During the lockdown I read Robert Kiyosaki's must-read classic: Rich Dad, Poor Dad and this blog post is me sharing my biggest learnings. I am going to keep this one short as to not dilute the key points I am about to make.
Before we start, let's set a simple ground rule: You don't need to agree or disagree to anything, you just need to understand what I am trying to say. Let's go.
1. Cash flow is king
It is less about how much money you have in your bank account, and more about how money is flowing through it. Different classes have different cash-flow patterns. Your cash-flow patterns decide which classes you fit in. The following are the typical cash-flow patterns for:
A poor person: A job gives you money, which you fully depend on to make ends meet.
Someone in the middle class: A job gives you money, which is used on mortgages and loans, which support your daily lives.
A rich person: Your "assets" or cash-producing entities give you money which you use to do whatever you want while your expenses are covered through the accountings of these "assets".
If you want to make a jump from one class to another, say from the middle class to the rich upper class, start changing how money flows through your bank account. Instead of using your salary to pay for more loans and expenses, make it work for you by buying "assets". Your "assets" will give you money continuously in the future and you can reinvest the money or use it to buy the things you want.
2. Doing business is a great way to reduce tax
People spend months working just to pay tax every year.
Business owners are allowed to pay "less" tax because of a simple reason: businesses create new job opportunities and help raise a country's GDP.
Think about tax as a punish system designed by governments to influence their people's actions. If you do things that are beneficial to your governments, you get punished less.
3. Upper middle class is taxed the most heavily, not the rich
The tax system was designed to transfer money from the richest to the poorest. As you might have noticed, it did not quite work out the way it was intended. The rich were not going to sit around and see money flowing out of their pockets.
They turned to doing business, which helped them pay less tax through job creations and business accounting. The governments had and still have no good reason to penalise them for doing so. As a result, the rich stay rich.
Meanwhile, high-income middle class are taxed more so that there is enough money to be transferred to the poor as promised to them.
Check out the book, it changed my mind about money. Obviously, there are many other factors that decide what you do in real life and how you support yourself financially. Still, it is extremely useful to understand how money works. There is nothing more life-freeing than being in control of one's financial situation.
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Thanks for reading. Till next time.
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