Did you know that some of the world’s richest people are also its most frugal? Case in point: Warren Buffett and Bill Gates. These two billionaires have taken their frugality to an extreme, but as it turns out, their penny-pinching ways have made them even richer than people think. In his book, Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not Know, author Robert Kiyosaki outlines his views on how the rich become even richer through wise financial decisions and practices. Here are 10 tips from his book that can make you richer too.
Buy assets, not liabilities.
An asset is something that puts money in your pocket, such as a business or investment property. A liability is something that takes money out of your pocket, such as a car payment or a mortgage. When you buy assets, your financial strength grows. When you buy liabilities, your financial strength shrinks. The more assets you have, the less you have to work for money. The fewer assets you have and the more liabilities you have, the more money you have to work for. Wealthy people don’t work for money. Poor people have to work for money. The difference between the two is that rich people make money while they sleep. Poor people let money make them sleep.
Pay yourself first.
Most people have too many liabilities – debts such as car payments and mortgages – and too few assets, such as cash savings or real estate. In other words, they have too many payments going out and not enough coming in. The easiest way to change that is to make sure you are always paying yourself first. First, make sure to set aside some money for savings as soon as you get paid each month. Then, make sure that you pay your debts last. This simple change in order can help you to speed up your path to financial freedom.
Don’t just earn interest – demand it.
If you invest in something that pays only interest, i.e. a CD, you are doing nothing more than receiving the interest rate that was promised to you from day one. But if you invest in something that pays more than interest, i.e. a stock or real estate, you are engaging in what Kiyosaki calls “capital appreciation”. Capital appreciation is the profit gained from the rising value of an asset. When you demand capital appreciation, you are essentially telling the asset to pay you more than just the interest rate that it was promised to pay you. This is an important distinction because this is the path to building long-term wealth.
Know the difference between an asset and a liability.
An asset is anything that puts money in your pocket. A liability is anything that takes money out of your pocket. Investment properties are assets. Credit card debt is a liability. Stocks are assets. Savings accounts are liabilities. Houses are assets. Mortgages are liabilities. The difference between assets and liabilities is like the difference between having your money working for you or having you work for your money. Assets put money in your pockets. Liabilities take money out of your pockets. Assets earn you interest. Liabilities pay you interest. Assets increase in value. Liabilities go up and down. Assets are for the long term. Liabilities are for the short term.
Don’t pay too much in taxes.
Most people are willing to pay taxes if they think that the government is spending their money wisely. However, most people are not willing to pay taxes if they think that the government is wasteful with their money. The problem is that most people don’t know where their tax money is going. If you want to pay less in taxes, you need to know where your tax money is going. You can do this by reading the budget and keeping up with current events and the news. You can also talk to your local representatives to find out what is being done with your tax money.
Deduct your investments from your taxable income.
There are two kinds of people in the world: The haves and the have-nots. The haves pay taxes and the have-nots receive tax refunds. If you want to be in the first group, you need to be sure that you are deducting all of your investments from your taxable income. There are two types of deductions that you can take advantage of if you are investing in things such as real estate or stocks: The first is a cash-flow deduction. This means that you are able to deduct the money that is going out in a tax-deferred or tax-free way. The other is a capital-gains deduction. This means that you are able to deduct the money that is coming in to you in a tax-deferred or tax-free way.
Save in tax-free environments.
There are two types of people in the world: The haves and the have-nots. The haves save money in tax-deferred environments and the have-nots save money in taxable environments. If you want to be in the first group, you need to be saving money in tax-free environments. There are two types of places that you can put your money to save it in a tax-free environment: The first is the bank. The second is in a tax-deferred account such as an IRA or 401(k) account.
Diversify intelligently.
There are two types of people in the world: The haves and the have-nots. The haves diversify their investments and the have-nots put all their eggs in one basket. If you want to be in the first group, you need to be diversifying your investments. The best way to do this is to have a portfolio of investments in things such as real estate and stocks.
Conclusion
Did you know that some of the world’s richest people are also its most frugal? Case in point: Warren Buffett and Bill Gates. These two billionaires have taken their frugality to an extreme, but as it turns out, their penny-pinching ways have made them even richer than people think. In his book, Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not Know, author Robert Kiyosaki outlines his views on how the rich become even richer through wise financial decisions and practices. Here are 10 tips from his book that can make you richer too.