The Rich Dad Guide to Wealth and Accounting
If you are really interested in developing your financial intelligence Robert Kiyosaki’s Rich Dad, Poor Dad is a must read for you. Kiyosaki narrates his experiences growing up with an educated father who is poor while his best friend’s uneducated dad builds an empire. This book is the first of the Rich Dad series. All of these books are easy to read, personal and give great insight into why the rich get richer while the rest of us don’t.
If you want to be rich, you have to be financially literate
Being rich isn’t about how much money you make. It is about how much money you keep.
We all have that uncle whose business was booming for a while and then suddenly dropped off. Right now, I am that uncle! The problem isn’t that we didn’t offer a great product or service, the problem is usually that our financial literacy was lacking.
After my business imploded, the first book I read was Rich Dad, Poor Dad. I had read the book years before and became really angry with myself for not absorbing the lessons the first time through. A lot of my experience parallels what Kiyosaki went through with his nylon surfer wallet business. He built it up, the product was in demand, then one day the weight of the business crashed down on him.
Kiyosaki learned a lot through that process, just as I have since my own disaster. Through re-reading his experience I started to understand what happened to my own business and where I failed it.
The first place was accounting. Yesterday, I introduced some accounting basics. Unfortunately, the importance of accounting is usually overshadowed by how boring it appears. I thought it might be a good idea to see what Kiyosaki has to say on the subject as he is much better at explaining these things than I am.
Now, accounting is probably the most boring subject in the world.
We’re not off to a great start here, are we? Fortunately, he goes on…
- You must know the difference between an asset and a liability and buy assets.
- Rich people acquire assets. The poor and middle class acquire liabilities and think they are assets.
- What defines assets is not words but numbers.
- In accounting it’s not the numbers but what the numbers are telling you. It’s just like words. It’s not the words but the story the words are telling you.
- If you want to be rich, you’ve got to read and understand numbers.
Kiyosaki points out that while reading comprehension is emphasized in our schools, that is limited to just words. Numeric understanding, or financial literacy is missing. This is why most people don’t know what an asset is and why many people purchase liabilities and think they are assets!
Kiyosaki’s simple definition of an asset is anything that puts money in your pocket. A liability is anything that takes money out of your pocket.
Consider the average middle class person who owns a home. They get their paycheck and pay their bills (liabilities) like taxes, food and clothes. Then they pay their house’s bills like mortgage, homeowners insurance and upkeep. Most people don’t realize that in accounting a building is a liability. Buying a home is not a great investment because you are actually purchasing a liability!
Now I will point out that the land the home is on is an asset. And that my wife and I do have our own house that we pay for. I’m not discouraging you from buying a home. I just want you to understand what that really means.
With this system the game becomes how much do you make instead of how much are you worth. Now that you have liabilities you have to make a certain amount of money to keep those liabilities from crushing you. Fear becomes the motivator.
To avoid a life of fear and enjoy a life a freedom improve your financial literacy. Rich Dad, Poor Dad is a great place to start.