Okay, I know that this book has been out for a long time now. But I’ve just gotten around to reading it now. Since I’ve heard so many controversial things about it, I had to read it for myself and see what the fuss was all about.
With that said, before sharing my thoughts, it was not my intention to be either unfairly critical or kiss up to the author, but rather to offer as unbiased of an opinion as possible.
The book is divided into six lessons. I’ll pull some of the quotes that I found memorable, or that made me think in one way or another. Then I’ll write my thoughts and opinions below them.
Introduction: There is a Need
The only reason that I wanted to highlight the introduction was because of the very first sentence. It asks,
“Does school prepare children for the real world?”
In my opinion, the answer would be no. When I read or hear about people today who are in major credit card debt, or don’t have much saved for retirement, then I don’t think we’ve done a good job of being prepared for the real world. While in school, if we were taught concepts such as how to use credit responsibly, the power of compound interest, and the horrible impact of debt, I think we’d be a lot better prepared to face the real world.
Lesson 1: The Rich Don’t Work for Money
He says the poor and middle class work for money, while the rich have money work for them. He says its easier to work for money, because for many people fear keeps them at a job. I see some truth in that statement. Maybe it’s the fear of not paying the bills, not being able to eat, or not providing for your loved ones. If I don’t love my job, or if I don’t go there with the mindset of serving others with my skills, then what is my main motivation? I would think that my job would just be a vehicle to pay bills.
“Learning how to have money work for you is a lifetime study. Most people go to college for four years, and their education ends.”
I agree with this, and interpret this to mean that getting rich is not easy. Otherwise, wouldn’t everyone be rich?
“…The fear of being without money motivates us to work hard, and then once we get that paycheck, greed or desire start us thinking about all the wonderful things money can buy. The pattern is then set.”
I also see some truth in this statement. If we didn’t have money to meet our basic needs, we would live in fear. But once we do get a paycheck, a lot of times we think of material things to buy that we hope will satisfy us. Often, those things don’t satisfy us, and we keep the cycle going.
Lesson 2: Why Teach Financial Literacy
The main point that he stresses in this lesson is that if you want to be rich, you need to be financially literate.
“You must know the difference between an asset and a liability, and buy assets.”
He then goes on to define an asset and a liability.
“An asset is something that puts money in my pocket. A liability is something that takes money out of my pocket.”
I love the simplicity of this advice. Fancy cars, while nice, depreciate the moment you drive them off the lot. Therefore, they’re not an asset.
He then argues that the rich see their home as a liability, while the poor see their house as an asset. I guess this is where things get controversial. Most people, myself included, where taught that a house is an asset because over time, home prices rise in value. However, since a home doesn’t generate income, but rather has expenses that include mortgage payments, property taxes, and insurance, he considers it a liability.
I have mixed feelings about this. Because for many people, home buying isn’t merely a financial purchase, but also an emotional purchase. To his credit, he acknowledges this and doesn’t expect people to agree with him.
And he argues,
“And when it comes to money, high emotions tend to lower financial intelligence.”
I wouldn’t necessarily agree with that statement. For some, the emotional benefits of buying a dream home may be worth making the financial sacrifice of taking on a mortgage and the other expenses. So if they’re committed to paying off the mortgage and it’s a conscious decision, then I don’t think their intelligence is lowered. After all, we all ultimately use our money to buy something don’t we?
But if you see some nice golf clubs that you like but can’t afford, and you purchase it on impulse with a credit card, then I agree that this is not a financially intelligent move.
Another point which I think people may find difficult to agree with is his definition of wealth.
“Wealth is a person’s ability to survive so many number of days forward… or if I stopped working today, how long could I survive?”
“Wealth is the measure of the cash flow from the asset column compared with the expense column.”
So if you have $2,000 of monthly expenses, and a cash flow of $1,000 per month from your assets, you’d have enough wealth to survive for half a month. Thus, he argues that when you achieve $2,000 in monthly cash flow, then you’ll be wealthy.
But how many people can generate $2,000 in income from their assets alone? If they owned property and rented it out, then perhaps this would be feasible. But I doubt that the average person has property to rent out, or is close to generating $2,000 a month from their assets.
I suppose this may be why people may have a hard time with his definition of wealth. In more traditional financial circles, a person’s wealth is measured by their net worth. This would include property such as your house and car. But since these things don’t generate income, they don’t fit in his definition of an asset.
However, I will say that his definition of wealth does make sense to me, and makes me want to strive to somehow build enough assets that generate enough income to cover my expenses.
Lesson 3: Mind Your Own Business
To become financially secure, we need to mind our business. He says that people struggle because they work for someone else, rather than owning their own business. They focus on their income, rather than their business, which revolves around assets. He encourages us to keep our days jobs, but to also buy assets, and reduce liabilities and expenses.
He also suggests buying assets that you love because if you don’t love it, you won’t take care of it. His love is real estate and small company stock. I’m not too knowledgeable in those areas, so I stick to index funds, which are an asset according to him, and which I do love.
Lesson 4: The History of Taxes and the Power of Corporations
This was a pretty short lesson. He suggests setting up a corporation for its tax advantages and protection from lawsuits. So if you have any kind of legitimate assets, he recommends looking more into the benefits of having one. This lesson wasn’t too informative or helpful to me, but I didn’t find anything that I strongly oppose.
Lesson 5: The Rich Invent Money
I didn’t get too much out of this chapter, other than his example of buying property in a down market for cheap and selling it for a gain. He reiterates the importance of building a strong financial foundation through building a financial education.
Lesson 6: Work to Learn-Don’t Work for Money
In this lesson, he advocates learning selling skills. He gives the example of McDonald’s and their hamburgers. Although they don’t make they best tasting burger, they make a lot of money because they know how to sell average hamburgers.
More and more, I’m seeing the importance of having selling skills. You sell yourself in many situations such as job interviews, work presentations, and companies need salespeople to sell their products. Heck, even girl scouts have methods to sell their cookies.
I will say that this is definitely NOT a book about finance and investing. If you’re looking for it to help you in those areas, you will be disappointed. It’s more of a motivational, self-help book. But overall, this book made me think, which is a good thing. It fires me up to learn more and try to be more entrepreneurial. I also couldn’t help but think of the role that luck and fortune play in one’s financial destiny, like a great slots game. Some of us hit the jackpot through strategy, others by luck.
There may have been a few things I didn’t agree with, but I personally didn’t find this book too controversial. I just ignored the parts that I didn’t find helpful and took away the concepts that I did find useful.
What about you? Have you read this book? Do you have any strong opinions about it?