Lesson-2: - why teach financial literacy?
People care so much about making money that they forget to receive an education that teaches them how to keep it. It's never about how much money you make as much as it's about how much money you keep. A lot of people won millions of dollars in the lottery. After a few years, they were back to exactly where they started, if not worse.A lot of people ask about how they should get started; the answer is pretty disappointing. The answer is to be financially literate. When you want to build the Empire State Building, you'd have to dig a deep hole and pour a strong foundation. When you want to build a small house, pouring a six-inch slab of concrete is all you have to do. Unfortunately, most people build an Empire State Building on a six-inch slab of concrete, and it crumbles.
"Poor dad" wanted Robert to read books and study, while "rich dad" wanted him to be financially literate. The school system teaches people how to build homes with no foundation; while reading books and studying is still important, it's not enough.
Rule no.1: Learn the difference
between liabilities and assets,
and buy assets.
This may sound simple, but it's the only rule that you need to become rich. The poor and the middle class buy liabilities that they believe are assets, while the rich buy real assets."Rich dad" believed in a principle called K.I.S.S. Keep It Simple. Stupid. He kept it simple for our author and his friend, Mike; that's what made them build a strong foundation. The simplicity of the teaching, there's a reason why everyone is not rich, is simple. The simplicity of it is why no one thinks about it. People think they know the difference between "literacy" and "financial literacy." Most people only understand being literate. Rich dad" used to explain the difference between assets and liabilities with simple charts.
The cashflow pattern of assets is
as follows:
Income statement
The income statement is sometimes known as the "profit and loss statement. Here, Income means money that comes in your pocket, and expense means money that goes out of your pocket.
Balance sheet
The balance sheet lists and compares someone's assets against their liabilities.
Assets are things that put money into your pockets without even having to work for it. For example, if you buy a house and rent it to others, that rent could pay for the house loan and still put money in your pocket. At the same time, liabilities are things that take money away from you. For example, buying a house and living in it without renting it to anyone. You're only spending money without gaining anything. To be rich, buy assets; to be poor, buy liabilities. The rich have more money because they understand what assets are. The poor have less money because there is something in that principle that they don't quite understand. That's why it's so important to be financially literate.
When looking at the income of families who work really hard, their cash flow history usually shows that they work hard and earn good money. When it is spent, however, the money is spent on several liabilities, and there is nothing left over to be put into gaining assets. Another chart, "rich dad," showed the boys showed them the cash flow of the middle class.
Income statement
Balance sheet
In this, the middle class has nothing in their asset's column. and the only thing that increases their income is their salary. However, when we look at their expense category, the middle class loses most of their money to rent or a mortgage, taxes, and everyday expenses,That's how the middle-class spend their money, and if they continue to do so. they'll forever stay middle class. They may even have less money in the future because they're spending their money on liabilities such as a mortgage, car loans, house loans, and credit card fees.
Poor people, on the other hand, do not buy liabilities, but they don't buy assets either, they only earn money from their salary, and they spend it on daily living expenses. For example, a man in the poor class makes a thousand dollars; he pays 300 dollars for his small house rent, 200 dollars for transportation, 200 dollars as taxes, and 200 dollars for food and clothes. After paying for all of this, they are left with nothing. Sometimes they may have to borrow money, which puts them in more dept.
The rich use their assets to generate money without having to work. For example, the rich buy a house with a loan and then rent it to other people. On a small scale, they pay 1 dollar for the loan instalment per month, and then they have someone in the house that paystwo dollars for rent. This way, when they get the money from the rent, they can pay the 1 dollar for the loan instalment and still make a profit. They can make this money without having to work a 40-hour week The real difference between "poor dad" and "rich dad" was their mentality, How they decided to handle their money was different and set them on different financial paths.
Back in the 1960s, when you asked kids what they wanted to be, they wanted to be doctors or have good grades. Everyone thought that getting good grades meant that they would make a lot of money. However, when these kids grow up and become doctors, most will struggle financially because they've always thought that more money could solve their problems.Today, kids want to be famous athletes, CEOS, movie stars, or rock stars; they know that academic success and getting good grades is not the only thing that can make them successful.The financial nightmare is most common with newly married couples.They start their life in a small home. They think their salaries have doubled because their money is joined together. They save for a bigger house and focus more on their careers.
Their incomes begin to increase, and as a result, their spending goes up as well. When you make more money without being financially literate, you spend more.When the new couple has saved enough money to buy a new house, they think they have gotten richer.The truth is, they have added liability to their cashflow.They have to pay property tax, they need new furniture, and maybe a new car is next on the list. One day they will wake up and find themselves trapped in the Rat race People come to Robert and ask him how they can make more money. The problem is they think more money will solve the problems they are having.
Their problem isn't lack of money, their biggest problem is they are not handling the money they have properly. There's a saying that describes this situation, when you find yourself in a deep hole, stop digging.'"According to psychiatrists, people fear rejection; they are afraid to be different or of being judged. As a result, people tend to go with the flow. They take the path of least resistance, least judgment, and they want the same things their neighbours have. They think they need to buy a big house, or a nice car, or a boat because everyone else has them.
"Rich Dad," said the Japanese were aware of three powers, the sword, the jewel, and the mirror. The sword resembles strength, the jewel means money, and the mirror mimics self-knowledge, which is the greatest power of them all. When you have the power of self-knowledge, you're able to look yourself in the mirror and ask yourself if what you're doing is the right thing to do. The poor and the middle-class are controlled by money and don't become rich
At the age of 16, Robert and Mike used to spend hours with "rich dad" at meetings that he held with accountants, managers, investors, and employees." Rich Dad' the uneducated man who left school when he was 13 years old, was conducting a meeting and ordering other educated people around. Robert and Mike loved going to these meetings. They couldn't bear school, they saw how school discouraged creativity, how they were molding students into a certain shape that's acceptable to society. The school encouraged kids that being successful and rich meant getting good grades; Robert and Mike knew this was wrong
Robert encourages his readers to buy an asset instead of buying a house. Make that asset work for you and generate enough money to be able to pay for a house. There's a reason why the rich get richer and why the middle class continues to struggle. The rich buy assets that generate more than enough money to pay for their expenses. The rest of their money is invested again on more assets that will generate more money. The middle class relies mainly on their salary to pay for their expenses. As their salary gets bigger, they are taxed more, and they acquire more expenses, forever stuck in the Rat race.
