Transcription
A few weeks ago, I was reading Kiyosaki's book called "Cash Flow Quadrant: Guide to Financial Freedom." There was a small paragraph that got my attention. In that paragraph, the author said that successful business owners increase their expenses, but successful employees increase their income. To me, this didn't make sense at first because I couldn't understand how increasing expenses can be a good thing for a business owner, but increasing income is a bad thing for an employee. I'll explain the reason in the following minutes, but first, let me tell you that if you have read Kiyosaki's books, you probably know that most of his books repeat the same information over and over. He usually gives 80% fat and 20% meat to his readers. In other words, 20% of the information is usually new, and the rest is repetitive. So, I will try to give you the meat only, packaged as top nine lessons.
Lesson One: Why Don't You Get a Job? Kiyosaki says after several attempts to become a millionaire, he finally did it, but very quickly lost it all and became homeless. He was forced to live in his friend's house and barely had enough money for living expenses. During those hard times, he would often get this question: "Why don't you get a job?" Even though he and his wife both had enough qualifications to get a nice job at many companies, Kiyosaki says he always refused it because he never wanted to be on the wrong side of the cash flow quadrant. Most likely, you already know Kiyosaki's cash flow quadrant, but let me quickly summarize it. According to the cash flow quadrant, people are divided into four categories depending on how they earn their money: employees, self-employed, business owners, and investors. The author thinks that it's a poor choice to be on the left side of the cash flow quadrant because on this side, you have to work hard and pay high taxes. Plus, if you want to become rich, then it's very, very hard to do it on the left side. That's why Kiyosaki never wanted to get a job because it would automatically put him to the left side. On the right side, business owners and investors pay very low or no taxes because, by law, they can spend first and pay taxes on whatever is left. This is completely opposite to employees who pay taxes first and live with what is left.
Kiyosaki says that successful business owners increase their expenses, but successful employees increase their income, as I said at the beginning of the video. To me, this did not make sense at first. Well, the reason is that if you want to increase your income as an employee, you have to work very hard. Plus, the biggest problem is that when your income goes up, taxes go up as well. You share a big portion of your hard-earned money with the government. On the other side, business owners focus on increasing their expenses because they get two huge benefits. First, by increasing their expenses, they reduce their taxable income and end up paying very low taxes. Second, if you look at their financial statements, you will see that most of their big expenses are directed toward buying assets, which bring them additional income. To put it simply, what goes out from the expense column shortly appears in the asset column and generates additional income. As a result, they keep increasing their assets and earnings while paying low taxes.
The author says if you want to understand where the company or person is headed, it is enough to look at their expense column. If the majority of your expenses goes out to buy liabilities such as a TV or phone, then you're basically sending your soldiers to a war where you know they'll be killed. On the other hand, if your expenses are directed toward buying assets, then you're sending your soldiers to capture more soldiers for your army, who would in return also work hard to capture other soldiers. If you are disciplined enough, this process can turn your small army into an empire. Kiyosaki says once a reporter asked him how much he earned during the last year and how much he paid in taxes. When he responded that he earned a million dollars and paid zero taxes, the reporter simply could not understand how it could be possible. After a few days, the reporter published an article titled "Millionaire Earns Millions but Pays Zero in Taxes." The reporter thought that he was doing something illegal, but in reality, he was just following the law. These days, it's much easier to become rich legally than trying illegal ways. It would be foolish to try something illegal while there are many legal and easy ways.
If you want to move from the left side to the right side, you need to understand that each quadrant is like a different country where people speak different languages. Before you move, you have to educate yourself and learn the language of that quadrant. If you talk to an employee on the left side, you will see that their main vocabulary consists of words such as "job security," "good benefits," "high income," "pension," "meal vouchers," etc. However, if you talk to an investor, you will quickly realize that they don't use these words. They use words such as "cash on cash return," "capital gains," "PE ratio," "OPM" (other people's money), etc. As you see, if you want to change quadrants, you have to educate yourself and speak that language in the first place. The author says you might be in the employee quadrant at the moment, but you can educate yourself about the other quadrants and slowly experiment. It's okay at the beginning to be in more than one quadrant.
Now, I have a comment about changing the quadrant and becoming a business owner or investor. Many people who read Kiyosaki's books suddenly get excited and want to become an entrepreneur and quit their jobs. But let me ask you this: Imagine I come to you and say, "Hey, would you like to be an Olympic athlete and win a gold medal in your favorite sport?" You'd probably say, "Yeah, I'd love to represent my country in the Olympics, be famous, win a gold medal, and have a great body with six-pack abs. It would be awesome! Sign me up!" But before you jump in, let me take you behind the stage for a quick moment and show you what is going on there. Do you really understand how hard you have to work in order to be an Olympic athlete? Do you know that you have to spend five to six hours in the gym every day, sometimes twice a day? Do you really want to eat chicken breasts and vegetables most of the time? Do you really want to go through all that hard training and possibly several injuries? Do you want to have arguments with your partner for not spending enough time with her? Do you really want to miss your friend's party because you have to go to bed early so that you can wake up early for training? Do you really want to make all these sacrifices to become an Olympic athlete? At this point, you're probably saying, "Hmm, maybe not." I don't want it. I would honestly understand if you decide not to want it, and I am sure others would understand you as well because the cost of becoming an athlete is too high for you.
The example I just gave applies to becoming a business owner and changing quadrants as well. You have to first understand the cost and decide if it is really worth it. Maybe you love your job, earn enough money, and never want to have the responsibility and the stress of becoming a business owner. If that's the case, it's none of my business or anyone else's business to tell you that you have to become a business owner. It's only your business and your business alone. I'm not saying that you can't become a business owner; you can, and I believe it's one of the best things you can try. But before you start, always keep the cost in mind because it will help you to set your mindset straight and avoid running back to Mommy after five or six failures. Also, keep in mind that most probably, you don't have the muscles to become an entrepreneur. In other words, you left school with no education about creating and running a business. You probably didn't learn it in your family either. These all mean even higher costs for you. At the beginning of your journey, you'll probably look like a skinny new guy in the gym who doesn't even know how to use a treadmill. As a new guy in the gym, don't try to imitate the big muscular guy and start doing bench presses with 60 kilos. You need simple push-ups and pull-ups.
Lesson Two: Why Do People Want Job Security So Bad? If you look back 150 or 200 years ago, you'll see that most of the people were either self-employed or entrepreneurs. Your grandfather's grandfather probably had a farm, and he worked for himself, which means he was self-employed. Or maybe he had a shop with a few employees where they were making and selling axes, which means he was a business owner. If entrepreneurship and self-employment was so common in the past, then what happened now that we are so attached to job security? Kiyosaki says the answer is simple: people were socially conditioned and brainwashed to choose job security over freedom. People are brainwashed so badly that they don't want to work four years for themselves, but they are willing to work for someone else for 40 years. Who taught them these things? The common culprits are the teachers, the school system, the multinational corporations, and the media. The value of job security over financial freedom is tattooed in children's brains from a very young age. Was there a course or even a lesson about financial literacy and building businesses when you were younger? Of course not. Instead, you were taught to follow the system, which emphasizes good grades above anything else. The result of this is a loyal and competent employee who cannot think for himself.
Today, many students are encouraged to take loans and study in prestigious universities. After successfully paying student loans, they will have an opportunity to start saving for their financial future. But the reality is that they are not taught how to save; they are taught how to spend and borrow. Since they have been depriving themselves for several years already to pay off their student loans, they will start buying houses, gadgets, some luxuries, new clothes, furniture, and automobiles as soon as they get some extra money. Soon enough, they're trapped in debt. Plus, we'll get married and have an expensive wedding, and from here, things start to go downhill, and the couple get into even more debt. This is the time when they begin wishing for financial literacy. This is also the time when they realize that they were sold a wrong dream and were taken advantage of by the system. They recognize the fact that if they had used the money they earned at the start of their career in order to start a business or invest, they'd be much better off.
Kiyosaki says the primary reason most people have money problems is that they were never schooled in the science of cash flow management. They were taught how to read, write, drive cars, and swim, but not how to manage their cash flow. Without this training, they wind up having money problems and then work harder with the belief that more money will solve the problem.
Lesson Three: I Don't Care About Your Great Product, Tell Me About Your System. Very often, I'm approached by friends asking to be part of their new business idea. They usually start talking passionately about their product. They talk about the uniqueness of their product; they say how great it is and how nobody else has it in the market. After listening for a few minutes, I usually apologize politely and pass because when it comes to creating a business, most of the time, the product is the least important part. The most important part is the system and the people who have experience in that system. People who usually approach me have never created or run a business system. The world is filled with wonderful products that have never been on the shelves because of a poor system. Right now, you're probably saying to yourself, "Why is this girl talking about the system and ignoring the product?" Let me ask you this: Can you cook a better hamburger than McDonald's? You'd probably say yes. Most people can prepare more delicious and better hamburgers than McDonald's, but what most people can't do is create a better system than McDonald's. What makes McDonald's successful is not its hamburger; it is the system. It's the system that brings the meat from the farm to the center of the city where you buy it cheaply.
Lesson Four: You Can't See Money With Your Eyes, Money Is Seen With Your Mind. What is apparent, what is obvious to the naked eye, is not important when it comes to money. The average person is 95% eyes and only 5% mind when they invest. If you want to see money, you need to train your eyes to be only 5% and train your mind to be the other 95%. If there were piles of money sitting in the street, people would run out and grab as much as they can. This is because their level of intelligence allows them to easily know how to see and grab what is physically in front of them. Unfortunately, when it comes to financial intelligence, most people have a low IQ. Taking advantage of the virtual piles of money in the financial system takes a high level of financial intelligence that most people simply don't possess. They have no idea how to go grab the cash sitting right in front of them. The key to start seeing money starts with financial intelligence. For example, if a medical doctor says, "Your systolic is 120 and your diastolic is 80," is that good or bad? Is that all you need to know for your health? The answer is obviously no, but it is a start. It's the same as saying, "My stock's PE is 12." Is this all I need to know for my wealth? Again, the answer is no, but it's a start. Financial intelligence starts with financial literacy, and financial literacy starts with understanding the financial words and numbers.
Kiyosaki says he disagrees with those who say it takes money to make money. In his opinion, the ability to make money with no money begins with understanding the language of money. As the rich dad always said, "If money is not first in your head, it won't stick to your hands." If you want to increase your financial intelligence, the author recommends playing the cash flow game. At this point, some of you are probably going to say that Kiyosaki is a fraud; he's just trying to sell his game and educational material. Well, I can't tell if he's a fraud or not, but I found this game quite useful. There are several things I don't like about him, but I have to admit that he has good information in his books, especially in the first book, "Rich Dad Poor Dad." This book has changed many lives for the better, and that is something you can't ignore.
Lesson Five: Find Mentors. A mentor is the person who is sitting on top of the mountain eating oranges and laughing at you while you're walking around scratching your head and thinking how to climb to the top of the mountain. The right mentor can save you years by helping you avoid things that you shouldn't do in the first place. The author says that even the gold medalist Olympic athletes, who are on the top of their games, have mentors, but the average person never even considers having a mentor. Choose your mentors wisely. Make sure they are eating what they are cooking.
Lesson Six: Know the Difference Between Assets and Liabilities. When the bank is giving you a mortgage to buy a home, the bank is telling you that your home is an asset. They aren't lying to you, but they are also not showing you the full picture and telling you whose asset that is. Your home is not your asset; it is the bank's asset. If you don't believe it, look at the bank's balance sheet and you'll see on which side it's placed and to whom cash is flowing. Today, there is a lot of confusion about what to call an asset and what not. In accounting, many of the things are registered as an asset, but in reality, they are not assets. Kiyosaki has a simple formula to identify if things are assets or not: If the things you buy put money into your pocket, then it's an asset. If not, it's a liability.
Now, let's do a small test. Let's say you buy a hundred shares of company XYZ at five dollars per share. Is this an asset or a liability? Well, at first glance, it looks like an asset, but the truth is that you will never know until you sell those shares. What I mean by that is, let's say you need money and you have to sell those 100 shares. If the price per share goes up from five dollars to six dollars and you sell all your 100 shares, then you will make an extra one hundred dollars, which means you can now call it an asset. But what if the price drops to four dollars per share? Well, you will lose a hundred dollars. In that case, you can't call it an asset because it did not put money into your pocket. Today, many people call the liability an asset. It's up to you how you define the asset, but if you want to increase your wealth, then you must make sure that things you call an asset are actually putting money into your pocket.
Lesson Seven: Power of Faith. If I come to you right now and say that all the money you want, the dream car, your dream house have been shipped to you and it's waiting in the post office with your name on it, you just need to work hard for a while and then you can go pick them all up, would you work hard? If you are saying yes, then keep working because what you want is really waiting for you. You need to have rock-solid faith that what you're wanting is also wanting you and it's waiting for you. Faith lets you have the things even before you have them physically. Successful people have strong faith. Even when they were homeless and were sleeping in their streets, they strongly believed that what they want is already in the post office waiting for them.
Lesson Eight: How Can You See Your Future? Would you like me to tell you your future? Tell me about the five people you spend most of your time with, and I will tell you how your future is going to be. Here's a good exercise to do: Step one: Write down the names of five people you hang out the most with. Step two: Draw a cash flow quadrant and place the names of each person to the quadrant he or she belongs at the moment. Step three: See if those people are also heading toward the same quadrant you are or are already in the quadrant that you want to be. If not, it's time to make some changes. If you want to fly with eagles, then don't swim with ducks.
Lesson Nine: Being Neutral Toward Winning and Losing. To be successful as an investor or a business owner, you have to be emotionally neutral to winning and losing. Winning and losing are just part of the game. The main reason so many people struggle financially isn't because they lack a good education or are not hard working; it's because they're afraid of losing. If the fear of losing stops them, they've already lost. Most people suffer financially because their emotions are in control of their thoughts. We as human beings all have the same emotions. What determines what we have in life is primarily how we handle those emotions.
This is it for this video. If you liked this book summary, then check out the playlist of other books I've summarized on this channel, and thanks for watching.