Main Lesson of the book: Understanding how to invest and what to look for.
This was without a doubt the perfect follow up to Rich Dad Poor Dad as it goes into depth on how you can improve your financial IQ. See me review of Rich Dad Poor Dad here. At this point I am actually a few books in on how to improve my financial IQ and how I am meant to get rich. This book actually shows me possible methods on how I may increase my assets. While making sure that I also understand the underlying mind state of why I should increase my financial IQ along with my wealth. Because wealth and money are fleeting concepts but your IQ is the true constant. So if you were to lose everything, you can still make it back because you still have your IQ. That concept in itself made this book worth reading.
Rich Dad’s Increase Your Financial IQ makes sure to hit certain key points of how one should go about investing. One of the main things that really jumped out to me was the point the book made regarding Control and Leverage. Now, this book drops a lot of terms and numbers at a pretty quick pace which means that those who have trouble with math might have to reread certain chapters a few times. I took my time and made sure I followed along at a pace that suited my own learning curve. Control and Leverage sound pretty simple but when it comes to investing and buying assets these two seem to be key elements in increasing your wealth. Stocks are assets one can buy and from that point on you will have to wait and see what will happen to the stock. Mutual Funds from how the book explained it to me, they are: “a hodgepodge of good and bad stocks.” But because they supposedly rise pretty consistently, they are deemed safe and a good way to diversify. But it is still a stock, and thus you will still have to wait and see what will happen.
Mr. Kiyosaki has made clear on several occasions not only in this book but in Rich Dad Poor Dad as well that he prefers real estate investments. But in this book, he explains why in great detail and the main points that stuck were Control and Leverage. With real estate you own the building, you own the asset and the asset can actually create cashflow. Here is where control comes when owning a building. People pay rent for their apartment and the rent is often based on the quality of the housing provided and the location of the building. If I were to own a building, I can repaint it to make it look nicer. Add in extra facilities such as washers and dryers to enhance the living experience and with that I would be well within my right to up the rent and thus increase my cashflow. That is what Mr. Kiyosaki means by control. By buying a stock you buy an asset but you lack control and thus remain in a certain amount of uncertainty, but with real estate you can exert control to increase or decrease the value of the asset. I know that the only thing I can control in life are my own actions. So if I with my actions can control my assets it is without a doubt the most logical route to take.
Leverage is the concept of using other people’s money to fund your purchases. Doing more with less and maximizing what you do own. If I buy stocks the bank will not help me, but if I were to buy a house the bank will help me pay for it. In the book Mr. Kiyosaki states that in his case the bank actually put up 80% of his purchase. Which means that he put in 1 dollar to buy something worth 5 dollars. Which gives him a leverage of 1:4.
Those two concepts really opened my eyes to the restrictions and possibilities that lay in each investment I could make. Another great point he further explained was the concept of Pay yourself first. I have to admit that I am guilty of always trying to pay my bills as soon as they come in to avoid the headache of having to remember it or not having enough money by the end of the month. But in the book Mr. Kiyosaki opens up about the process he went through as he paid himself first. And regardless of how much he was behind in paying his bills, he said that he would always find a way to pay them in the end. He and his wife would do odd jobs or take on extra projects to pay the bills they could have paid from the beginning had they paid themselves last. But thanks to that they were able to increase their assets to the point where they could retire early. And they improved their financial IQ to the point where if they lost all their money, they could just do it again. That is a life lesson that will stay with me. Don’t work harder, work smarter while investing in yourself. Valid advice if I ever heard it.
The chapter that really enlightened me was actually chapter 1. In chapter 1 he lays down the foundation for everything that comes after and he builds the foundation on the understanding he embedded in Rich Dad Poor Dad. In 1971, President Nixon took America off the Gold Standard. Which means that the US dollar would no longer be backed by gold but instead be backed by the BELIEF of the people who use it. Think about that for a second, our money is literally based on nothing other than what you or I think. The moment Nixon changed the concept of money, the dollar became a currency. And a currency is based on the concept of a current, which means that it has to keep moving. It has to keep being believed in. The problem with this is that historically every currency eventually stops moving and dies. If history truly repeats itself it means eventually the value of every currency will become 0. That is what the book states and I am inclined to believe it because a quick Google search revealed a lot of old currencies that are no longer used in this world. And because currency is now the main form used in buying and selling instead of money the rules of how to make and keep it have changed. There is such a thing as good debt and bad debt. Good debt is one that creates leverage and bad debt is one where you pay out of your own pocket. Another big change is the fact that companies no longer fully take care of their employees pension. Instead they only help fund it.
The book goes into more detail about how Nixon’s decision changed the world and how business is conducted but it is very clear in that the old way of doing things should no longer apply and yet they do. I would be remiss if I didn’t mention the 5 points of financial intelligence stated in the book as crucial points one needs to make sure they become rich.
Financial IQ #1: Making more money.
Financial IQ #2: Protecting your money.
Financial IQ #3: Budgeting your money.
Financial IQ #4: Leveraging your money.
Financial IQ #5: Improving your financial information.
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