There are numerous ways to amass a million dollars, and Robert Kiyosaki has his own unique approach. A financial educator, entrepreneur, and the author of the best-selling personal finance book “Rich Dad, Poor Dad,” Kiyosaki has reshaped the way people across the globe think about money and investing. In this article, we’ll delve into Kiyosaki’s key principles for achieving financial freedom and success.
Assets Over Liabilities: A Fundamental Shift
Robert Kiyosaki’s perspective on assets and liabilities is a cornerstone of his wealth-building philosophy. While traditional accounting treats assets as anything that holds value and liabilities as things that drain resources, Kiyosaki’s approach is rooted in cash flow. To Kiyosaki, an asset is any investment that brings money into your pocket on a regular basis—whether through dividends, rental income, or business profits. On the other hand, a liability is anything that consistently takes money out of your pocket, such as mortgage payments, maintenance costs, and taxes on a home.
For example, consider the most common investment many people make: purchasing a home. Traditionally, a home is viewed as an asset, but Kiyosaki challenges this notion. If the house is not generating any rental income or providing positive cash flow, it becomes a liability. The monthly mortgage payment, property taxes, utilities, and repairs all drain your resources. Kiyosaki urges people to rethink the definition of an asset. If you are paying to maintain something, it’s a liability, even if its market value might be increasing.
In contrast, an investment property that generates rental income is an asset because it not only covers the costs associated with it (like mortgage payments, taxes, and maintenance) but also generates excess income—cash flow. Kiyosaki’s philosophy encourages the acquisition of income-generating assets that will continue to provide financial returns over time. By focusing on assets that generate regular cash flow, individuals can build wealth over time, transforming their financial future.
This shift in mindset is crucial. It moves away from the traditional desire to own possessions or accumulate things for their inherent value and toward focusing on creating a portfolio of income-generating assets. This could mean owning rental properties, investing in dividend-paying stocks, or owning a business that operates independently of your time. By focusing on cash flow rather than accumulation, individuals are more likely to experience lasting wealth and financial freedom.
Work to Learn, Not Just to Earn
In the conventional world, people often go to work with one primary goal: to earn a paycheck. Kiyosaki challenges this belief, advocating instead for working to learn, not just to earn. In his eyes, the most valuable benefit of any job is the skills and knowledge you gain, not the immediate financial compensation. The mindset of “working to learn” focuses on acquiring practical skills, expanding your financial literacy, and building a foundation that will serve you in the future.
Formal education, Kiyosaki points out, is limited when it comes to teaching real-world financial skills. Most schools and universities focus on theoretical knowledge or specialized academic skills, but they rarely teach practical subjects such as how to manage money, invest wisely, or navigate the complexities of taxes and debt. While a formal education might prepare you for a specific job, it does not prepare you to create wealth or financial independence. Kiyosaki emphasizes that real-world financial education is not typically taught in schools, and therefore it’s essential to seek out jobs, roles, or projects that allow you to learn these valuable financial skills.
For instance, taking a lower-paying job at a startup might seem less attractive at first, but this opportunity provides exposure to a range of disciplines. In a small company, you might have the chance to work in multiple departments—sales, marketing, finance, operations—allowing you to learn a variety of skills that would be valuable for an entrepreneur. The ability to understand different facets of business, from product development to financial management, is a priceless skill set that will serve you well in the long run.
In contrast, a higher-paying corporate job may restrict you to a narrow focus and provide little opportunity for learning outside of your specialized role. While the paycheck might be enticing, it could limit your ability to learn new skills that would allow you to branch out into other areas of business, investments, or entrepreneurial ventures.
By focusing on the educational value of a job rather than just the paycheck, you position yourself for future success. The knowledge you acquire by “working to learn” becomes a long-term asset, empowering you to make better investment choices, start businesses, and create wealth in ways that go beyond the confines of a traditional job. Over time, this mindset fosters adaptability and continuous growth, both of which are essential for building wealth and financial independence.
The Importance of Cash Flow
Kiyosaki often reiterates the importance of cash flow in his teachings. It’s not about how much money you have, but how much money is consistently coming in. The idea is simple yet profound: cash flow is the lifeblood of wealth. Many people accumulate assets but fail to generate cash flow from them, rendering their assets largely inactive. This approach leads to financial stagnation rather than growth.
For instance, lottery winners may experience a temporary surge in wealth, but without a solid strategy for generating ongoing income, their wealth often dissipates. Kiyosaki’s view on cash flow focuses on creating sustainable, reliable income streams that can support your lifestyle and future investments. A steady cash flow can come from a variety of sources, including rental income, dividends from stocks, or profits from a business that runs without requiring your day-to-day involvement.
The key to building wealth, according to Kiyosaki, is to focus on acquiring assets that produce consistent cash flow. This could mean investing in real estate properties that generate monthly rental income, purchasing dividend-paying stocks that provide a regular stream of income, or building a business that operates with minimal input from you. Once you have multiple assets producing cash flow, you can reinvest that income into more assets, creating a snowball effect that accelerates your wealth-building process.
By prioritizing cash flow over the mere accumulation of assets, Kiyosaki encourages individuals to build a self-sustaining financial system. This system can maintain itself and grow over time, creating a level of financial security and independence that allows individuals to thrive even in volatile economic conditions. Cash flow not only covers day-to-day expenses but also provides the financial freedom to take advantage of new opportunities as they arise.
Leverage the Power of Corporations and Taxes
One of the more complex but powerful aspects of Kiyosaki’s financial philosophy revolves around understanding how taxes and corporations work. The vast majority of people operate under a “consumer” mindset when it comes to taxes—they earn money, pay taxes, and spend what’s left. Kiyosaki argues that this model is detrimental to wealth-building and that by incorporating yourself or your business, you can take advantage of the legal framework of corporations to reduce your tax liabilities and maximize investment opportunities.
Corporations are often referred to as “secret money boxes” by Kiyosaki because they provide significant tax advantages. Unlike individuals, corporations can deduct business expenses before paying taxes. These deductions might include things like office supplies, business travel, marketing costs, and even some personal expenses if they are deemed to be necessary for the business. This ability to write off expenses before paying taxes means that corporations can keep more of their income, which can then be reinvested into assets or used for further business growth.
For freelancers, entrepreneurs, or anyone seeking to build wealth, incorporating can provide significant financial advantages. A corporation allows you to shield more of your income from taxes by leveraging deductions and paying taxes on the corporation’s income rather than your personal income. This setup enables you to retain more of the money you earn, which can then be invested in assets that generate long-term income.
By understanding the strategic advantages of corporations and tax laws, Kiyosaki believes individuals can transform their financial future. It’s not about evading taxes, but about being smart and strategic with how you earn, spend, and save money. The tax laws, according to Kiyosaki, are incentives for business owners and investors to engage in certain economic activities, such as investing in real estate or starting businesses. By learning how to navigate these laws, you can significantly reduce your tax burden and increase your wealth-building potential.
Using Debt to Your Advantage
The typical advice most people hear about debt is to avoid it at all costs, but Kiyosaki takes a radically different approach. He emphasizes the importance of understanding the difference between “good debt” and “bad debt.” Bad debt, such as credit card debt or loans taken out to purchase depreciating assets (luxury items, vacations, etc.), is dangerous because it does not create value. This type of debt drains your financial resources without contributing to long-term wealth.
In contrast, good debt is used to acquire assets that generate income or appreciate over time. Examples of good debt include taking out a loan to purchase rental property, invest in a business, or buy stocks that offer dividends. This kind of debt is strategic because the income generated by the asset not only covers the cost of the debt (including interest payments) but can also produce additional income. In other words, good debt allows you to use other people’s money to acquire income-producing assets, ultimately increasing your wealth.
Kiyosaki advocates for leveraging good debt as a tool to accelerate wealth accumulation. By taking out loans for income-generating properties or investments, you can grow your portfolio much faster than you would by relying solely on your own savings. The key is to understand how to use debt responsibly—by ensuring that the income generated by the asset exceeds the cost of the debt.
However, this strategy does come with risks. Kiyosaki stresses that individuals should educate themselves about market conditions, interest rates, and the specific asset they are investing in before taking on debt. The more you understand how debt works, the better you can use it to your advantage. By leveraging good debt wisely, you can multiply your returns and accelerate your journey toward financial freedom.
Diversifying Income Streams
One of Robert Kiyosaki’s fundamental principles is that relying on a single income stream—such as a traditional 9-to-5 job—is not just limiting but also risky. In today’s volatile economy, job security is increasingly rare, and relying on one source of income makes you vulnerable to financial instability. Kiyosaki encourages people to diversify their income streams, which means generating income from multiple sources, such as earned income, passive income, and portfolio income. This strategy not only reduces financial risk but also accelerates wealth-building opportunities.
Earned income is the most common form—money earned through a job or self-employment. However, earned income is often taxed the heaviest and requires the most time and effort. Relying solely on earned income can create a bottleneck in wealth-building, as it limits your ability to accumulate assets that will generate wealth in the long term. This is where passive income and portfolio income come into play.
Passive income comes from investments or assets that generate income with little ongoing effort. Rental properties are a prime example. Once you have tenants, they provide a steady cash flow that covers your mortgage, property taxes, and maintenance costs, with money left over for reinvestment. Similarly, dividend-yielding stocks provide regular payments without requiring your constant attention. These types of income streams require an upfront investment of time or money, but once set in motion, they can provide ongoing cash flow that compounds over time.
Portfolio income, on the other hand, typically comes from investments in stocks, bonds, and other financial assets. It might involve dividends from stocks, interest from bonds, or capital gains from selling assets. This income is generally more tax-efficient and requires less daily attention than earned income. Portfolio income can be used to acquire more assets or reinvest in higher-return opportunities.
By diversifying your income streams, you protect yourself from economic fluctuations. For example, if the economy takes a downturn and your job is at risk, your rental income or dividend payments can serve as a safety net. Moreover, diversifying income allows you to benefit from different types of returns—whether through stable rental income, growth from stock investments, or profits from business ventures. This diversification strategy increases both short-term financial security and long-term wealth creation.
Don’t Keep Money Idle in the Bank
Kiyosaki warns against the common habit of saving money in a bank account, particularly in today’s economic environment. While saving is an important aspect of personal finance, Kiyosaki argues that keeping large sums of money in low-interest savings accounts is not a sound strategy for building wealth. The primary issue with saving money in a bank is that it doesn’t account for inflation—the gradual rise in the cost of goods and services over time.
Money in a savings account, even with interest, is essentially losing value due to inflation. For instance, if the inflation rate is 3% per year and your savings account offers an interest rate of 0.5%, the real value of your money is shrinking. What you could buy with $10,000 today might cost you $10,300 in a year, but the purchasing power of your money will be lower unless it’s working harder for you.
Instead of letting your money stagnate in an account, Kiyosaki advocates for investing it in assets that have the potential to grow in value and provide higher returns than traditional savings accounts. This could include real estate, stocks, mutual funds, or even businesses. Investments like these not only offer the potential for appreciation but can also generate ongoing income streams (e.g., dividends or rental income), which can further accelerate wealth accumulation.
By investing wisely, you give your money the opportunity to work for you. This is a key concept in Kiyosaki’s approach—money should be treated as a tool that generates more resources, rather than a static store of value. Of course, investing carries risk, and Kiyosaki emphasizes the importance of financial education in order to make informed decisions. But over time, the potential for higher returns far outweighs the diminishing value of savings left in the bank.
Avoiding the Herd Mentality
Kiyosaki believes that one of the biggest mistakes investors can make is following the herd mentality—the tendency to make financial decisions based on the actions of others, rather than on sound research or strategic thinking. The herd mentality is most evident during times of market booms and busts. During a bull market, for example, when stocks are soaring, people rush to buy in, often without fully understanding the market dynamics or the true value of the assets they’re purchasing. Conversely, during a market crash, the herd panics and sells, often locking in losses.
Following the crowd can result in buying high and selling low, which is the exact opposite of the wealth-building strategy Kiyosaki promotes. To avoid this trap, Kiyosaki encourages independent thinking and doing your own research before making investment decisions. Rather than buying into the latest trend or listening to popular opinions, investors should focus on understanding the fundamentals of an asset, its market potential, and the risks involved.
This independent approach also opens up opportunities that many others overlook. While the herd rushes to buy popular stocks, you might identify an undervalued asset or an overlooked market segment that offers substantial long-term growth potential. This allows you to buy low and, over time, sell high as the value of the asset increases. By staying informed and not succumbing to the whims of popular sentiment, you can often make smarter, more profitable decisions.
Kiyosaki also emphasizes the importance of developing your own investment philosophy and sticking to it. By focusing on your long-term financial goals and making decisions based on research and personal judgment rather than external pressures, you create a more solid foundation for wealth-building. This also helps to avoid the emotional highs and lows that often accompany market cycles.
Surround Yourself with Smart People
The people you surround yourself with have a significant impact on your financial success. Kiyosaki believes that your social circle is one of the most important factors in determining your wealth-building trajectory. The people around you can either elevate your knowledge and mindset or hold you back. For Kiyosaki, it’s crucial to surround yourself with individuals who are knowledgeable, successful, and have a mindset geared toward growth.
Surrounding yourself with smart, financially savvy individuals opens up a wealth of opportunities. These people can offer insights, strategies, and advice that you may not have considered on your own. Whether it’s understanding the nuances of real estate investing, navigating the stock market, or discussing ways to reduce tax liabilities, having a network of intelligent people can accelerate your learning curve and help you avoid common financial pitfalls.
Moreover, Kiyosaki emphasizes that you become the average of the five people you spend the most time with. If those people are financially uninformed or stuck in a fixed mindset, it can be easy to adopt similar behaviors and attitudes. On the other hand, if you’re surrounded by financially educated and successful individuals, you are more likely to elevate your own financial literacy and behaviors. Their successes, failures, and experiences can serve as valuable lessons that guide your own financial decisions.
Building a network of like-minded individuals doesn’t just offer business opportunities—it fosters a culture of learning and growth. By engaging with people who challenge you, push you to think critically, and expose you to new ideas, you’re more likely to adopt the mindset and strategies necessary for wealth creation. Kiyosaki’s advice to surround yourself with smart people is a powerful tool for personal and financial growth.
Know the Market
Kiyosaki stresses the importance of understanding the market in which you’re investing. Successful investing is not about guessing or hoping for the best; it requires a deep understanding of market conditions, trends, and opportunities. Without this knowledge, you risk making uninformed decisions that can lead to financial losses.
Knowing the market means more than just tracking current prices. It involves understanding the historical context of an asset, the supply and demand dynamics that drive its price, and the economic factors that influence its value. Whether you’re investing in real estate, stocks, or businesses, Kiyosaki advises that you should do your due diligence before making any investment.
For example, in real estate, understanding market cycles is crucial. Property prices fluctuate based on factors like interest rates, supply and demand, and local economic conditions. By learning to recognize these cycles, you can buy properties when they’re undervalued and sell them when their value appreciates. Similarly, in the stock market, knowing when to buy and sell is a matter of understanding market trends, the performance of individual stocks, and broader economic indicators.
Investors should also keep an eye on macroeconomic factors, such as inflation rates, unemployment figures, and global political events, all of which can impact the performance of various asset classes. By staying informed and analyzing market conditions, you can make more educated decisions about when to enter or exit a particular investment.
Understanding the market is not just about studying individual assets—it’s about developing a broader understanding of how economic forces shape the investment landscape. Kiyosaki emphasizes that financial education is the key to identifying opportunities others might miss, especially those that are undervalued or misunderstood by the average investor. This market knowledge can give you the edge needed to make profitable investments and avoid the pitfalls of poor decisions.
Conclusion
In conclusion, Robert Kiyosaki’s approach to financial success is a comprehensive one, focused on understanding the true nature of assets, leveraging education, using debt wisely, and developing diversified income streams. It encourages individuals to become active participants in their own financial growth, all while emphasizing the importance of sound financial education and the avoidance of financial pitfalls that can plague those who fail to plan. By following these principles, Kiyosaki believes that anyone can work towards achieving financial freedom and security.