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I just finished reading Robert Kiyosaki’s book, Rich Dad’s Increase Your Financial I.Q.: Get Smarter with Your Money and the one major takeaway is that too many people never realize their true financial potential because the get in their own way! Many people focus on earning more money when they should be focuses their time and energy on learning and increasing their money I.Q..
* Note: Kiyosaki discusses 5 aspects of Financial I.Q. in his book, but I’m just going to focus on this one, general concept here.
 The learning discussed in the book is not a formal education. In fact, that’s one of the mistakes that many people make – amassing huge amounts of debt going to college in the hopes of “finding a good job” and their place on the financial treadmill, only for some it’s more like a hamster wheel.
So what does “focus on learning” mean if not the traditional, middle class mantra “go to college to get a good job”?
It means taking risks and chances while you’re young, and always learning from your mistakes as well as your successes. People come into money all the time, sometimes mass amounts of it only to lose it all later. Think of lottery winners, famous athletes and performing artists. Suddenly rich, then suddenly broke. Why? Because they didn’t increase their 2nd financial I.Q. after mastering the 1st. They simply did what they loved doing and fell into their riches, but never learned how to manage and protect their wealth.
The first two financial I.Q.’s in the book are :
- earning more money.
- learning how to protect that money.
In the example of the star athlete or lottery winner, they mastered I.Q. #1 but failed horribly at I.Q. #2 – protecting their money.
Protection can mean many different things, and is usually referred to as “security” by many people. They may want to be secure in the knowledge that their savings are safe from loss, or maybe they want to protect their savings and assets from legal action. Whatever meaning you take, once you’ve earned it you must get educated on how to keep it or risk losing it all.
But even losing it all isn’t the end.
There are many well known moguls, like Donald Trump, who have built vast financial empires and lost it all only to come roaring back again. Why? Because they learned from their experience and were not afraid to fail.
” Those who cannot remember the past are condemned to repeat it.”
-George Santayana
If you do not learn from your mistakes, you will keep making them and make little or no progress in life.
I’ve always thought it’s important to learn from your own mistakes, but it’s also important to learn from other people’s mistakes as well.
Here are a few resources to help boost your financial I.Q.:
I’ve been reading Rich Dad’s Increase Your Financial IQ: Get Smarter with Your Money, by Robert Kiyosaki and while I like the general gist of the book (especially the first half), he rubs me wrong way in several places. One of these is in his use of math to support his opinions on real estate. Much of the second half of the book focuses on real estate as a means to grow wealth, but he does make an important distinction between speculating for growth or flipping a house, and buying property as an investment. In other words, he espouses buying real estate for the purpose of renting it out and creating a cash flow, not hoping for the market to rise and create capital gains. I’m not really interested in becoming a renter, but his approach makes a lot of sense to me, especially with the current economy, housing market and demographic changes.
Where I have problems is when he gets into things like OPM (Other People’s Money). Here is one of his examples:
- He buys a rental property for $100,000 in cash.
- He is able to rent this property for an annual income of $10,000.
- He has made a 10% return on his investment.
So far, so good. He’s using very simple math and ignoring taxes, repairs, etc.. but that’s fine – he states that in the example. His problem is in his comparison to the same scenario but using OPM. Here’s his example using OPM (i.e. money from the bank – a mortgage):
- He buys a rental property for $100,000.
- He puts $50,000 down and the bank loans him the other $50,000 at 6% interest.
- He is able to rent this property for an annual income of $10,000.
- He has made a 20% return on his investment.
The problem is that he has not made a 20% return on his investment – unless he is a deadbeat and doesn’t pay his mortgage! While it is true that $10,000 in profit would be a 20% return on $50,000 invested he is ignoring the mortgage payment entirely!
Using the Mortgage loan payment calculator at BankRate.com, I plugged in a $50,000 mortgage over 30 years (I’m being generous in giving him a low monthly payment) at 6% (his figure in the book) I determined the monthly mortgage payment to be :
$299.78
This works out to be $3,597.36 annually, which makes his actually profit in the OPM example $6,402.64 not $10,000. That means his return on investment (ROI) in that example is 12.8% not 20%.
Granted, 12.8% is better than 10% but it’s a far cry from 20%!
This makes me wonder about the rest of his examples and stories. What if the mortgage were larger or the rent less? Someone reading this book may think it’s a slam dunk only to find that his property and mortgage alter the numbers to a point where he’s not profitable. Kiyosaki neglects to mention that part of the financial equation altogether.
Still, the book is quite motivating and offers much food for thought and for that alone it is worth the read in my opinion.
The Holiday Season is the busiest time of year, full of family and friends, good food – and spending. Between the parties, travel to be with family, and gift-giving, it’s practically inevitable you’ll be dishing out a lot of dough. But you don’t have to go into debt during the Holidays that leaves you financially hungover in January and behind for the rest of next year. Plan ahead to minimize your debt, or better yet, not rack up any at all! Avoid the debt collectors by following these 8 simple tips to keep your Holiday spending on track:
- Get on a Budget – Start the season out right by planning how much you can reasonably afford to spend and limit yourself to that, no ifs, ands, or buts. This means you’re going to have to budget for those unexpected holiday expenses that tend to pop up.
- Treat All of Your Expenditures Like Cash – Don’t set yourself up for failure by walking into the glitzy shopping mall with three credit cards and no idea of what you plan to buy. Preferably pay in cash, but if you use a credit card, treat it like cash – plan to pay off the balance at the end of the month to avoid incurring interest fees.
- Don’t Use the Store Retail Cards – These may be tempting, but don’t fall into the habit of applying for store credit cards simply for the 15% off coupon they’ll give you. Each time you apply for one of these it will hit your credit report and can make you look desperate for credit lines. Plus, these cards generally carry high interest rates – often at percentages in the 20s! Steer clear of this shiny Holiday shopping lure.
- Be Creative With Your Gifts – Think from the heart instead from the wallet for a change this season. Are you an aspiring artist? Do you have the best gingerbread recipe in town? Consider something homemade, sentimental, for a gift. Chances are you’ll save money and your loved one will appreciate the gift all the more for it!
If you’re like most Americans, you will manage to rack up a measure of debt during the Holidays despite your best efforts. Don’t despair; you can still right the ship financially without spending the whole year trying to pay it off. It will just take a little planning:
- Set a Definite Payoff Date – Try to put a plan in place right away to pay your debt off as soon as possible. Maybe it’s March 31st, the end of the first quarter, or maybe you want the debt gone by the time the kids are off school for the summer. Stick to your plan and know exactly how you will pay it off in order to make all you financial decisions fall in line.
- Scrimp and Sacrifice Where You Can – Are you getting a Starbucks every morning before work? Make coffee at home. Are you eating lunches out during the work day? Bring a sack lunch. Cut down on dining out, entertainment, and the cable bill – wherever you can. You probably received some gift cards during the Holidays, so make good use of those.
- Pay off Your Debts in a Smart Order – Plan to pay off your cards with the highest interest first, making the maximum payment you can afford on those and just the minimum payments on the others. Work your way down the line with your cards so you can avoid paying high interest rates if possible.
- Plan for Next Year’s Holiday Season – It’s okay if you take advantage of post-Holiday sales, so long as you’re doing it for the right reason. That cashmere sweater that went on sale for $90 from $120? Probably not the best choice. But decorations, household goods, and practical things you can save until next season will help you curtail spending next year and stop the revolving cycle of debt.
There’s no way to get around it – you’re going to be spending money during the Holiday season. But if you plan early and spend wisely, you can make sure that this Holiday season is one full of merriment instead of financial misery.
Larry P. Smith & Associates, a Chicago Law Firm, focus on consumer rights protection. If you are having difficulties with bankruptcy, identity theft, debt collection or consumer fraud, request a free case review with Larry P. Smith & Associates.
Children learn many things from their parents, and most of it is subliminal. We indirectly learn habits and behaviors by watching our parents, and when we become adults and have children of our own we pass many of those habits, behaviors and beliefs on to them whether we know it or not.
Here are the top 5 bad habits about money children learn from their parents.
#1. Arguing about money.
This is easily the most common habit picked up from parents, since money is often at the center of any disagreement between parents, and many people – parents included – do not know how to have constructive discussions on those disagreements. This can indirectly teach children that money causes problems, and lead them to place an unhealthy emphasis on money to the exclusion of all else.
#2. Spending money you don’t have.
The average college student graduates with $4,000 in credit card debt. Some of that is because the insane cost of college leaves little left for basic living, but few students are leaving home with any understanding of debt and why it should be avoided.
#3. Failing to price compare.
Whether it’s at the local mall or online, parents who don’t shop around for a better price have children who don’t shop around for a better price and that means spending more than you need. This leads to children becoming adults without an appreciation for the value of a dollar. For my part, my children have seen my wife and I Google for coupon codes so often before making a purchase that the first thing they say when they see something in the store they like is, “Let’s Google for a coupon code when we get home and see if we can afford it!”
#4. Spending money and not time with your kids.
Trying to make up for lost time with your children by giving them gifts reinforces materialism and teach kids that “things” are more important than people. Spend money on making memories instead. It’s what kids want, and parents will be creating stronger bonds with their children that help keep them on track later in life. When it comes to kids, it’s better to spend time than money. It’s better still to spend time teaching kids about money.
#5. Handing out money with no strings attached.
It amazes me how many people are angry with the government for bailing out banks, and automotive unions and yet see no problem bailing out their children. Bailouts, whether federal or parental, reinforce bad behavior. It teaches the recipient that there is no risk in making a bad decision, because someone will come in and clean up your mistake.
It creates a lack of responsibility, and an unhealthy dependence on the parent. Parents should consider this: One day you will shuffle off this mortal coil. Think long and hard about where your children will be when you’re no longer their to bail them out.
It’s also bad news for the parent because the money is often being redirected from retirement savings, leaving the parents unable to provide for themselves or their children.
It’s an insidious cycle that needs to be broken. Parents should realize that a little pain early on is worth it if their children learn to stand on their own two feet. Also, it’s much easier if started when the children are younger. 
Money in the form of an allowance, tied to chores or goals is a far better reward.
Watch this video for interviews with students about what they’ve learned from their parents about money:
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