Components of a Financial Plan
February 12, 2025
When a company is facing bankruptcy, it tries to free up as much capital as possible. This freed up capital is used to finance the operations of the firm. One way to free up the capital is to sell fixed assets of the firm. During the bankruptcy process, it is possible for a company to […]
The economy of any nation can be viewed from the point of view of fund flow. This is a unique way to view the economy, which until now has only been viewed as a sum of all the sectors in it. In simple words, this means that the economy as a whole is a combination […]
If you are an investor who is even remotely connected to financial markets, the odds are that you have heard about the spectacular rise of Bitcoin. The crypto-currency has grown from $10,000 to $17,000 in a week. Many believe that this is a bubble. However, there are others who believe that the rise of Bitcoin […]
In the previous article, we explained the concept of cost overrun. We also explained how cost overruns have a negative effect on the finances of the entire project. However, it is strange that despite being so harmful to infrastructure projects, cost overruns are still ubiquitous. It is common for more than 50% of megaprojects to […]
We are now aware of how to use the basic single stage models for both free cash flow to the firm (FCFF) and free cash flow to equity (FCFE). It is now time to look into more advanced models which involve two or more stages for which cash flows will be predicted. Now, we need […]
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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