Arjun Singh Rathore
A lot of young people are not aware of what their financial goals ideally should be. Most of them fall into the habit of trading time for money. This contract wherein one person trades their time, money, and effort for an income is called employment and is generally viewed upon favourably by the world. It is considered good to be employed. However, many youngsters make the mistake of thinking that they will remain employed for their entire life. The fact of the matter is that the average life expectancy is now increasing beyond 75 years, whereas an average individual is likely to be employed for about 30 years of their life. Hence, they have to make 100% of the money in only 40% of the time.
Everyone who is born in this world is financially dependent upon their parents. Most people did not use to make big financial decisions before they are 18 years old. However, nowadays, a lot of middle-class students take college loans in order to further their education and prepare themselves for the job market.
The domain of personal finance is exceptionally wide. There are lots of experts who have differing opinions, who coexist in the personal finance arena. 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 that he suggested were radically different from widely held beliefs amongst personal finance gurus. This is the reason why his book called “Rich Dad Poor Dad” became a controversial book. However, it also needs to be mentioned that people who read the book found some of the advice to be very valuable. This is the reason why the book ended up being a best seller for many years in a row! Robert Kiyosaki ended up harvesting the rich dad poor dad brand and created an entire series of books, board games, and other merchandise that continues to be popular to date.
The name of the book rich dad poor dad is based on the contradictory education that Robert Kiyosaki received about money from his two dads. His biological father was a government employee i.e. the poor dad. Robert Kiyosaki is of the opinion that his poor dad could not make enough money in his lifetime because he had some limiting beliefs about money. He used to believe that excessive money is a bad thing and that people have to do something unethical to earn large sums of money. Also, he believed that money could only be earned only through labor. This is the reason why he would often try to negotiate better terms on his wages.
At the same time, Robert had the fortune to spend a lot of time with his friend’s father, whom he calls the 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, being rich or being poor is a matter of mind set and hence one must alter their personal beliefs in order to become rich.
The book became wildly popular as it offered the everyday middle-class people all over the world a sneak peek into the world of wealth and how do they think about wealth.
Most of the lessons taught in the “Rich Dad Poor Dad” book series are somewhat unique. This is because the book provides a new perspective of looking at finances. In the book, Robert Kiyosaki has explained that most people spend their lives trying to increase their incomes. He calls it the “rat race” in which all people working nine to five jobs work hard and finally get nowhere. He believes that the answer lies in the spending pattern more than the incomes. People who have a rich dad mind-set invest a big chunk of money that they earn. Hence, essentially they turn cash flow into assets which in turn creates even more cash flow. People with the poor dad mind-set, on the other hand, use the increased cash flow to buy more liabilities. More liabilities can be seen in the form of a bigger car, bigger house, etc. Hence, their cash flow is depleted at the moment. Robert Kiyosaki illustrates that a person does not get rich by earning more money if they spend all of it on liabilities and expenses. Instead, a person becomes rich by investing their money in income-producing assets. This concept has been explained in other books in the form of a concept called “savings rate”. However, Robert Kiyosaki presents it in an easy to understand format.
Robert Kiyosaki also explains how different classes of people earn money. The poor dad mind-set equates money with labour. He believes that this is the reason that the earning potential becomes limited. After all, there is a limited number of hours that a person can work and hence their earning potential becomes limited. On the other hand, the earning potential of business owners is not limited by the number of hours they work. They can earn as much money as the product that they sell. Also, at the same time, investors can also earn an unlimited amount of money based on the money that they have invested. This is the reason that Robert Kiyosaki from Rich Dad Poor Dad recommends that people should try to transition from employees to business owners in their life. This will help the people maximize their earning potential.
Robert Kiyosaki is a staunch believer of the pay yourself first principle. In his book, he has dedicated an entire chapter to how wealthy people regularly apportion a portion of their income towards savings before they start spending any money. He echoes the belief of the personal-finance gurus that if savings are not made a priority it will never happen. This is the reason that he also recommends deducting a portion of the pay check before the balance money is used to pay the monthly bills.
Robert Kiyosaki wants people to aggressively invest all the money that they have saved. He wants them to create a portfolio or passive income to supplement their regular income. He has dedicated a lot of pages in his book to explain how people who do not invest are actually losing money. He explains how the savings interest rate provided by the banks is actually much less than the inflation rate. Hence, if the money is kept unutilized, it is simply losing its value. He also explains how Richard Nixon took the world off the gold standard, which means that the government can now devalue the money faster than one can earn it. His recommendations for investment are considered to be extremely risky. This is the reason why Robert Kiyosaki is criticized by personal finance gurus.
Ideally, every working person should have some knowledge about how the different types of income can be used to generate holistic wealth. However, it is surprising that many people do not focus on generating the second and third kinds of income and hence are not able to make optimum utilization of their earning potential.
The importance of financial planning at an individual and family level cannot be overstated. For years, people and even governments have been trying to inculcate this habit into the masses. However, they have found it difficult to do so. This is because 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 as well as valuable. This is the reason why many people follow his advice even though mainstream personal finance gurus have routinely discredited him.
(The author is Chief Manager IAPM JK Bank, Zonal Office Mumbai)
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