How The Rich Think Differently Than The Poor and Middle Class
I’ve been listening lately to Robert Kiyosaki’s Choose To Be Rich, and I have to say that it is outstanding.
Probably one of the top three book on building wealth I’ve come across, and as you know I’ve read (or listened to) a lot.
He gets into all sorts of topics in the book, but here are three ideas that stood out in my mind.
Hopefully you will find them as insightful as I did. They may even challenge some closely held ideas that you have!
- Having Lots Of Money Doesn’t Make You Rich
Being rich is much more about your mindset and your financial intelligence than it is about how much money you have.
Take Richard Branson for example. The man is a billionaire, but if you took all that money away from him he would still have all the knowledge. He would still know how to start businesses, invest wisely, etc. In fact, if he had to start from zero today I’m quite sure Richard Branson would have lots of money again in less than five years.
Take the opposite example though: what about a person who wins the lottery but doesn’t understand how to be rich? Is it any wonder that 1 in 3 lottery winners are flat broke in five years? Even though they had all the money in the world, they still had the mindset and financial intelligence of a poor person, so they lost their money. They were not “rich”.
If you understand how to build wealth than you are rich, no matter how much money you have.
A person who make $100,000 a year and spends $100,000 a year is not rich. They are thinking like a poor person and remaining stuck in the rat race. In fact, a person who makes $40,000 a year and invests $20,000 is richer.
- The Longer You Can Go Without Working, The Wealthier You Are
As alluded to in point #1, rich people save and invest a portion of their money. What do they invest in? Passive income streams that pay them whether they work or not.
If you have no savings, then it doesn’t matter how much money you make per year; you aren’t wealthy. If you stopped working today, how long could you continue to pay for your current lifestyle? A month? Six months? A year?
The longer you could go, the wealthier you are. And the wealthiest people are those that are financially free. That means their passive income streams are enough to cover their expenses. Effectively, they could go on forever at their current level of living without working again. Thats why I set a goal this year to get to at least $2,000 per month in passive income buying real estate.
- Rich And Poor People Focus On Different Types Of Income
According to Kiyosaki, there are three types of income: (1) earned income from a job, (2) portfolio income from stocks or bonds, and (3) passive income from real estate or other income generating assets.
Poor and middle class people focus on earned income. There are two problems with this.
First, you only get paid when you work. And there are a fixed amount of hours in the day, which means there is a cap on how much money you can make via earned income. The second problem with earned income is what Robert Kiyosaki calls “50% money”. Essentially the government takes 50% of every earned income dollar you make. Money is taken out of your paycheck before you ever get it, and then more money is taken out when you pay taxes.
Poor and middle class people focus on earned income, and try to get rich by working twice as hard.
Rich people on the other hand focus on the other two types of income, portfolio income and passive income. These are not dependent on the number of hours in a day, so they grow indefinitely, and they are far better in terms of taxes too. The highest capital gains tax rate is 15% and in real estate you can often pay zero taxes or defer the taxes forever.
If you get a chance, check out Choose To Be Rich. I think you’ll really enjoy it.
What other favorite books do you have on building wealth? Leave me a comment below.
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PT from Prime Time Money said,
Wrote on January 18, 2008 @ 12:19 pm
Hey Brian. I will have to check that one out. I enjoyed reading his other book, Rich Dad, Poor Dad. I’m giving it away for free at Prime Time Money. Here’s the link: http://ptmoney.com/2008/01/17/book-give-a-way-win-a-copy-of-rich-dad-poor-dad-or-die-broke/
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Tom Volkar / Delightful Work said,
Wrote on January 18, 2008 @ 3:20 pm
The beautiful thing about earning asset based income is that it does not require your physical presence like a job does. Employment is trading time for money with little leverage.
Leverage is described as the mechanical advantage or power gained by using a lever, the power of action. Leverage simply compounds ones strength and effectiveness. The ability to be paid for work that you don’t do is the result of leverage. It engages a multiplier effect as the asset grows in value.
Kiyosaki’s teachings are wise and right on the money. As he always says, thinking like the rich is a necessary step to becoming rich.
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Adam Teece said,
Wrote on January 18, 2008 @ 7:45 pm
I really really liked The Four Hour Work Week by Tim Ferris. As well as The Automatic Millionaire by David Bach.
I have been a longtime fan of Robert Kiyosaki Books though and Choose to be Rich is really good.
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Brian Armstrong said,
Wrote on January 19, 2008 @ 3:03 pm
Thanks David. The Automatic Millionaire by David Bach is great. I had read a bunch of real estate books before that after that one I finally bought my first piece of property. I bought it wrong ;) but at least it got me to take action.
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Lucky said,
Wrote on February 6, 2008 @ 12:21 pm
Hi Brian,
Here’s a link to a song that talks about every way to make money. I thought you would appreciate it. http://www.suckypoems.com/2008/02/06/we-want-to-make-some-money
[Reply]
Terra Andersen said,
Wrote on February 11, 2008 @ 6:31 pm
I will have to check this out! I have read all of Kiyosaki’s books, and am quite fascinated by him in general. He is a great storyteller, and I love the way he lays it all out there. It’s all very to-the-point. Reading his first book, Rich Dad, Poor Dad definitely inspired me to continue my business ventures.
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garry said,
Wrote on March 29, 2008 @ 12:36 pm
I think I will devote all my spare time to reading books that are going to show me how to be rich. This is so much easier than using my own brain power. Why should we waste our own brain power trying to come up with something new and orginal in order to make money.
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Lucky said,
Wrote on April 1, 2008 @ 12:14 pm
That might work for you Gary. I wrote an article at http://www.helpyourselfgetlucky.com/2008/03/20/get-lucky-by-following-the-leader
that mentions that there is enough room in the world to copy other people’s success. New businesses on the most part (i think 9/10) fail but popular franchises usually don’t. That is because you are copying a successful formula.
If you copy what other rich people do, you are more likely to get rich.
If you want to get super rich, then you need to think outside of the box and start one of the 1/10 companies that do make it. Then you can franchise out and get super rich.
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Rich People Don't Use IRA's and 401k's said,
Wrote on June 3, 2008 @ 3:14 am
[…] Kiyosaki has some great stuff on this topic by the way. […]