Components of a Financial Plan
February 12, 2025
Asset-backed securities have become famous all over the world in the past few years. The largest market for asset-backed securities was in the United States of America. The sub-prime mortgage exposed the flaws inherent in the process of issuance of asset-backed securities. The world had been looking for an alternative to asset-backed securities. This is […]
The retail business is inherently a cash flow positive business. This is generally because of the fact that retailers are generally able to procure their stock on credit. However, when it comes to liquidating their stock in the form of sales, retailers generally receive payments in the form of cash or credit cards. Hence, receivables […]
Roadshows are an important part of the investment banking process. This is because this is the stage where all the stakeholders i.e., the company issuing shares, the investment bankers, as well as potential investors, are all present at the same place. Roadshows are generally undertaken by private companies that are looking to list on a […]
Contrary to traditional economic theory, investors are not completely rational human beings. Instead, they are also emotional. This also means that they feel joy when they succeed and pain when they fail. This is the reason that when some investors succeed continuously for a small period of time, they start becoming overconfident. In behavioral finance, […]
As mentioned in the previous article, the financing required by companies in order to keep their operations afloat after filing bankruptcy is known as DIP financing. With regard to DIP financing, there is a standard market for lenders who offer DIP financing. There are investment bankers who specialize in helping clients obtain DIP financing. However, […]
Most of the lessons taught in the “Rich Dad Poor Dad” book series are somewhat unique. This is because the book provides a new perspective of looking at finances. In this article, we will have a look at some of those lessons in order to explain the rich dad philosophy.
People who have a rich dad mindset invest a big chunk of money that they earn. Hence, essentially they turn cash flow into assets which in turn creates even more cash flow.
People with the poor dad mindset, on the other hand, use the increased cash flow to buy more liabilities. More liabilities can be seen in the form of a bigger car, bigger house, etc. Hence, their cash flow is depleted at the moment.
Robert Kiyosaki illustrates that a person does not get rich by earning more money if they spend all of it on liabilities and expenses.
Instead, a person becomes rich by investing their money in income-producing assets. This concept has been explained in other books in the form of a concept called “savings rate”. However, Robert Kiyosaki presents it in an easy to understand format.
After all, there is a limited number of hours that a person can work and hence their earning potential becomes limited.
On the other hand, the earning potential of business owners is not limited by the number of hours they work. They can earn as much money as the product that they sell. Also, at the same time, investors can also earn an unlimited amount of money based on the money that they have invested. This is the reason that Robert Kiyosaki from Rich Dad Poor Dad recommends that people should try to transition from employees to business owners in their life. This will help the people maximize their earning potential.
Rich dad poor dad explains how the tax system does not work the same way for everyone. The tax system favors the rich business owners. This is because business owners are allowed to deduct business expenses from their income before they have to pay taxes. On the other hand, this facility is not available to people who work jobs. They have to pay tax on their entire income and the effective tax rates tend to be higher.
This is in line with Robert Kiyosaki’s teachings that the amount of money that one can retain is more important than the amount that one can earn.
Robert Kiyosaki provides mathematical illustrations to explain how taxes are the number one expense in the life of any common person. He also explains that business owners and investors are able to avoid taxes whereas employees have no option but to pay it.
He echoes the belief of the personal-finance gurus that if savings are not made a priority it will never happen. This is the reason that he also recommends deducting a portion of the paycheck before the balance money is used to pay the monthly bills.
He explains how the savings interest rate provided by the banks is actually much less than the inflation rate. Hence, if the money is kept unutilized, it is simply losing its value.
He also explains how Richard Nixon took the world off the gold standard, which means that the government can now devalue the money faster than one can earn it. His recommendations for investment are considered to be extremely risky. This is the reason why Robert Kiyosaki is criticized by personal finance gurus.
The bottom line is that some of the lessons provided by Robert Kiyosaki are unique as well as valuable. This is the reason why many people follow his advice even though mainstream personal finance gurus have routinely discredited him.
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