Robert Kiyosaki’s 5 Secrets to Financial Freedom
Robert Kiyosaki’s 5 Secrets to Financial Freedom.
Just about everyone has a deep desire for financial freedom. And for good reason. You can never predict when there will be a financial crisis, sweeping away all your wealth and income sources. Educating yourself about the importance of financial freedom, as well as the means to achieve it is very essential.
Robert Kiyosaki is probably one of the best known modern authors on personal finance and investing. His books, such as Rich Dad, Poor Dad, have influenced generations of people to improve their financial literacy and start a journey towards financial freedom.
He’s definitely had a huge impact on my own life, and today I’d like to share five of Robert Kiyosaki’s secrets to building financial freedom. If you master each of these, then there is no limit to how much you can grow your finances in the future. Are you ready? Let’s go!
Know how to read a financial statement
Secret Number 1: Know how to read a financial statement. Financial literacy begins by understanding your personal financial statement. The reality is that money doesn’t make you rich. What makes you rich is your financial IQ.
Give the same $100,000 to a person with a low financial IQ and a person with a high financial IQ, and I guarantee you’ll see a vast difference in how that money is spent and grown. The main difference between those with low and high financial IQs is a simple but profound literacy: the ability to understand a financial statement.
Learn how to read a balance sheet and income statement if you want to be financially successful. This is one of the most important things you need to know in order to be successful financially.
Because you understood the relationship between the two, it was simple for you to see which way your cash flow was going, enabling you to quickly assess whether or not a certain activity was profitable for you.
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Work for assets not a paycheck or money
Secret Number 2. Work for assets not a paycheck or money. Working for assets rather than money is one of the most valuable lessons to be learned from the Rich Dad series. Both “money” and “assets” can be understood in a number of different ways.
To clarify, money is the currency that is used to pay for goods and services, whereas assets are both tangible and intangible items of value that generate income for their owners. This means, for most, your house is not an asset; rather, it’s a good purchase with money you earned. Does it have value? Of course.
But does it earn money you can use to buy other goods and services? Unlikely. On the other hand, a house that is rented to a tenant is an asset because it provides money that can be used for other purchases. Employment, if you haven’t felt it yet, drives burnout and is the opposite of financial freedom.
So how do we work for an asset? First, invest in yourself to increase the value of your time at work. Then, establish a plan for investing your earnings in assets that produce money. And lastly, whenever possible, use money from your assets to enhance your lifestyle rather than money from your work.
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Savers are losers
Secret Number 3. Savers are losers. Saving money has historically been considered to be a virtue. Perhaps, it was the most important one with the most far reaching consequences in one’s life. However, the world has changed and saving money no longer has the same value from before.
Nowadays, inflation wil only eat away your money in the bank because interest rates on savings accounts and even CDs are generally below the rate of inflation. So every month, you’re actually losing value.
And even if you break even with the inflation rate, you still lose. That’s because the tax rate on interest income is higher than the tax rate on capital gains income.
That’s why Robert Kiyosaki advises investing because investments pay higher returns and when you invest in the ownership of something like real estate, the value of your investment usually rises faster than inflation.
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Don’t be afraid to make mistakes
Secret Number 4. Don’t be afraid to make mistakes. The people who – quote endquote – “don’t make mistakes” are the ones who are falling behind. Why? Because they don’t take the risk to get ahead.
And this risk aversion is commonly developed during the schooling days where people are in the early stage of learning about how the world works. Robert Kiyosaki once said , “In school they compensate you to memorize the right answer.
So in other words these kids leave school thinking ‘Oh, if I know the right answers then there’s no risk!’, and this drives old guys like me crazy”. Remember, the only true failure is the one you don’t learn from. Mistakes are just opportunities to master a new skill or understanding.
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Invest to avoid taxes
Secret Number 5. Invest to avoid taxes. The vast majority of people have steady jobs where they earn a paycheck and are subject to various forms of taxation on their earnings. But the majority of rich people’s wealth comes from investments in things like real estate or the stock market.
These are the things that make rich people rich. These investments generate taxable income in the form of capital gains. The highest rate that can be applied to income is 37 percent, but the highest rate that can be applied to gains on investments is only 20 percent.
Because of this, Warren Buffett, who is considered to be one of the richest people in the United States, has frequently stated that he pays a lower tax rate than his secretary.
Therefore, you shouldn’t put too much of your focus on the employment and self-employment quadrant because doing so will result in higher tax payments for you than the business owner and investor quadrant.
To wrap it all, first you have to understand your current financial status and learn financial statements and while being employed work for assets that will bring you income. Don’t save a lot in the bank.
Just make a savings for your emergency funds and invest the rest of your money. Through investing, you can not only avoid paying high amounts of taxes but also you can make your money grow and work for you. In this video, we have talked quite a bit about investing.
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