Arjun Singh Rathore
Many young people are unaware of what their financial goals should ideally be. Most of them get into the habit of trading time for money. This contract in which a person exchanges his time, money and effort for income is called employment and is generally looked upon favorably by the world. It is considered good to be employed. However, many young people make the mistake of thinking that they will remain employed for life. The fact is that the average life expectancy now exceeds 75 years, while an average individual is likely to be employed for about 30 years of their life. Therefore, they need to make 100% of the money in just 40% of the time.
Everyone born into this world is financially dependent on their parents. Most people weren’t used to making big financial decisions until they were 18. However, nowadays many middle-class students take out college loans in order to further their education and prepare for the job market.
The field of personal finance is exceptionally broad. There are many experts with differing opinions, which co-exist in the field of personal finance. However, in the early 2000s, a relatively unknown author by the name of Robert Kiyosaki started making waves in this area. Some of the ideas he suggested were radically different from widely held beliefs among personal finance gurus. This is the reason why his book titled “Rich Dad Poor Dad” has become a controversial book. However, it should also be mentioned that people who have read the book have found some of the advice very valuable. This is the reason why the book ended up being a bestseller for many years in a row! Robert Kiyosaki eventually reaped the rich dad poor dad brand and created a whole host of books, board games, and other products that continue to be popular to this day.
The name of the book rich dad poor dad is based on the conflicting education that Robert Kiyosaki received about money from his two fathers. His biological father was a government employee, that is, poor dad. Robert Kiyosaki opines that his poor father couldn’t make enough money while he was alive because he had limiting beliefs about money. He used to believe that excessive money is a bad thing and people have to do something unethical to make big money. Moreover, he believed that money could only be earned through hard work. This is the reason why he often tried to negotiate better terms on his salary.
At the same time, Robert was lucky enough to spend a lot of time with his friend’s father, whom he calls rich dad in his book. Because Robert spent time with two people from two different social strata, he was able to compare and contrast their thoughts. According to Robert Kiyosaki, to be rich or to be poor is a matter of state of mind and therefore one must change his personal beliefs to become rich.
The book became hugely popular because it offered middle-class people around the world insight into the world of wealth and how they think about wealth.
Many of the lessons taught in the “Rich Dad Poor Dad” book series are somewhat unique. This is because the book offers a fresh perspective on finances. In the book, Robert Kiyosaki explained that most people spend their lives trying to increase their income. He calls it the “rat race” in which everyone with nine to five jobs works hard and ends up getting nowhere. He thinks the answer lies more in the structure of spending than income. People with a rich dad mentality invest a lot of the money they earn. Therefore, they essentially turn cash flow into assets, which in turn creates even more cash flow. People with a poor dad mindset, on the other hand, use increased cash flow to buy more debt. More passives can be seen in the form of a bigger car, bigger house, etc. Therefore, their cash is depleted at the moment. Robert Kiyosaki illustrates that a person does not get rich by making more money if he spends it all on debts and expenses. Instead, a person becomes wealthy by investing their money in income-generating assets. This concept has been explained in other books as a concept called the “savings rate”. However, Robert Kiyosaki presents it in an easy to understand format.
Robert Kiyosaki also explains how different categories of people make money. The poor dad mindset equates money with work. He thinks this is why the earning potential becomes limited. After all, the number of hours a person can work is limited and therefore their earning potential becomes limited. On the other hand, the earning potential of business owners is not limited by the number of hours worked. They can make as much money as the product they sell. Moreover, at the same time, investors can also earn an unlimited amount of money based on the money they have invested. That’s why Rich Dad Poor Dad’s Robert Kiyosaki recommends people try to make the transition from employees to business owners in their lives. This will help people maximize their earning potential.
Robert Kiyosaki is a strong believer in the pay-it-yourself principle. In his book, he devoted an entire chapter to how wealthy people regularly put a portion of their income into savings before they start spending money. It echoes the belief of personal finance gurus that if saving isn’t a priority, it’ll never happen. This is why he also recommends deducting a portion of the paycheck before the balance money is used to pay monthly bills.
Robert Kiyosaki wants people to aggressively invest all the money they have saved. He wants them to create a portfolio or passive income to supplement their regular income. He devoted many pages of his book to explaining how people who don’t invest actually lose money. He explains how the savings interest rate provided by banks is actually much lower than the rate of inflation. Therefore, if the money is not used, it simply loses its value. It also explains how Richard Nixon took the world off the gold standard, which means the government can now devalue money faster than it can be earned. Its investment recommendations are considered extremely risky. This is the reason why Robert Kiyosaki is criticized by personal finance gurus.
Ideally, every working person should have knowledge of how different types of income can be used to generate overall wealth. However, it is surprising that many people do not focus on generating the second and third types of income and therefore are not able to optimally use their earning potential.
The importance of financial planning at the individual and family level cannot be overstated. For years, people and even governments have tried to instill this habit in the masses. However, they struggled to do so. Indeed, there are several misconceptions related to personal finance, which are common among people.
The bottom line is that financial planning is a complex discipline that includes several other disciplines like retirement planning, tax planning, asset acquisitions, etc. Some of the lessons provided by Robert Kiyosaki are unique and valuable. This is why many people follow his advice, even though the great personal finance gurus have regularly discredited him.
(The author is Chief Manager IAPM JK Bank, Zonal Office Mumbai)