In his book “Rich Dad’s Rich Dad’s Conspiracy of the Rich: The 8 New Rules of Money: 8 New Rules of Money,” Richard Kiyosaki lays the foundation for the average person to take control of their financial future. Below are the 8 rules as laid out by Kiyosaki:
Rule #1 – Money is Knowledge
You don’t have to start out with a lot of money to make a lot of money — what you need is to educate yourself about money and then figure out a strategy that works for you. You are not going to turn your savings into a fortune by taking everything you have and piling it into a couple of stock recommendations you got after watching Jim Cramer or any number of other financial experts you see on television or read on Web site that guarantees you that its stock picks will make you a fortune. Take the time to do the research and figure out a strategy that will work for you.
Rule #2 – Learn How to use Debt
Good debt will generate income, while bad debt only costs you. Taking on a mortgage to pay for your home is an example of bad debt, but that’s not to say that you shouldn’t use it to purchase a home, which is a necessity. Good debt puts money in your pocket. An example of good debt is acquiring a house which you plan to rent. You then use that rental money as leverage to pay for the rental property and also to help pay down your mortgage and other expenses.
Rule #3 – Learn How to Control Cash Flow
The CashFlow Quadrant explains that there are four different types of people: employees, specialists, entrepreneurs, and investors. The majority of us, employees and specialists, are being taxed the most, while entrepreneurs and investors are being taxed the least as a result of taking the most risk to help keep the economy moving in a positive direction.
Entrepreneurs and investors typically earn passive income, which flows in on a regular basis with little-to-no effort. Passive income can be generated by rental property, dividends, or profits from a business that you establish. So, in an effort to keep more of our hard-earned money, we need to shift our focus from being employees and specialists to being entrepreneurs and investors.
Rule #4 – Prepare for the Bad Times and You Will Only Know Good Times
With the exception of a few hiccups, the United States has been in a boom cycle for the last 30 years, which means that both the Baby Boomer generation and their children really have no idea what it’s like to live through an actual, extended depression.
Kiyosaki suggests: shifting your position in the CashFlow Quadrant from an employee or a specialists to an entrepreneur or investor (ie, Rule #3), invest for cash flow as opposed to capital gains, and investing for inflation. While this may mean you are not generating a maximum income, these will help shield you from some effects of a recession.
Rule #5 – The Need for Speed
The goal is to make more money than the banks are printing it. Essentially, we need to find ways to maximize our returns over the course of our day. You do this when you take on good debt. Over the course of time you can use the cash flow you are now generating from what was once good debt and is now a profitable venture to generate more good debt, and so on.
This compounding of money will eventually lead to an extremely high cash flow that will help you prepare for the bad times in Rule #4. You could also think of this as re-investing dividends in a stable company.
Rule #6 – Learn the Language of Money
You need to learn what the common terms and phrases you see on television and read in newspapers, magazines, and on Web sites means. Any attempt to build your wealth without understanding these terms is gambling.
Rule #7 – Life is a Team Sport. Choose Your Team Carefully
Whether you are getting your personal finances on track or your business finances on track, you need to surround yourself with reliable, smart people. If you are running a small business, you would want to surround yourself with good lawyers, accountants, marketing people, and so on. This will help you build a house of stone that won’t fall down that won’t wall down at the first sign of trouble, as opposed to a house of cards.
Rule #8 – Since Money is Becoming Worth Less, Learn to Print Your Own
The Federal Reserve is printing money at a blistering pace, and the only way to fight either inflation or deflation is to set it up so that you have a constant stream of money flowing into your pocket. There are four ways to keep money coming in as opposed to going out: start a business; invest in real estate; invest in stocks, bonds, or mutual funds; and invest in commodities. Money tied up in these assets will not be taxed as highly as would traditional earnings.
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