Based on the teachings of Robert Kiyosaki, best-selling author of "Rich Dad Poor Dad," achieving financial freedom is less about earning a high salary and more about a fundamental shift in mindset and financial education. His philosophy is built on several key principles that distinguish the rich from the poor and middle class.
The Foundation: Assets vs. Liabilities
Kiyosaki’s most famous concept is the distinction between an asset and a liability. He redefines these terms from their traditional accounting definitions:
Asset: Anything that puts money in your pocket. Examples include rental properties that generate income, stocks that pay dividends, or a business you own that generates a profit.
Liability: Anything that takes money out of your pocket. This includes things like your personal home (due to mortgage, taxes, and maintenance), an expensive car with a loan, or credit card debt.
According to Kiyosaki, the poor and middle class often acquire liabilities they believe are assets, like a new car or a big house, which ultimately keep them in the "rat race." The rich, in contrast, focus on acquiring assets that generate passive income, which is the cornerstone of true wealth.
The Cashflow Quadrant
In his book "Rich Dad's Cashflow Quadrant," Kiyosaki outlines four ways people generate income:
E - Employee: Works for someone else, trading time for a salary. They value security and a steady paycheck.
S - Self-Employed: Owns a job, but still trades time for money. This includes doctors, lawyers, and consultants. They have more control but are often the most overworked.
B - Business Owner: Owns a system that works for them. They create a business with systems and people that can run without their day-to-day involvement.
I - Investor: Has money working for them. They generate income from their assets, such as real estate, stocks, or other investments.
Kiyosaki argues that true financial freedom and low taxes are found on the right side of the quadrant (Business Owner and Investor), where people build systems or have their money work for them.
Key Strategies for Building Wealth
Here are some of Kiyosaki's core strategies for those aspiring to be rich:
Prioritize Financial Education: Kiyosaki believes the traditional school system fails to teach people about money. He emphasizes the importance of continuous learning about accounting, investing, markets, and legal structures to gain "financial intelligence."
Acquire Assets, Not Liabilities: The main rule is to build your asset column first. Use the income from your job (E or S quadrant) to acquire income-generating assets. Once your passive income from these assets exceeds your expenses, you are financially free.
Embrace "Good Debt": Kiyosaki challenges the idea that all debt is bad. "Good debt" is debt that is used to acquire an income-generating asset, such as a mortgage on a rental property where the rent covers the mortgage payment and other expenses. "Bad debt," on the other hand, is debt used to purchase liabilities that take money out of your pocket, like consumer debt.
Pay Yourself First: This means setting aside money for your savings and investments before paying your bills. Kiyosaki advocates for this discipline, believing it forces you to find creative ways to pay your bills while also building your future wealth.
Start Your Own Business (Even a Side Hustle): To move from the left side of the quadrant to the right, he encourages people to "mind their own business" by creating a side business or a system that can eventually work without them.
Take Calculated Risks: Kiyosaki believes that fear of losing money is a major obstacle for the poor and middle class. He advises people to learn from their mistakes and not let fear prevent them from taking calculated risks that can lead to significant financial gains.
In summary, Robert Kiyosaki’s advice on how to be rich centers on shifting your perspective from being an employee who works for money to becoming a business owner and investor who has money working for them. This is achieved by focusing on financial education, acquiring income-generating assets, and moving into the right side of the Cashflow Quadrant.
