Title: Rich Dad’s ‘Increase your Financial IQ’ (get smarter with your money)
Author: Robert T. Kiyosaki
Hello everyone, I have another instalment from the Rich Dad Community books for you, and think that you’ll enjoy this one as well.
I have read four books from his publications, and every time learn something new and eye-opening that gets me to step back and think. The first book (Rich Dad, Poor Dad) was my introduction to his lessons from his rich dad. The next book (Fake) taught me that money (or rather currency) we hold so dear, and save, is not as safe as we might think. Not anymore. The value of money is dropping (as shown in graphs of value of money in relation to gold) and therefore it is not something that we can rely on to hold the same purchasing power. Therefore, investing in real assets is the way to go. Then I came to the next book (Who stole my pension) and learnt that the money we entrust to pension funds to support us when we retire is not always managed well, and that we need to pay closer attention what is happening with our pension monies, and how they are managed. Lastly, I read the Investing Guide. Here he went into significantly greater detail why it is so much more valuable to grow our financial education, and then build up our asset portfolio and potentially become a sophisticated investor.
Through all these books, one message is repeated over and over again. And that is for us to improve our financial intelligence.
When I saw he had a book on this title I thought that this was something I should look into on how he suggests where to improve our education in. The five IQs he introduces you to are:
Financial IQ #1 – Making more money
- It is no secret, your job will only bring you a certain amount of money p/month. That needs to cover your general and living expenses, hopefully with some remaining funds to save for retirement and also spend some to go out with friends or go on vacation.
- Yet, this might not get you on the way to become rich. If you truly wish to become rich, you need to think and make a plan what you can do to make more money. One way is to build your asset portfolio, which generates cash flow.
- Solving this first problem, is the first step to build wealth, which distinguishes those from the comfortable.
- Solving problem after problem you move closer to realizing what you can do to build your wealth – and all this is a continuous process of being confronted and carrying-on with persistence to overcome every obstacle to achieve the goal.
- the process of solving those problems makes you rich (with money and experience)
Financial IQ #2 – Protecting your money
- The next consideration that you will be faced with, once you managed to increase your income/wealth somewhat, is the challenge on how to protect the most of it by legal means
- The parties that are most interested in collecting money from you are bureaucrats (government), bankers, brokers (stocks, mutual funds, ETFs, etc.), businesses, brides and beaus (people who marry for money), brothers-in-law (distant family who pay their respect to a rich family, and wish to connect again), barristers
- The key to protect your money is to become educated in a subject (shares, real estate, etc.) and learn how to best invest your money to avoid losing more than the bare minimum to start investing
- keep nothing of value in their name
- buy personal liability insurance
- hold assets of value in legal entities, and gain the benefits of companies
The rules of money have changed when money became a currency, and therefore the wise approach is to convert currency into assets that are not subject to swift change as with currency. Steadily, growing your assets increases your wealth.
Financial IQ #3 – Budgeting your money
- You need to understand the difference between a budget surplus and a budget deficit. A deficit occurs where your expenses exceed the income you derive. Vice versa, a surplus occurs where more income is made than expenses that need to be covered.
- What I learned here was that you should take your monthly income, allocate a portion thereof as payment to you (as an additional expense, that you use to grow your wealth) together with your other expenses, and then determine whether you’re in a deficit or surplus position. If you identify that you are in a deficit position, you mustn’t re-structure your budget, but rather see it as a challenge to identify ways to make more money, since you have identified that the way to grow your wealth currently isn’t within your budget.
- Therefore, it is stressed that you should pay yourself first, and use that to grow your wealth (but classify it as a necessary expense)
Financial IQ #4 – Leveraging your money
- Using leverage means to get more done with less. Leverage in the financial sense comes in by using money and debt to finance the acquisition of something that we would not otherwise have been able to finance with our current financial position.
- He stresses the two things he will be on the look-out for is control (over the asset) and leverage (to finance the acquisition of the asset). If you have the education in the field, and have control over the asset, then using wealth is not as risky. But when you have no control or education over the asset, it becomes risky to use leverage to finance the asset.
Financial IQ #5 – Improving your financial information
- The last IQ is to use the right, and credible information to make decisions for growing your wealth.
- Some tips for classifying information into are suggested as follows:
- differentiate between facts and opinions
- stay away from insane solutions to problems that need to be solved
- don’t take risky actions
- get control over the asset
- learn the rules of the game (laws and regulations)
- see if there are identifiable trends
After getting to know the five Financial IQs, he also devotes a chapter, which I believe deserves some dire attention, because it relates to getting you mentally ready for this transition. The chapter talks about splitting the brain into the three sections: left (logical), right (creative) and the subconscious. That we need give as much attention to our subconscious as to our left and right brain. The way we do this is bringing ourselves into such an environment that our subconscious becomes comfortable with making this transition to grow our wealth, and the steps we need to take to get there.
In the ‘Guide to Investing’ as well as ‘7 secrets to investing like Warren Buffet’ approximately half the books are dedicated to telling the reader how important it is to become mentally ready for this transition to become richer, and do what needs to be done to achieve that goal. Therefore, the last part is also vital.
The book should be read only after having read the first book, since it serves to give more details on the broad ideas that were introduced in the first book ‘Rich Dad, Poor Dad’. As promised, it elaborates more on how one can (and should) increase their financial education in each of the five financial intelligences. It sets one on a clear path that one could follow to start building wealth, from starting to make more money, to protecting it, to investing it wisely. The book gets my rating of 4.6/5
Until next time, happy reading!!! 🙂