Invest first, get a job last
Lately I’ve been re-reading the Rich Dad Poor Dad series of books by Robert Kiyosaki. I read them a good seven years ago, so it’s been really refreshing to go through Rich Dad’s principals of investing again, especially as my mindset has been completely re-written from seven years ago when I was just starting out. Even if you don’t call yourself a property investor (yet!), I really recommend the first two books at a minimum – Rich Dad Poor Dad and The Cashflow Quadrant. It talks about the importance of understanding financial statements and what the differences between Employees, Self-employees, Business owners and Investors are.
In the third book, Rich Dad’s Guide to Investing, he talks about some really fundamental points that totally should have made it into the first book, and I wanted to just outline how I have interpreted them here.
1. You say being an employee is risky but I love my job!
Being an employee is risky. It’s risky because you aren’t guaranteed a job until you retire and then a retirement plan till you die. Back in the industrial age people only used to live 1-2 years after they retired! That’s just not the case anymore. Companies are constantly downsizing and restructuring and there is very little security left in jobs, even if you’ve been a loyal employee for ten + years. Not only that, but most people, if they lost their job, would only have enough savings to last a couple of months before they are unable to pay their bills.
So, being an employee or a self-employee (because as a self-employee if you stop working the money stops coming too) is risky, but ONLY if you are not also investing in assets and cashflow. Most people think of being an employee FIRST and an investor LAST. You should actually think about being an investor FIRST and an employee LAST.
2. Learn investing FIRST and be an employee LAST
The best way the rich can raise their children is to teach them about investing FIRST. Allow them to make small investments from a young age, under supervision to gain that experience. Then, when they grow up, it doesn’t matter if they don’t want to take over the business, whether they want to become a doctor, a poet or a train driver. They will have the foundation of investing and secrets of the rich and be free forever to choose whatever they want in life.
What better way to learn than from the rich? If you invest in yourself by learning to invest, you can pass on some valuable lessons to your children, because it’s just not safe or smart to teach your children these days to “go to school, get good grades and get a great job that gives you good benefits for life.”
3. Your home is not an asset.
The most important lesson and theme throughout Kiyosaki’s books is this one.
- The definition of an asset is something that puts money in your pocket.
- The definition of liability is something that takes money from your pocket.
- A financial statement is a snapshot in time (it does not take future income or the sale of a property into consideration).
With that logic, how on earth could your own home be an asset? Even if you don’t have a mortgage, your home still takes money out of your pocket through taxes and energy bills and maintenance costs. The REAL in real estate does not mean real property. It means Royal in spanish, because your land and your property belongs to the government. Stop paying your property taxes and rates and see for yourself.
When banks ask you to put your home in the asset column when filling out loan forms, they aren’t exactly lying. They just aren’t telling you whose asset your home is. If you have a mortgage with the bank, it shows up on your financial statement as a liability. What most people don’t think about is that it takes at least two financial statements to see the entire picture. If your home mortgage shows up in your liabilities column, then your home then shows up in the bank’s asset column.