your finances.
Understand the difference between assets and liabilities. This is one of the most controversial points in the book. According to Kiyosaki, an asset puts cash in your pocket, a liability takes out cash from your pocket. These are not academically correct definitions, but they are very helpful in getting control of your cash flow.
In order to be rich, accumulate assets. Most people get into financial trouble by accumulating liabilities (especially credit card debt). The most common reason this happens is due to a lack of understanding, lack of intelligence of what is happening to their cash flow pattern.
If you accumulate a lot of money, but do not have the intelligence to understand how to effectively manage your cash flow, an increase in money can actually accelerate the problem.
Here is one point that I'm still wrestling with: your home is not an asset. It may be an asset on your balance sheet, but because it is taking money out of your pocket, it is a liability. He's not saying don't buy a home. He's saying don't call it an asset when it is really a liability.
When you are in the process of building your wealth, exercise financial discipline to maximize what you spend on cash producing assets and minimize what you spend on cash draining liabilities. Saving is not enough if you are not buying cash producing assets.
One point that is emphasized more in his game Cash Flow (highest recommendation) is his definition of a "doodad." I absolutely love this term, because it interrupts your buying pattern and helps you take control of your spending habits.
Doodads are those material possessions that we spend our money on that are really liabilities. Like that luxury car that is really beyond your current means. Or that new television set that you just had to have. Buying dodads at the time you should be buying assets is the one of the primary causes of financial trouble.
He is not saying don't buy doodads. The point is to buy assets before you buy doodads. And then let the extra income that is generated by the assets pay for your doodads. Put first things first.
The poor, middle class, and wealthy all spend money. Where they eventually end up depends on the the intelligence and wisdom they develop and what they choose to accumulate. What you focus your thoughts on expands. If you focus on increasing your knowledge and assets, they will accumulate. If you focus on doodads and indiscriminate spending (even unconsciously), you will accumulate liabilities.
So, what are some Power Affirmations to help condition your mind to automatically act on these ideas? One thing I hope you will notice about these affirmations: many of these are very specific. They go way beyond such platitudes as "I love myself."
When I create and use affirmations, I'm interested in focusing on specific strategies and thought patterns I need to have in order to achieve my objective. When was the last time you saw an affirmation that included tax accountants and bankers? But the truth is you need these people on your team if you are going to build massive wealth. So you may as well condition your mind that they will be in your life, that you are comfortable in dealing with them, and that they work for you.
Here are the new affirmations:
My financial intelligence is now multiplying everyday.
I am the master of my money. I track and manage my cash flows.
I carefully accumulate cash producing assets.
I pay myself first. And I use the cash I save to buy more and more assets.
I now surround myself with expert financial advisors: tax accountants, real estate brokers, bankers, attorneys, and investors. Outstanding advisors now work for me.
I study and fully understand financial statements. When I study financial statements, I rapidly understand the cash flow patterns behind the numbers.
I now have an outstanding balance sheet rich with cash producing assets.
When I spend money, I minimize doodads and maximize assets.
I clearly understand the difference between assets and liabilities.
When I make a purchase, I ask myself "am I turning cash into trash, or into cash producing assets?" I choose assets.
My cash producing assets now exceed my personal expenses and buy more cash creating assets. I am now on the fast track of life.