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In Lesson 1, I learned how different the mentality was between Rich Dad and Poor Dad. I resonated with Poor Dad and his mindset as I have always been focused on getting a better job to pay for my life and all the expenses.
Since starting my life-changing journey 5 years ago, I have had huge mental shifts in how I see myself and how I see money.
Being excited to read Lesson 2 would be an understatement.
This next chapter delved into the importance of financial literacy.
Financial literacy is the knowledge of how money works and finding ways to make it work for you.
Three decades later, I read about how Rob and Mike’s strong foundation of money management set them up for life: Rob could retire before 50 years of age, while Mike inherited Rich Dad’s business and took it from strength to strength.
Assets VS Liabilities.
Furthermore, we learn the difference between assets and liabilities. An asset generates income, whereas a liability becomes an expense and eats away at your income.
Robert included examples of the Cashflow pattern of an income statement, where an asset generates income. He also showed the Cashflow pattern of an income statement for people who own liabilities rather than assets.
Robert gets asked similar questions all the time: How can I start? What can I do to make millions like you?
His answer: If you want to be rich, spend your life building your asset column. If you want to be middle class or poor, spend your life buying liabilities that you think are assets.
One main takeaway is the notion that money does not solve all problems. Learning this over the years, I would agree.
If you don’t have the skills to manage money well, even if you make more money, you will see the same problems. Just on a bigger scale.
Robert explained the general cycle of cashflow for young, newly-weds or graduates. A couple might move in together and instead of building assets, they use their income to pay for their rising expenses.
Income goes up, but so do their financial obligations.
There begins the cycle of the “rat race”. This drove home the importance of financial literacy and why having a strong foundation of money-management is crucial to success.
Main takeaway for me personally was Robert’s view on being a homeowner.
Rob explained 3 ways a homeowner is an employee:
- You work for the company. You’re adding the the success and riches of the business owner. Even if you work harder, your earning is capped.
- You work for the government. Your income is taxed heavily depending on your income threshold. Most of the working year and income go to tax before you even see the money.
- You work for the bank. Once you’ve paid tax, you generally need to pay for your mortgage and/or credit-card debt.
Within the last few years, property has been an interesting topic of conversation between my boyfriend and me.
This view of a “homeowner being an employee” is not the same logic I’ve been exposed to. I’ve heard about cars being a liability – that makes sense. I always thought owning property would be a good way to ‘build wealth’ as so many other people have done this before me.
As I read further on, Rob mentions that his goal isn’t to stop people from buying property, but he is saying to invest wisely and choose homes that will generate enough income for you.
Wealth isn’t about all the material things you can buy, but it is measured by how long you can survive for if you stopped working at your job today.
Can I survive a month or a year if I stopped working? My answer is a resounding no.
However, it is just the beginning of my learning and this makes me very excited to see how financial literacy could change the course of my life.
After reading this chapter, I felt quite frantic to acquire income-generating assets. I forget to remind myself that this takes time.
It may take a year or three – or even longer – to find myself at this level of wealth. Patience will be essential – something I am trying to work on a lot!
As long as I am doing one task each day to get closer to my goals, I will achieve them.
Action I have taken & future plans*.
At the moment, I have begun investing in Raiz (investment app) and am planning to purchase stock in social media.
I have officially gotten approved for a second job, so I am hoping this will begin my journey to building my asset column.
It’s all so exciting!
My dream is to have assets pay for all expenses each month so any income I do receive, will be pure profit to go towards this blog, to re-invest or transferred to a personal savings account.
*My goals may change and I’m okay with that. We can always prepare for the best and worst moments in life but until it happens, or unless we take action, we won’t know how the future will be.
On to the third Lesson!
Have you read Lesson 2 yet? What did you resonate with most? What did you find challenging?
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Image by Valentina Conde.