I’m sure that many of you would have heard of the book “Rich Dad, Poor Dad” by Robert Kiyosaki. It has been a bestseller for a long time, and it so happens that this book is the first book that I have read about when it comes to handling money. Find out more about what I’ve learnt from this book here.
Why Have Two Dads?
Robert Kiyosaki started of by contrasting his actual dad (the “poor dad”) and his friend’s dad (the “rich dad”). In his introduction, he mentioned that having both a rich and a poor dad exposed him to different opposing points of view.
To me, this underscores the importance of having second opinions when making decisions. When you line up two opposing viewpoints, you can then evaluate the merits and demerits of each viewpoint, which will help you to exercise critical thinking and make better decisions. Robert Kiyosaki reiterates this point a few times over the course of this book.
Have a Positive Attitude Towards Managing Money
This is a quote from the book which spurred me to take on a more active approach towards managing my own money:
There is a difference between being poor and being broke. Broke is temporary. Poor is eternal.
I’ve heard of many horror stories of people winning the lottery, only to end off even worse than before from a financial standpoint. The important thing here is that the reason some people are not “richer” than they could have been is because they lack the financial literacy to manage their money wisely. Some make use of the windfall they have acquired and frittered it away on frivolous purchases or on gambling. I realised that I had to start learning about how to manage my money, or I would not be able to become richer even when I earn a higher income.
I understand that some people may think that investment is too difficult for them, and hence they stash their money away in a savings account. I think that even if it may seem daunting, one shouldn’t just put all their savings in the bank. To me, it just seems like escaping from a problem of not dedicating some time to learn how to manage your own money. Your money is your own responsibility to handle. Be open to learning how to manage your wealth, and you end up richer, from a financial standpoint and a personal development standpoint. Just like the Rich Dad did.
Have a Plan Ready
Most people invest in the stock market for a primary reason: to grow their wealth. However, not many people can stomach the risk of being in the stock market. They tend to “buy high, sell low” because they sometimes sell prematurely due to their fear that the value of their portfolio might drop again.
I would like to mention that investing in the stock markets, or any financial instruments for that matter, will always carry some form of risk. What is more important is that you have a plan, and use that plan as a framework for your decision making. There will always be opportunities in the future. But without a proper plan or framework, you might second guess yourself, especially when the future looks bleak. Being able to steel yourself and make important decisions when it matters the most will help to boost your financial situation in the long run.
Greed and Fear
Most people are motivated by two things: Greed and Fear. I think it is healthy to have a little bit of both. The reason why most of us start investing is because we want more returns than what a savings account can offer us, right? So greed is a motivator which kickstarts our journey towards investing and achieving financial independence.
However, too much greed is also bad. By being too greedy, you can open yourself to a lot of losses by taking on more risk than what you can handle. For example, over leveraging can boost your returns by quite a bit if done correctly. However, should you end up on the losing end, you can expect magnified losses.
That’s where fear comes in. Fear helps to keep your greed in check. By being fearful, you end up taking less risky positions. Similarly, being too fearful can also be a bad thing. If you are too fearful, your returns might be less than what you intended to earn. You might also miss out on a few opportunities because of the potential downsides that you might have to accept.
In the end, how good of an investor you are will also depend on how well you can manage greed and fear while you invest. Rich Dad made Robert Kiyosaki and his friend learn this the “hands-on” way.
Are You in the Rat Race?
Have you ever felt that you’re living an exhausting lifestyle where there’s no time for you to relax? You might be in the Rat Race. Some people spend more than they should just to "keep up with the Joneses", or to maintain a sense of status. These people are in danger of what some may call “lifestyle creep“, where they spend more as they earn more. Don’t increase your spending when you earn more money, unless it's necessary. Don't buy luxury watches, cars and tech gadgets just to show them off to other people. Rich Dad is rich because he kept liabilities low by not buying things he didn't need.
In addition, spending more when you earn more means that you are growing less money than you could have. Combined with the compounding effect of money, it means that you are working harder while not being as wealthy as you can be compared to a person who has a more relaxing job, earns less, and saves more than you do. Be like the Rich Dad. Don’t join the Rat Race.
I think a major problem with lifestyle creep is that sometimes, you won’t notice it over shorter time frames. An additional purchase here and there may seem fine to us at the moment, but a few months down the line, we’ll see how much these purchases would add up. One way to prevent this is to use a budgeting tool like an Excel spreadsheet or a dedicated tool such as You Need A Budget (YNAB), and to monitor your budget regularly. By avoiding lifestyle creep, you will be less at risk of being in the Rat Race.
These are a few major lessons I’ve learnt while reading the first few chapters of the book. I hope that these lessons will help you manage and grow your wealth!
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