Robert Kiyosaki Plays by 8 Very Different Rules of Wealth-Building
According to Robert Kiyosaki, renowned financial educator, entrepreneur and bestselling author of "Rich Dad, Poor Dad," anyone can acquire wealth by adhering to some key principles.
His "Golden Rules" for building wealth are grounded in a tactical understanding of money management, tax benefits, risk calculation and other key financial concepts. Together, they provide an alternative route to wealth that challenges conventional wisdom.
Keep reading for an exploration of his essential wealth-building rules to take control of your financial journey and move toward your wealth-building goals.
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Rule No. 1: Create Assets That Generate Revenue
You often hear the phrase, "It takes money to make money." Investments in real estate, large-scale stock or commodity purchases and other forms of traditional investing require substantial sums of money.
Kiyosaki uses the hypothetical example of writing a book to illustrate a scalable, revenue-generating asset. The idea is to make something of value that can be monetized on multiple fronts.
"I write a book today," Kiyosaki says, "and sell 50 licenses in 50 different languages and I can collect royalties for years."
In business, this is called a "long tail" concept, where the rate of sale of a product is less important than the length of time over which a product will sell.
Rule No. 2: Reinvest Profits Made on Created Assets
However, you don't get rich on the humble proceeds of your initial success. Sticking with the book example, Kiyosaki says, "Let's say I make $10 on a book. I'll borrow $50 to invest in real estate."
Borrowing five times the value of your initial asset and investing it in real estate is a calculated risk. Kiyosaki says many would question this method, citing the traditional wisdom of investing carefully, primarily in long-term stock market portfolios.
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But he asks, "Why would I do that when I can make my own assets?"
The lesson here is to not blindly follow conventional investment routes when you have the potential to create resources that have the ability to yield better rewards, which you can then leverage into additional wealth-building assets.
Rule No. 3: Be Aware of Tax Liabilities and Focus More on Passive Income
Portfolio income, also known as capital gains, is one of the key conventional avenues for building wealth, but profits from these kinds of investments are taxable. This comes into play when you sell an asset for more than you bought it.
For instance, if you purchase a house for $400,000 and sell it for $500,000, the extra $100,000 is your capital gain. Capital gains are taxed significantly.
Instead, Kiyosaki suggests opting for passive income choices that require little to no effort to maintain and won't incur the same sort of tax penalties. These can include income from rental properties, limited partnerships or other enterprises in which you're not actively involved. The tax implications for such income are different and often more advantageous, which is why savvy investors often aim for passive income sources.
Rule No. 4: Avoid 'Ordinary Income'
There's a common misconception that working in a high-paying field with plenty of job demand, such as IT or software development, is a safe, reliable path to wealth. However, this approach often results in paying higher taxes and working harder while not getting ahead financially.
Those who opt for the traditional employment path are "working for ordinary income, the highest-taxed income in the world," Kiyosaki says. "I don't work for ordinary income. I don't want a paycheck."
Rule No. 5: Take Advantage of Tax Credits
While some tax laws, such as those placed on capital gains, can seem like punishment for success, they're essentially incentives to encourage specific activities.
"If I donate money to the food bank, I get a tax credit," Kiyosaki notes. "I don't donate money to the food bank? No tax break."
Kiyosaki calls these kinds of tax credits incentives for philanthropy and it isn't limited to options like charitable donations. They also apply to things like owning multiple rental properties.
"I have 7,000 rental apartments and I get a tax break. You know why? Because I'm providing housing."
Rule No. 6: Know When To Hire Financial Experts
Managing your income types and taxes can be an intricate and demanding task because of the complexity of tax rules and regulations. That's why it's crucial to assemble a team of professionals, each skilled in their respective fields.
This team, composed of professionals such as accountants, lawyers and financial advisors, equips you with the knowledge and guidance essential for wealth building. Each member's distinct skills and combined effort enable a holistic view, facilitating careful financial planning and execution.
Navigating the financial world is more than just understanding financial statements. It's about comprehending the implications of each fiscal move and judiciously strategizing your next steps. A competent, collaborative team empowers you to make informed and strategic decisions that drive wealth creation.
Rule No. 7: Understand the Power of 'Good' Debt
Kiyosaki has a more nuanced perspective on debt than many investors. Unlike the traditional view, which sees all debt as counterproductive and to be avoided, Kiyosaki says not all debt is bad. He defines "good debt" as a tool that can be used strategically to increase wealth. Examples could be taking out loans to acquire income-generating assets, like buying real estate, starting a business or investing in fruitful ventures.
This approach refines the concept of debt not as a liability but as a steppingstone to financial growth. Options like investing capital in different enterprises can also yield significant returns in the long run, turning your initial debt into a profitable ongoing venture. Kiyosaki's take emphasizes that if harnessed correctly, debt can become an investment and serve as a significant catalyst for wealth creation.
Rule No. 8: Redefine Risk
Fear of failure and shying away from challenges can greatly impede your route to financial prosperity. This fear often acts as a barrier that keeps us confined within our comfort zones, preventing us from trying new investment avenues. Kiyosaki's perspective encourages embracing fear and understanding that failure isn't a declaration of lasting defeat but a temporary hiccup.
According to Kiyosaki, every stumble or setback is a chance to learn from the experience and gain business insight. Temporary failures or losses should be viewed as lessons that can shape and refine future choices and endeavors. In Kiyosaki's mindset, risks shouldn't be evaded but considered meticulously and accepted wholeheartedly.
Building sustainable wealth can seem like an impossible challenge, wrapped in complexities and uncertainties with barriers to entry that keep out all but those lucky enough to already have wealth they can afford to invest. Embracing Kiyosaki's principles can not only redefine your relationship with money but can also set you on a path toward building sustainable wealth and financial freedom. Take the time to understand these rules and apply them thoughtfully in your own financial landscape and over time, you might find yourself not just aspiring for wealth but actually creating and sustaining it.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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