Rich Dad Poor Dad: Chapter-2: Why Teach Financial Literacy | Billionaire Mentor - BM

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Thursday, 6 February 2020

Rich Dad Poor Dad: Chapter-2: Why Teach Financial Literacy | Billionaire Mentor

Chapter 2:- Why Teach Financial Literacy ?


It's not how much money you make

How much money do you have

In 1990, Mike took over his father's empire and was, in fact, doing a better job than his father.  We see each other once or twice a year on the golf course.  He and his wife are richer than you might think.  Rich Dad's empire is in very good hands, and Mike is now preparing his son to replace him, as his father prepared us.

In 1994, I retired at the age of 47, and my wife Kim was 37 years old.  Retirement does not mean.  For us, this means that, by stopping unexpected catastrophic changes, we can work or do notework, and our wealth grows on its own, staying ahead of inflation.  Our wealth is large enough to grow on its own.  It is like planting a tree.  You water it for years, and then someday you don't need it.  Its roots are deeply transplanted.  Then the tree predicts your enjoyment.

Mike chose to run the empire, and I chose to retire.

Whenever I talk to groups of people, they often ask what I would suggest they do.  "How do I get started?"  "Is there any book you would recommend?"  "What should I do to my children?"  "What's the secret to success?"  "How do I make millions?"

Whenever I hear one of these questions, I remember the following story:

Richest businessman

In 1923 a group of our greatest leaders and richest businessmen held a meeting at the Edge water Beach Hotel in Chicago.  Among them was Charles Schwab, head of the most independent steel company;  Samuel Insul, the world's eldest president;  Howard Hopson, head of the largest gas company;  Ivor Krieger, president of the International Match Company, one of the largest companies in the world at the time;  Leon Frazier, President of the Bank of International Settlements;  Richard Whitney, president of the New York Stock Exchange;  Arthur Cotton and Jessie Livermore are the two biggest share bookies;  And Albert Fall, a member of President Harding.  Twenty-five years later, nine of these titans ended their lives as follows: Schwab died after living for five years on borrowed money.  Insulbroke died in a foreign land and Krieger and Cotton also died.  Hopson Goinsane.  Whitney and Albert Fall were released from prison and Fraser and Livermore committed suicide.

I doubt if anyone can say what has really happened to these men.  If you look at the market crash of 1929 and the date just before the Great Depression, 1923, I doubt that these people and their lives were severely affected.  The point is: Today we live in a time of greater change than these men.  I suspect that in the coming times there will be many booms and bustles that will parallel the ups and downs of these men encountered.  I worry that many people are focused on too much money and not their greatest wealth, their education.  If people are ready to be flexible, have an open mind and learn, they will prosper and prosper despite drastic changes.  If they feel that money will solve problems, then they will have a tough ride.  Intelligence solves problems and produces money.  The money is soon gone without financial intelligence.

Most people fail to realize that in life, it is not how much money you make.  How much can you put it? We all hear stories of lottery winners who are poor, then suddenly, and then poor.

They win millions, yet soon return to where they started.  Or stories of professional athletes, who are earning millions at age 24, but sleeping under a bridge after 10 years.

I remember the story of a youth basketball player who was in millions a year ago.  Today, at just 29 years old, he claims that his friends, lawyers and accountants took his money, and he was forced to wash the car for the minimum wage.  He was removed from the car wash because he refused to take his championship ring as he was wiping from the cars.  His story made it nationwide and he is appealing for its termination, claiming hardship and discrimination.  He claims that he has left everything and if he is snatched, he will be uprooted.

I know many people who instantly became millionaires.  And while I am happy that some people have become rich and wealthy, I caution them that in the long run, it is not how much money to make.  How much it keeps you, and how many generations you have.

So when people ask, "Where do I start?"  Or "Tell me how to get rich quick," they are very disappointed with their answer.  All I tell him is what my rich father said when I was a little kid.  "If you want to get rich, you need to be financially literate."

That idea was carried into our heads every time.  As I said, my educated person stressed the importance of reading books, while my rich father stressed the need for a Master of Financial Literacy.

If you are going to build the Empire State Building, you must first dig up the adip hole and lay down a strong foundation.  If you are going to build a house in the suburbs, Eloy needs to put a six inch slab of concrete.  Most people, in their drive to get rich, are trying to build the Empire State Building on a six-inch slab.

Our school system, built in the agricultural era, still believes in homes without any foundation.  Dirt floors are still rife.  So the children graduate from school with virtually no financial deprivation.  One day, debt-ridden and deep in the suburbs, living the American Dream, they decide that the answer to their financial problems is to find a way to get rich quick.

Construction begins on the skyscraper.  It quickly goes up, and soon, instead of the Empire State Building, we have the Leaning Tower of the suburb.  Sleepless nights are over.

For Mike and me in our adult years, our choice was both possible as we prepared to lay a strong financial foundation when we were just children.

Accounting is possibly the most confusing, boring subject in the world, but if you want to study in the long term, it can be the most important subject.  For Amir Dad, the question was how to make a boring and confusing subject and teach it to children.  The answer he got was to teach it in pictures and make a glimpse of it.

My rich dad laid a strong financial foundation for Mike and me.  Since we were just children, he created a simple way to teach us.  For years he only took photographs and used some words.  Mike and I understood simple sketches, jargon, the movement of money, and then through the years, Rich Dad began adding numbers.  Today, Mike has mastered very adept and sophisticated accounting analysis because he had to give orders to run his empire.  I am not that sophisticated because my empire is small, yet we come from the same common.  On the next pages, I will provide you with the simple line drawings that Mike made for us.  Although basic, those drawings helped the two younger boys build wealth on a solid and deep foundation.

Rule # 1: You should know the difference between an asset and a liability, andbuy assets.

If you want to get rich, you need to know this.  This is rule number one.  This is the only rule.  This may sound absurdly simple, but most people have no idea how deep this rule is.  Most people struggle financially because they do not know the difference between an asset and an obligation.

“Wealthy people acquire property.  The poor and middle class acquire the liabilities that they feel are assets, ”said the rich father.

When Rich Dad explained to Mike and me, we thought he was joking.  Here we were almost teenagers and waiting for the secret to get rich, and this was their answer.  It was very important that we stayed for a long time to think about it.

"What is a property?"  Mike asked.

"Don't worry right now," said Rich Dad.  "Just let the idea come in.  If you can understand simplicity, then you will have a plan in your life and it will be financially easy.  this is easy.  That is why this idea was missed.  "

"You mean we all know what an asset is, they need to get it, and we'll be rich?"  I asked

The rich father shook his head.  "It's so easy."

"If it's so easy, isn't everyone rich?"  I asked

Rich Dad smiled.  "Because people don't know the difference between an asset and variability."

I remember thinking, "How can adults be misled?"  If it's so easy, if it's insignificant, why wouldn't everyone want to find it?  "

It took Rich Dad only a few minutes to explain what the assets and liabilities were.

As an adult, I have difficulty explaining this to other adults.  The simplicity of the idea escapes because they are educated differently.  He was taught by other educated people, such as bankers, accountants, real estate agents, financial planners and sophomores.  The difficulty comes with adults becoming unaware, or having children again.  Achintya adults often feel that it is to pay attention to simple definitions.

Rich Dad believed in KISS - Keep it simple, stupid (or keep it super simple)

So he kept it simple for us and it strengthened our economic foundation.

So what causes confusion?  How can something so simple be so bad?  Why did someone buy a property that was actually a liability?  The answer is found in basic education.

We focus on the word "literacy" and not "financial literacy".

The term is not to define something to be an asset or liability.  In fact, if you really want to be confused, look up the words "assets" and "liability" in the dictionary.  I know that the definition may sound good for a trained accountant, but for the average person, it makes nonsense.  But we adults often take pride in accepting that something is incomprehensible.

For us young boys, the rich father said, "What defines a property are not words, but numbers. And if you can't read the number, you can't tell a property from a hole in the ground."

"In accounting," Rich Dad would say, "It's not a number, but a number telling you. It's like words. It's not words, but the story telling you." "If you want to get rich,  You have to read and understand the numbers. "" If I heard once, I heard it a thousand times from my rich father. And I also heard, "The rich earn wealth, and the poor and middle class acquire liabilities.  Let's write.

Here's how to tell the difference between asset and liability.  Most accountants and financial professionals do not agree with the definitions, but these simple illustrations were based on a strong financial foundation for young young boys.

This is the cash-flow pattern of an asset:

The top part of the diagram is an income statement, often called a profit and loss statement.  It measures income and expenditure: money in and money out.  The bottom of the diagram isa balance sheet.  It is called because it is meant to balance assets against liabilities.  Many financial novices do not know the relationship between an income statement and a balance sheet, and it is important to understand that relationship.

So as I said earlier, my rich father told two young boys to "put money in your pockets."  Nice, simple and usable.

This is the cash-flow pattern of an obligation:

Now that assets and liabilities have been defined through pictures, it can be easier to understand my definitions in words.  A property is something that puts money in my pocket.  Variability is something that takes money out of my pocket.  This is really all you should know.

If you want to get rich, just spend your life buying property.  If you want to be poor or middle-class, then spend your life buying liabilities.

Illiteracy, both in word and number, is the foundation of financial strife.  If people are experiencing difficulties financially, it is something they do not understand, either in number of words.  The rich are richer because they are more literate in different fields than people struggle financially.  So if you want to get rich and maintain your wealth, it is important to be financially literate, in words as well as in numbers.

Arrows in the diagram represent cash flow, or "cash flow."

Arrows in the diagram represent cash flow, or "cash flow."  Numbers are simply meaningless, as if words are out of context.  This is the story that matters.  In financial reporting, the reading number looks for plots, where cash is flowing.  In 80 percent of most families, the financial story presents a picture of hard work to move forward.  However, this effort is for naught as they spend their lives buying liabilities rather than assets.

This is the cash-flow pattern of a poor person:

This is the cash-flow pattern of the middle class person:

This is the cash-flow pattern of a rich person:

All these diagrams are clearly maintained.  All have living expenses, food requirements, shelter and clothing.  The pictures show the flow of cash through the life of a poor, middle class and rich person.  It is cash flow that tells a story of how a person handles their money.

What I started with the story of the richest men in America is to illustrate the flaw that money will solve all problems.  That's why whenever I hear me that I have to run fast, or where they should start, I get upset.  I often hear, "I am in debt, so motivated to earn more money."

But more money often will not solve the problem.  In fact, it can reduce the problem.  Money often clarifies our tragic human flaws, putting a spotlight on what we do not know.  Therefore, all too often, a person who suddenly falls into a cash crunch - a legacy, a pay raise, or a lottery win - soon returns to the same financial mess, if they were not spoiled, before the mess.  Money only reflects the cash-flow going on in your head.  If your pattern is to spend everything you get, then most likely in cash will just result in an increase in spending.  Thus, the saying goes, "There is a fool and a big party."

I have said many times that we acquire scholastic and professional skills to go to school, both are important.  We learn to make money with our professional skills.  If I did well academically when I was in high school in the 1960s, people assumed that this talented person would have to become a medical doctor because it was a profession promising the greatest financial reward.

Today, doctors face financial challenges that I do not want on my worst enemy: in taking control of the insurance business, managing health care, government intervention, and untimely suits.  Today, children want to become famous athletes, movie stars, rock stars, beauticians or CEOs because that is where fame, money and prestige are.  This is why it is difficult to motivate children in school today.  They know that commercial success is entirely linked to academic success, as it once was.

Because students leave school without financial skills, millions of educated people do business successfully, but later find themselves struggling financially.  They work, but are not able to move forward.  What they lack in their education is not how to earn money, but how to manage money.  This is called financial suitability - what you do with money when you make it, how people have to take it from you, how to keep it for a long time, and how to make that money work hard for you.  Most people do not understand why they struggle financially because they do not understand cash flow.  A person can be highly educated, professionally successful and financially illiterate.  These people often work excessively hard because they learned how to work, but not how their money works for them.

How the story of the quest for a financial dream turns into a financial nightmare

There is a set pattern of the classic story of hardworking people.  Recently married, happy, highly educated young couple move into one of their cramped rented apartments.

Immediately, they realize that they are saving money because two can live as cheaply as one.

The problem is that the apartment is cramped.  They decide to save money to buy their DreamHome so that they can have children.  Now they have two incomes, and they begin to pay attention to their teachers.  Their income starts increasing.

As their income increases, so does their expenditure.

The number-one expense for most people is tax.  Many people think it is income tax, but for most Americans, their highest tax is Social Security.  As an employee, it appears that the Social Security tax, combined with the medical tax rate, is about 7.5 percent, but it is actually 15 percent because the employer must match the Social Security amount.  In short, it is money that the employer cannot pay you.  On top of that, you still have to pay income tax on the amount deducted from your salary for Social Security tax, an income you never received because it went directly to Social Security through withholding.

Going to the young couple, as a result of their income increases, they decide to buy their dream home.  Once in their house, they have a new tax, called property tax.  Then they purchases a new car, new furniture and new appliances to match his new home.  For everyone, they wake up and their column of liabilities is filled with mortgages and credit-card debt.  Their liability increases.

They are now stuck in the rat race.  Very soon a child comes along and they work hard.

The process repeats itself: Higher incomes cause higher taxes, also known as "bracket creep".  Credit card comes in the mail.  They use it.  This is the maximum.  A loan company called and said their house property is the largest, appreciating them in value.  Because their credit is so good, the company offers bill-consolidation loans and tells them how to clear high-interest consumer debt by paying off their credit card and, moreover, interest ontheir home is a tax deduction.  They go for it, and pay those high-interest credit cards.  They breathe a sigh of relief.  Payment is made with their credit card.  Now they have folded their loan debt into their home loan.  Their payments are reduced as they expand their positions for more than 30 years.  This is a smart thing.

His neighbors ask him to invite them for shopping.  Memorial Day sales continue.  Complete yourself that they are just window shops, but they take credit cards, that's all.

I walk in this young couple all the time.  Their names change, but their financial dilemma remains the same.  They come to hear me say what I have to say.  They ask me, "Can you tell us how to make more money?"

They do not understand that their problem is really how they choose to spend the money they have.  This is due to financial illiteracy and not understanding the difference between asset and liability.

More money rarely solves one's money problems.  Wisdom solves problems.  There is a saying that a friend of mine repeatedly tells people in debt: "If you know you have dug yourself in a hole ... stop digging."

As a child, my father often told us that the Japanese were aware of three powers: the sword of power, the jewel, and the mirror.

The sword symbolizes the power of weapons.  The US has spent billions of dollars in weapons and because of this has a powerful military presence in the world.

The jewel symbolizes the power of wealth.  It is somewhat true to say, "Remember the golden rule."  The one who has gold makes the rules.  The mirror is a symbol of the power of self-knowledge.  According to Japanese legend, this self-knowledge was the most valuable of the three.

All too often, the poor and middle classes are allowed to control the power of money.  By simply getting up and working hard, failing to ask themselves if they make sense, they shoot themselves in the foot as they leave for work every morning.  By not fully understanding money, most people allow it to control its terrible power.

If they used the power of mirrors, they would ask themselves, "Is this a mess?"  All too often, instead of relying on their inner knowledge, inside that talent, most crowd away from the crowd.  They do things because everyone does them.  He said, the charitable question.  Often, they repeat what they have been told without thinking: "diversify."  "Your house is an asset."  "Your home is your biggest investment."  "You get a tax break to go into more debt."  "Get a safe job." "Don't make mistakes." "Don't take risks."

It is said that fear of public speaking is a major fear of death for most people.  According to psychiatrists, fear of public speaking is due to fear of osteism, fear of standing out, fear of criticism, fear of ridicule, and fear of being intimidated.  The fear of being isolated prevents most people from looking for new ways to solve problems.

This is why my educated father said that the Japanese value the power of mirrors the most, it is only when we look at it that we find the truth.  Fear is the main reason people say, "Play it safe."  The same goes for anything, be it sports, relationships, careers, or money.

It is the same fear, the fear of osteism, that causes people to conform to it, and does not question, the generally accepted opinion or popular trend: "Your home is an asset."  "Get a bill-consolidation loan, and get out of debt." "Work hard." "It's a promotion." "Someday I'm a vice president." "Save money." "When I get a penny,  So we'll buy a big house. "" Mutual funds are safe. "

There are many financial problems due to trying to keep up with Jones.  Sometimes, we all need to look in the mirror and be true to our inner wisdom rather than our fears.

By the time I and Mike were 16, we started having problems at school.  We were bad children.  We just started getting separated from the crowd.  We worked at Mike's father after school and on weekends.  Mike and I often spent hours after work, meeting with his bankers, lawyers, accountants, brokers, investors, managers and employees.  Here was a man who left school at the age of 13 who was now asking questions to educated, instructed, ordered and educated people.  They came to Hecab and Call, and wept when he did not accept them.

There was a man here who did not accompany the crowd.  He was a man who did his own thing and ignored the words, "We have to do it this way because everybody does it."  He also hates the word "no."  If you wanted him to do something, that's all.  Says, "Don't think you can do it."

Mike and I sat more and more in our meetings and learned what we did in all our years of school, college.  Mike's father was not book-smart, but was financially educated and unsuccessful as a result.  He told us again and again, "A wise man hires people, he is smarter than that."  So Mike and I had the benefit of spending hours on meeting intelligent people and learning.

But because of this, Mike and I could not go with the standard dogma of our teachers, and this caused problems.  Whenever the teacher said, "If you don't get good positions, you haven't done well in the real world," Mike and I have just raised our eyebrows.  When we were told to follow set procedures and not deviate from the rules, we could see how Hoskool discouraged creativity.  We began to understand why our rich daddy told us it was designed to produce good employees, rather than employers.  Occasionally, Mike or I would ask our teachers whether the study we did was applicable in the real world, how we never studied money and how it worked.  For the latter question, we often find that money was not important, that if we excel in our education, money will come back.  The more we knew about the power of money, the farther away we grew from teachers and our classmates.

My highly educated father never pressured me about my grades, but we began to dispute money.  By the time I was 16, I had a better foundation for money than my parents.  I could keep books, I listened to taxpayers, corporate lawyers, bankers, real estate brokers, investors and so forth.  In contrast, my father talked to other teachers.

One day my father told me that our house was his biggest investment.  A very pleasant incident occurred when I showed him why I felt that a house was not a good investment.

The diagram above shows the difference in perception between my rich dad and my poor when it came to their homes.  One father thought his house was an asset, and another thought it was a liability.

I remember when I drew the following pictures for my dad, he showed me the flow of direction.  I also showed him the ancillary expenses that go with the homeowner.  A large house meant large expenses, and the flow of cash continued to flow through the expansesolution.

Even today people challenge me with the idea of ​​having a house, not a property.  I know that for many people, this is their dream as well as their biggest investment.  And owning your own house is better than nothing.  I just provide an alternative way of looking at this popular dogma.  If I and my wife had to buy a big, shining house, we think it would not be an asset.  It will be an obligation because it will take money out of our pocket.

So here I argue.  I really hope that most people will not agree with this because home is an emotional thing and when it comes to money, high emotions reduce financial intelligence.  I know from personal experience that one way to make money decisions is emotional.

1. When it comes to homes, most people spend their entire lives paying for a house that never belongs to them.  In other words, most people buy a new home every few years, each time offering a new 30-year loan to pay off the previous 30.

2. Even though people receive tax deductions for interest on mortgage payments, they pay

For all their other expenses with tax-dollars, even if they pay their mortgage.

3. My wife's parents were surprised when the property tax on their house increased to $ 1,000 per month.  This was after his retirement, so the increase put a strain on his retirement budget, and he felt compelled to relocate.

4. Houses do not always go up in value.  I have friends who pay a million dollars for a house

That will sell for less today.

5. The biggest disadvantage of all is those opportunities missed.  If all your money is tied up in your home, you may be forced to work harder because your money keeps dropping out of the expenditure column, rather than adding the asset's column - the classic middle-class cashflow pattern.  If a young couple puts more money in their asset column, then the subsequent years will be easier.  Their assets would have grown and would be available to help cover expenses.  All too often, a house serves only as a vehicle for a home-equity loan to pay for rising expenses.

In short, starting an investment portfolio is very costly in that the final outcome in deciding a house affects an individual in at least the following three ways:

1. Loss of time during which other assets could have increased in value.

2. Loss of excess capital, which could have been invested instead of high-spending payments directly related to the home.

3. Loss of education.  Many times, people calculate their home and savings and retirement plans

As they have in their asset column.  Because they do not have the money to invest, they simply do not invest.  This gives them an investment experience.  Most never become what the investment world called "a sophisticated investor" and the best investment is usually sold first to sophisticated investors, who then wind it up and sell it to people playing safe.

I am not saying do not buy a house.  I am saying that you should understand the difference between an asset and a liability.  When I want a big house, I first buy a property that will generate cash flow to pay for the house.

My educated father's personal financial statement depicts the life of someone caught by the rat race.  Their expenses match their income, never allowing them enough investment in assets.  As a result, his liabilities are larger than his assets.

The following picture on the left shows the income statement of my poor father.  This athlete is worth the word.  It shows that his income and expenditure are equal while his liabilities are more than his wealth.

On the right my personal dad's personal financial statement shows the results of a life dedicated to reducing investment and liabilities.

Why get rich rich

A review of my rich dad's financial statement shows why the rich get more wealthy.  The asset column generates more than enough income to cover expenses, with the remainder reinvesting the asset column.  The asset pillar keeps increasing and hence, income increases with it.  The result is that the rich get richer!

Why does the middle class struggle

The middle class finds itself in a state of constant financial conflict.  His primary income is his salary.  As their wages increase, so do their taxes.  Their expenses are proportionate to their increments: hence, the phrase "rat race."  They consider their home as their primary asset rather than investing in income-producing assets.

This way of treating your home as an investment, and the philosophy that a paid raisin can buy you a bigger house or cost more, is the foundation of today's debt-loyalty.  Spend increased