Came across this book a couple of years ago and it makes me feel that it really should be a part of every schools curriculum. Far more essential than the mostly useless material we are taught to regurgitate to get good grades. The core concept is to be more entrepreneurial than job oriented and be geared towards financial literacy. Here is a summary of key learnings (with some thought provoking ones in bold)
Chapter 1 - The rich dont work for money
- The main premise of the book is that working a job is unlikely to lead to wealth generation. You need to find ways to invest in assets that generate income for you without you putting in time for it.
- In most cases, having a job means getting a salary which affords us a certain level of lifestyle. As the salary increases, so does our lifestyle and we remain stuck in that rat race.
- We usually let the fear of risk and the greed for making money impair our decision making.
- "The poor and middle class work for money, the rich have money work for them"
- "A job is a short-term solution to a long-term problem.
Chapter 2 - Why teach financial literacy- Regardless of where your income comes from, its not about how much money you make, rather how much of it you keep. The way to do so, is by being financially literate and the main rule for that is to buy assets and not liabilities.
- The basic definition is that an asset adds to your income, puts money in your pocket, whereas a liability takes money out of your pocket.
The 2 images below indicate how the cash flow varies between the rich, the middle class and the poor with an emphasis on how the rich focus on having more assets and limited liabilities.
A house should be a considered a liability since it doesnt bring in an income.
When your assets generate enough income to cover your expenses, you are wealthy and if they exceed the expenses and the balance is re-invested into assets to generate even more income, the rich get richer.
Chapter 3 - Mind your Business- Need to differentiate between your job/profession and your business. Your job is actually part of someones else's business. Doesnt mean you have to start a company, your business is having assets that provide you income.
- Minding your business means to keep your day job and buy assets and not liabilities.
- Keep expenses low, reduce liabilities and diligently build a base of solid assets.
- Asset categories include businesses that dont require your presence, Stocks, Bonds, Income generating real estate, royalties, and anything else that has value, produces income or appreciates and has a ready market.
- Its important to buy assets that you love and have a passion for.
- "An important distinction is that rich people buy luxories last, others buy luxories first" Buy luxory items when your assets generate enough income to buy them.
Chapter 4 - The history of taxes and the power of corporations- Taxes were originally a temporary item on rich people at times of war. In 1874 England and in 1913 the US made them a regular thing.
- Governments growing larger means a need for more tax. Originally meant for the rich, they soon learned how to avoid them and now the middle class pays most of the tax.
- Financial IQ has 4 elements
- Accounting (financial literacy or understanding how to read numbers)
- Investing (the science and strategies of money making money)
- Understanding markets ( the science of supply and demand)
- Law (Tax advantages and protections)
- The use of corporations and their legal structure helped the rich avoid taxes. Corporations pay taxes before being taxed, individuals pay taxes before expenses. Travel, car payments, insurance etc can be paid pre-tax.
- Wealthy individuals also have legal protection, through their corporation, they own nothing yet control everything
Chapter 5 - The rich invent money- Financial genius requires technical knowledge as well as courage. Take risks, be bold, let your genius convert that fear into power and brilliance, advice that will terrify some, because so many play it safe when it comes to money. The rich see the opportunity and go for it, others stay afraid.
- Financial intelligence is just having more options, figuring out ways to create opportunities. Your mind, not money, is the greatest asset. Train it.
- Plant seeds in your asset column, some will grow, some wont. Three skills to be a good investor. 1) Look for opportunities others missed 2) Raise money 3) Hire people smarter than you.
- There is always risk, learn to manage it rather than avoid it.
Chapter 6 - Work to learn, dont work for money- There are talented people all around us who struggle financially. When it comes to money, most people just focus on working hard. Adding an extra skill could lead to exponential wealth growth.
- Build as many skills as you can, specializing in one corners you into a single role. Having a more broad set of skills opens you up to more options. JOB - Just Over Broke.
- Skills needed for management success 1) Management of Cash flow 2) Management of systems 3) Management of people. and the most important specialized skills is sales and marketing.
- Rather than "recieve and you shall give" follow the mantra "give and you shall receive"
Chapter 7 - Overcoming obstacles - Managing fear- Five major issues financially literate people face
- Overcoming Fear
- Start investment early (20 is far far better than 30) otherwise have to go big.
- Pain of losing money should be less than joy of being rich.
- Failure inspires winners and defeats losers.
- Put a lot of eggs in a few baskets. Dont diversify your portfolio too much
- Stacking you asset column is low aptitude, but building it needs a positive attitude.
- Cynicism
- You should not be overly skeptical and worry about all the what-ifs, instead learn to take some risks.
- Cynics criticize (blinds you) and winners analyze (opens eyes).
- Laziness
- "I cant afford it" shuts down opportunities, "how can i afford it" opens up options.
- To overcome laziness, you have to be a little greedy for your goals and targets
- Bad habits
- Need to have positive habits, like saving/investment before paying off bills/expenses when you get your salary. Encourages you to earn more if expenses are not being meant and the investment help continuously build your asset/income columns.
- Arrogance
- When you think you know it all, you stop getting advice and end up losing money.
Chapter 8 - Getting started- It is easy to find a job, and thats what society tell us to do, but thats not the way to wealth. Instead awaken your financial genius through these 10 steps
- Find a reason - greater than reality - the power of spirit - You need to know your reason for having wealth. What will it get you. Travel young, financial freedom etc. Without this the other steps will be very hard to do.
- Make daily choices - The power of choice - Make everyday choice towards being rich. Invest in learning, listen and learn from others.
- Choose friends carefully - The power of association - Keep all types of friends and learn from them, what to do and what not to do. Smart investors dont time the market. Its about information and when you buy.
- Master a formula and learn a new one - The power of learning quickly - Masses have a formula to work, spend and keep working. Instead one should continue learning new formulae to adapt to the environment.
- Put yourself first - The power of self-discipline - Its hard to do but a major reason of becoming rich is to pay yourself before you pay your expenses, allowing yourself to invest.
- Pay your broker well - The power of good advice - Dont try to get a cheap broker or dealer. The more expensive one will give you better value.
- Be the indian giver - The power of getting something in return - Make sure to get your investment back as soon as you can, so you can invest that elsewhere while you continue to gain profits from the original investment.
- Use assets to buy luxories - The power of focus - Use the money from your assets and not your income to buy luxorious items.
- Choose heroes - the power of myth - Imagine how your heroes would act and choose in your situation and learn to act like that all the time.
- The power of giving - You dont receive unless you guve. You need to be ready to give away to get something back.
Chapter 9 - More to dos- Take a break to see what works and what doesnt
- Look for new idea to spur you into action
- Find someone who has done what you want to do and learn from them
- Take classes, read and attend seminars to learn
- Make lots of offers (even low-ball offers), someone will say yes
- Shop for bargains in all markets, e.g. when the economy is down
- All big companies started off as small companies
- Action always beats inaction. Act now.
- Three types of income.
- Earned income - Based on time put in. Taxed highest
- Passive income - Usually real estate based
- Portfolio income - Income from stocks.
- Govt taxes heaviest, the income you work hard for and taxes least the income that comes from the income your money works hard for.
- All of us were given 2 gifts, our minds and our time. Its our choice how we use both of them. Everyday, we choose to use them to make decisions that result us in being rich or poor.
As the new year 2022 begins, i hope to use some of the suggestions made in this book. Lets see how they impact my life in times to come.
