- author: The Rich Dad Channel
Building a Foundation of Financial Literacy for Financial Freedom
Are you fixated on finding the fastest way to get rich? If so, you might be approaching wealth creation in the wrong way. This mindset is a clear indicator that you lack the foundation of financial intelligence, which could be why you haven't achieved the financial freedom you desire. In this article, we will explore how to build your foundation of financial literacy so that you can design your path to financial freedom.
Understanding Wealth Creation
The question shouldn't be about how quickly you can become rich or how much money you make. Instead, it should be about how you can make money work for you. Take Robert Kiyosaki, for example. He teaches that true wealth is not about working for a paycheck but about creating cash flow and leveraging assets. To understand this concept, it is crucial to comprehend the difference between assets and liabilities.
Defining Assets and Liabilities
An asset, according to Robert Kiyosaki, is something that puts money in your pocket, whether you're actively working or not. Assets are not just accounting terms; they represent the opportunity to generate more money. On the other hand, liabilities are things that take money out of your pocket. Understanding this difference is essential to grasp how the wealthy manage their money and continuously increase their wealth.
The Cash Flow Equation
To illustrate this concept, let's consider Robert Kiyosaki's example of a house. Contrary to popular belief, your house is not an asset; it is a liability. Even if you have no debt on it, your house takes money out of your pocket through mortgage payments, property taxes, insurance, and upkeep. Similarly, a car is a liability because it requires ongoing expenses for payments, gas, and maintenance. Understanding this distinction between assets and liabilities is crucial for generating wealth and achieving financial freedom.
How the Rich Make Money
The rich have mastered the art of making money work for them, even while they sleep. They focus on acquiring assets that provide cash flow. For example, rental properties, businesses, or stocks that pay dividends. By prioritizing assets that generate positive cash flow, the rich continuously increase their wealth.
Personal Examples and Scaling
Once you understand the principles of generating wealth through assets, the possibilities are endless. Just like learning to ride a bike or making coffee for the first time, it may take time and effort to find your first investment opportunity. However, once you master the process, it becomes effortless. This is evident in the story of Kim, who applied the concept repeatedly, scaling her investments from one property to an impressive portfolio of 8,000 properties.
The Importance of Assets over Liabilities
Understanding the distinction between assets and liabilities is the most crucial lesson on the path to financial freedom. If you were to stop working today, where would your money flow into your pocket? For many, the answer is nowhere. To change this, it is essential to prioritize income-generating assets over liabilities.
Distinguishing Assets and Liabilities
Assets put money in your pocket, while liabilities take money out of your pocket. For instance, a rental property in your dream location, a business that provides regular cash flow, or a dividend-paying stock are all examples of assets. On the other hand, a car or a home, despite being commonly mistaken as assets, are liabilities that require ongoing expenses.
Cash Flow and Financial Well-being
The cash flow pattern of the middle class versus the rich clearly demonstrates how assets and liabilities impact financial well-being. While the middle class focuses on liabilities, such as mortgage payments and car loans, the rich prioritize assets like rental properties. By understanding this concept, the rich use debt to finance their assets, which ultimately makes them wealthier rather than poorer.
Shifting the Focus: Acquiring Assets
To achieve financial freedom, it is essential to shift your focus from ordinary earned income to acquiring assets. Instead of working endlessly for a paycheck or increasing your hourly rate, concentrate on acquiring more assets that generate income. This shift in mindset allows you to ask the right question: what new assets am I building today?
By building a solid foundation of financial literacy and understanding the importance of assets over liabilities, you can unlock the path to financial freedom. Focus on acquiring income-generating assets and let your money work for you. Remember, wealth creation is not about how fast you can get rich, but about consistently building a portfolio of assets that generate cash flow.
The Power of Assets: Changing Your Mindset for Financial Freedom
In a world where we often feel restricted by our financial limitations, there is a different way of looking at things. How many times have you desired something, whether it be a bigger house, a nicer car, or even the ability to treat your loved ones to their desires? You might have told yourself that you can't have it or consoled yourself with the belief that nobody gets everything they want in life. However, the reality can change if we shift our mindset and find ways to afford what we truly desire.
Embracing Assets and Liabilities
Understanding how to utilize assets to our advantage can be a game-changer in achieving the life of our dreams. Assets have the potential to generate more money for us, creating a cycle that leads to financial growth. On the other hand, liabilities drain money from our pockets. It is essential to differentiate between the two and focus on acquiring assets that generate cash flow.
The Sailboat Story
A perfect example of leveraging assets is Kim Kiyosaki's experience with a sailboat she desired. Despite not having the money to buy it and the belief that owning a boat would be a liability, Kim did her research. She discovered a way to turn the sailboat into an asset by putting it into a charter company. When the boat is not in use, it is chartered throughout the Hawaiian islands, generating income. Furthermore, when they want to enjoy the boat, it becomes exclusively theirs. By merging the boat into a charter business, the income generated covers the expenses, making it a profitable asset.
Shifting Mindset: From "I Can't Afford This" to "How Can I Afford This?"
To change your life, it is crucial to shift your mindset from a scarcity mentality to a wealth-oriented mindset. Instead of saying, "I can't afford this," start asking, "How can I afford this?" This simple shift in thinking allows you to get creative in finding ways to afford the things you desire. For example, instead of denying yourself a Ferrari, consider renting it and enjoying it on the weekends. Additionally, investing in a property in Italy can not only provide passive income but also provide opportunities for tax deductions. The key is to think outside the box and explore ways to turn liabilities into income-generating assets.
The Importance of Financial Literacy: Understanding Assets and Liabilities
One of the crucial lessons in strengthening your financial literacy is discerning the difference between assets and liabilities. Our society teaches us that certain things, like our house, are assets when they are, in fact, liabilities. Your house takes money out of your pocket rather than generating income. Understanding this distinction is paramount in making informed financial decisions.
The Path to Infinite Wealth: Cash Flow and Acquiring Assets
The ultimate strategy for achieving infinite wealth is to ensure that the cash flow from your assets equals or exceeds your monthly expenses. Instead of solely focusing on earning more income, divert your attention to acquiring assets that generate cash flow. By investing your time, energy, and focus into acquiring these assets, you can revolutionize your financial future.
Taking Action: Creating Your Asset Acquisition Plan
Now that you understand the fundamental difference between assets and liabilities, it's time to take action. Start by making a list of the assets you desire and determine how you want to acquire them. Study different strategies to make these assets cash flow, whether through investments, business ventures, or rental properties. By actively pursuing these opportunities, you can create a life that aligns with your dreams and passions.
Today marks the beginning of your journey to financial freedom. By embracing the power of assets, shifting your mindset, and understanding the difference between assets and liabilities, you can pave the way for a life filled with abundance and prosperity. Watch the next video, where Robert Kiyosaki shares insights on how the rich use debt to their advantage. Remember, the world of assets awaits you, and today is the day to embark on your path to financial freedom. Cheers to a life full of assets!