You want to get ahead, but you’re barely making ends meet. The rules aren’t working for you? You want to build financial security and wealth and stop living day-by-day. Robert Kiyosaki, one of America’s most noteworthy investors and businessmen, learned about business from two people: his father, who was a very well-educated, highly placed government employee, and his best friend’s father, who was an eighth-grade dropout and self-made millionaire. His real father suffered financial problems his entire life and died with little to show for all his long years of hard work; while his best friend’s dad became one of the richest men in Hawaii. Based on his life experiences and faced with many lessons, Kiyosaki wrote the New York Times best selling book, Rich Dad: Poor Dad.
We take a closer look at a more dynamic way to get rich with 10 crucial elements to financial freedom culled from Kiyosaki’s book:
1. Accept Full Responsibility.
“Take responsibility for your finances—or get used to taking orders for the rest of your life. You’re either a master of money or a slave to it. Your choice,” says Robert Kiyosaki. One must take personal responsibility in all matters to receive the rewards of freedom. Certainly it is easier to take responsibility when things are going your way and business is flourishing. But, when it’s going to hell in a hand basket, many people would rather shirk off the responsibility and start pointing fingers. That doesn’t work people. It might buy you some time in the moment, but in the overall picture of creating financial freedom, starting with today, fess up and take responsibility. It’s essential to look at the big picture and evaluate your financial decisions, purchases, and expenses and their potential outcomes.
2. Control Your Spending.
“The philosophy of the rich and the poor is this: the rich invest their money and spend what is left. The poor spend their money and invest what is left,” says Robert Kiyosaki. Let’s face it; we all enjoy splurging every once in a while. In an image driven world, it is very easy to get caught up in self-promotion by what people see on the outside. From Italian tailored suits to country clubs, the pressure to keep up with the Joneses (most often self-induced) is a large barrier to reaching financial freedom. It’s no wonder that over 45 million Americans are in debt in this country. Climbing out of debt is a painstaking task and if we could just start controlling our spending, making wise choices, we would have more money to invest and become accustomed to living with what we have left over.
3. Having a Budget is Crucial.
The term ‘budget’ can often have a bad connotation. The word budget can mean, “oh no, once again I overspend and now need to cut back,” “or business isn’t going well, so I need to cut back on luxury goods and services.” When Kiyosaki talks of having a budget, it’s a tool used to help consumers budget their money so that there will be more money to invest. A budget gives you a sense of accountability and a fast track to controlling your spending as we learned in the above point. Kiyosaki’s rich dad said, “Most people use their budget as a plan to become poor or middle class rather than become rich. My budget is a plan to become rich.”
Kiyosaki offers four tips on budgeting to become rich:
1. A budget surplus is an expense. One of rich dad’s most important lessons was, “You have to make a surplus an expense.”
What he meant is that most people view a surplus as an asset. They place their extra cash in the bank or they spend it on liabilities. Rather than view extra money as an asset, rich dad viewed it as an expense in the form of charity, investing, and saving. Most people want to give to charity, invest in assets, and save money, but the problem is that they view it as something to do after they’ve paid their expenses. By making these things expenses in his budget, rich dad ensured that he would make them a priority. He called it paying himself first.
2. Your expense column is a crystal ball. If you want to predict a person’s financial future, you have to look no further than the expense column.
Here’s an example of two different expense columns:
While that’s a humorous example, it’s not far from the truth. When you look at most people’s expense columns, they’re littered with payments to other people and for liabilities. In each case, expenses don’t go towards anything that will make money and only things that permanently take money out of your pocket.
Take a look at your expense column. What does it say about you?
3. Use assets to pay for liabilities. Kiyosaki suggested that his rich dad increased his assets, which increased his monthly cash flow. Rich dad used this money to purchase his luxury items and liabilities. If he wanted a nice car, he’d invest money until the asset produced the cash flow required to purchase that car. Then he had a nice car and a great asset.
4. Spend to get rich. Being able to execute on the first three tips on budgeting means building a mindset that says when the going gets tough the tough get going. Most people stop spending on charity, investing, and saving when times get tough. The rich, however, figure out ways to make more money by spending more money on assets, even when times are tough.
By pushing through those hard times, you develop a mentality that will enable you to make more money no matter what the circumstances. And that will make you richer than you ever imagined.
4. Pay Yourself First.
One should set aside at least 10% of the monthly income for savings. With the remaining money, then you should pay your bills. Get in the habit of paying yourself first and then work around all the other expenses.
5. Never Have Any Debt.
Rich dad went on to say, “We’re all in debt to someone else. The problems occur when the debt gets out of balance. Unfortunately, the poor people of this world have been run over so hard by the game that they often can’t get any deeper into debt. The same is true for poor countries. If you have too much debt, the world takes everything you have, including your time, work, home, life, confidence, and even your dignity.”
The first step to financial freedom is to really understand how money and debt really works. The only thing that comes out of debt is financial insecurity if you don’t know how debt works.
6. Establish an Emergency Fund.
Set aside money for life’s unexpected twist and turns. How much should you set aside? Many financial advisors recommend keeping six months worth of monthly expenses. To find out how much this is, list down your living expenses (rent, food, transportation costs and utilities), add them up and then multiply the total by six months. This should be the total amount of your emergency fund. For example, if you spend $10,000 monthly then you should have $60,000 in your emergency fund.
7. Never Stop Learning.
Kiyosaki wrote on his Facebook page on Jan. 29, “The moment you stop learning you’re dying.” You should always make it a priority to keep on top of financial matters. Trade you Sports Illustrated swimsuit issue for Money Magazine and set up Google alerts on your device for financial news alerts and trends. Turn off the TV and put your nose in some good financial books.
8. Have Clear and Concise Financial Goals.
Financial goals need to be firmly set in your mind when planning your financial future. Regardless if you are an investor or building your own company, your goals need to be clear and concise.
9. Network Marketing.
Kiyosaki recommends getting involved in Network Marketing. Reason number one is to help yourself. Reason number two is to help others. Today network marketing is recognized by many experts and accomplished business people as one of the fastest growing business models in the world. Network marketing companies are currently doing $110 billion/year in sales globally. The reason that network marketing keeps growing is it is a true win-win situation. The company gets an amazing level of market penetration and a customer awareness that would be difficult to get with traditional marketing. Building a residual income with Network Marketing is a smart choice because of two factors. Typically, only a small amount of cash is required to get started. Secondly, overhead costs are low.
10. Simplify Your Life. “It’s not what you say out of your mouth that determines your life, it’s what you whisper to yourself that has the most power,” says Robert T. Kiyosaki. The key to financial freedom is keeping it simple.
It may sound cliché, but stop working for money and let your money work for you. Financial freedom and a new life are waiting; only you have the power to unlock the door.
Matthew Toren is an Award Winning Author, Serial Entrepreneur, and Investor. He Co-Founded YoungEntrepreneur.com along with his brother Adam. Matthew is co-author of the newly released book: Small Business, Big Vision: “Lessons on How to Dominate Your Market from Self-Made Entrepreneurs Who Did it Right” and also co-author of Kidpreneurs.
Follow Matthew on Twitter: @matthewtoren