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Robert T. Kiyosaki

Increase your Financial IQ – Robert Kiyosaki

Financial Intelligence
“It is not real estate, stocks, mutual funds, businesses, or money that make a person rich,” Kiyosaki writes. “It is information, knowledge, wisdom, and know-how, a.k.a. financial intelligence, that makes one wealthy.” He notes that buying a new set of golf clubs won’t improve your game, but paying for lessons will. It’s his hope that Increase Your Financial IQ can help readers improve their money “game”.

Kiyosaki divides financial intelligence into five “Financial IQs”:

  1. Making more money. This is measured by how much money you earn. If you make $100,000 a year, you have a higher Financial IQ than someone earning $30,000 a year.
  2. Protecting your money. Once you earn your money, you need to hold onto it. Protecting your money, especially from taxes, is the second Financial IQ.
  3. Budgeting your money. “Being able to live well and still invest no matter how much you make requires a high level of financial intelligence,” Kiyosaki writes. This Financial IQ is measured by how much money you have left after expenses.
  4. Leveraging your money. This Financial IQ is measured by return on investment. How well do you make your budget surplus generate more money?
  5. Improving your financial information. Financial information doesn’t just mean knowledge of basic financial concepts — it also means detailed knowledge of the investments you make.

Most of the book is devoted to exploring these five aspects of financial intelligence in detail.

Financial IQ #1: Making More Money
Many people fail to acquire wealth, Kiyosaki says, because they want the money without the work. “What many people do not realize,” he writes, “is that it’s the process that makes them rich, not the money.” It’s by learning to make money that you can continue to make money. For each person, the process will be different. We each have different goals, dreams, and ambitions. The important thing is to find the best way for you to make more money, and then to build your goals around this.

In order to make money, you must also learn to control your emotions. You must learn to defer gratification. Don’t sacrifice your financial future for a few bucks today. Don’t give up. The going can seem tough at times, but if you’re confident in your course, you can learn to solve the problems. Keep your eyes on your goal and find a way to reach it.

According to Kiyosaki, the key to making money is learning to solve problems. “In order to grow wealthy,” he writes, “you must come to terms with the fact that problems will never go away.” Identify the problems preventing you from wealth, tackle them head-on, and the money will follow.

Financial IQ #2: Protecting Your Money
Once you’ve begun to make money, you need to protect it from “financial predators”. Kiyosaki says there are seven of them to beware:

  1. Bureaucrats — Kiyosaki acknowledges the need to pay taxes, but he argues that it’s his job to (legally) pay as little as possible.
  2. Bankers — Banks are constantly trying to siphon bits of your money in the form of fees. It’s important to watch out for and protect against this.
  3. Brokers — Similarly, fees from brokers can chip away at your wealth. He cites brokers who “churn” accounts, buying and selling stocks frequently in order to generate more commissions. (We had this happen to us once with the box factory’s retirement account.)
  4. Businesses — “All businesses have something to sell,” Kiyosaki writes. Their job is to part you from your money; yours is to keep it. Kiyosaki suggests asking yourself whether any particular purchase will make you richer or poorer.
  5. Brides and beaus — Money plays an key role in any relationship. You must trust your partner, must reach an understanding about finances.
  6. Brothers-in-law — Here, Kiyosaki’s “B” theme is stretched to its limit. His point is that in order to protect your estate from family members you don’t intend to share it with, you need to plan for your death.
  7. Barristers — Finally, it’s important to protect yourself from legal difficulties.

Though Kiyosaki lists seven possible pitfalls, he offers little practical advice for coping with them.How does one go about paying as little tax as possible? What is the best way to approach estate planning?

Financial IQ #3: Budgeting Your Money
There are two ways to solve a budget crunch: decrease your spending or increase your income. Either will erase a budget deficit, but Kiyosaki believes (as I do) that in the long run, increasing income is a better solution.

Kiyosaki explains that it’s important to think of a budget surplus a fixed expense. If you decide to save 10% of your income, then make this ten percent a fixed item in your budget. Treat it just as you would any other bill. Pay yourself first. “You can tell a person’s future by looking at what they spend their time and money on,” writes Kiyosaki (channeling the voice of Rich Dad). “Time and money are very important assets. Spend them wisely.”

Kiyosaki notes that when things get rough, people tend to cut back rather than spend. But if they’d simply prioritize spending, they could actually improve the situation. Spend less on beer and pretzels, sure, but spend more on continued education and self-promotion.

Refuse to live below your means, Kiyosaki writes. Instead, increase your means.

Financial IQ #4: Leveraging Your Money

Leverage – borrowing money to increase the power of your own cash — is good, Kiyosaki says, if you have the financial intelligence to control the investment. But if you’re not in control of the investment, then leverage is risky. “Most of the people being hurt by the real estate meltdown are people who were counting on the real estate market to keep going up and increasing their home’s value,” he writes. They borrowed against their home’s inflated value, but had no control over whether the housing market rose or fell. This is a lack of financial intelligence.

Instead, Kiyosaki argues, one should use leverage to make low-risk investments, investments in which you, as the investor, have control. This sounds great, but he doesn’t provide any relevant examples. He discusses his recent purchase of a 300-unit, $17 million apartment complex in Tulsa, Oklahoma. “[This] is a good investment to use leverage with because I have control over the operations, and the operations…determine the value of the investment.”

Financial IQ #5: Improving Your Financial Information

Warren Buffett is the most successful investor of all time, yet he never takes a gamble. Buffett (and his partner, Charlie Munger) conduct extensive research for every decision they make. Before they buy a company, they want to know everything about it. Obtaining this information allows them to invest with confidence.

In order to improve your financial information, it’s important to:

  • Separate fact from opinion. Many gurus are happy to offer their opinions — “gold is going up!” — but it’s foolish to make financial decisions based on these. Base your decisions on facts.
  • Verify information. Don’t trust just one source of information, but seek confirmation from other parties.
  • Know the rules. If you don’t understand how an investment works, don’t make it. “Rules provide a valuable source of information about how the game of money is played,” Kiyosaki writes.
  • Understand trends. Trends are historical facts. Smart investors can use trends to make informed decisions. However, it’s important to note that trends do not project to future facts — only to opinions about possible futures. Still, trends are valuable sources of financial information.

“Ultimately,” Kiyosaki writes, “it is not the asset that makes you rich. Information makes you rich.”