If you’re interested in a life outside of the rat race. This is a must to read. By Rat race I’m referring to the lifestyle of going to work, buying a house, then going to work to pay your mortgage and continuing this life until you retire.
At the time when I picked up this book. That is just what I was doing. I just picked up a nice hefty mortgage and had a very nice job that could easily pay for the mortgage plus change for a car and yearly holidays.
To me this was and would be my life until I retired. I mean, why otherwise would I think any differently. It’s kind of what my parents did and what my colleagues and friends were doing.
So anyway. I stumbled upon a forum by mistake, I think it was called singingpig and was for property investors. During my lunch break I was skimming through and found a thread about a man in a similar position and wanting to invest in property to create enough ‘passive income’ to leave his job. Yeh right, I thought, at the time I believed only the rich and famous did that. Certainly not a regular joe with a regular job.
However, something inside me related to this enough to get this book to have a quick read. Well it was a quick read. I couldn’t put the motherf**ker down. I think I read it in a couple of days. Then went back to reread and make notes and diagrams on the side.
It sparked something inside me, and I had a fire in my belly to get out of the rat race. This book gives an excellent explanation (in story form) of why the middle class stay trapped in the rat race.
The book follows the story of Robert Kiyosaki, when he was younger. His dad, was a typical middle class worker. Big debt, not enough wages etc. And his best friend’s (Mike) dad was on his way to being very wealthy. Hence the rich dad poor dad title.
So young Robert wants to be rich, but his dad, not being rich, can’t offer any advice with this. So he recommends talking to mikes dad (rich dad).
Rich dad, first lesson is not to work for money. Basically if you’re chasing money all the time it blinds you to real opportunities. The ultimate goal is to get money to work for you. I.e. ‘Passive’ investments. Like property. You buy it and rent it to tenants at a higher rent than the mortgage payments. After expenses and tax you’re left with the profit each month. For doing ‘nothing’.
Ok the theory is sound, but in real life there’s lots more details and nitty gritty into getting a truly profitable asset than this. But to me that’s not the point of this book. After all, you have to make a lot of mistakes and learn learn learn in real life business and investments. No. The real point of this book to me, was opening my eyes to a world without working 9-5 until I’m 65.
The way to do this is by acquiring Assets and not Liabilities. And if you don’t know, an asset is something that puts money into your pocket and a liabilities is something that takes money out of your pocket.
So your car, is a liability as it takes money out of your pocket. Insurance, petrol, maintenance etc. Your house, is a liability, as it cost, mortgages, maintenance. Insurance etc. Even if you have equity and will make 1000’s when you sell it. If it’s not putting money into your pocket each month. Yep. That’s a liability.
A few examples of assets is a buy to let property, which gives you income each month after mortgages, letting agent fees, insurance, tax etc. A business is an asset, provided it makes you money each month.
you get the point.
So you acquire assets. Get rid of, and stop acquiring liabilities and you’ll eventually be able to give up work and live of your assets. I totally back this theory up as I am doing it right now. Take a look at these two diagrams from the book.
The diagram on the left shows the cash flow of a typical middle class person. The money comes in from a job, Mortgage and car loans have to be paid. Along with credit card and living expenses etc. All from your wage, then whatever is left. If there is any left, goes to living and luxury stuff. Sound familiar? Look around you, most people are doing this and I was in the same boat.
now look at the diagram on the right. This is a asset rich persons, cash flow. Money comes in from the assets and takes care of expenses and provides an income. So, instead of one job, that you can only work so hard at. You have assets that work for you. The beauty of passive assets, is that you’re not doing all the hard work so you can keep acquiring them.
Quick example. You buy a cash flowing property. You save the income and buy another, same thing, with the letting agent looking after it. So you can keep replicating this over and over. You have 10 all cash flowing and providing an income while you do minimum work. This, as opposed to working hard hard hard, more hours for higher income, which you can only do for so long.
So, more assets, more ‘passive income’ means your income increases without slogging it out 9-5, 8-6, 7-7! You get richer and you’re not in the rat race. Makes sense? If not, buy the book and check it out for yourself. It’ll be the best £3 you spend. Believe me!