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This is how the rich become richer

Your Rich

By GuyDussekPublished about a year ago 5 min read
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This is how the rich become richer
Photo by Mathieu Stern on Unsplash

I'm sure you've all heard of the book Rich Dad Poor Dad by Robert Kiyosaki, which tells the story of going from nothing to something, from poor to rich. However, even after reading this book, most people still do not achieve financial freedom. Is this easy to say but hard to do, or does the author have some reservations? I will use my personal experience to explain it in the simplest possible terms so that you can easily understand it. I would recommend reading more of this article as it is more valuable and practical than some of the paid content out there. The key to the book is the difference in mindset and way of doing things. Simply put, Robert's poor dad is a university professor who earns a good income but works, spends and pays his bills, works hard to earn more money, and the cycle repeats itself. The rich dad looks like a small shopkeeper but keeps buying land and buildings to become rich. Here are three core concepts and ways to apply them to financial freedom.

First, don't work for money, make money work for you. This is the core rule of the book, and the most important concept. Most people are caught in a rat race cycle, equating wages with income. The poor dad is an example of a man who is well paid but has no income when he is sacked. Most people think that working is the safest thing to do, but life is totally dependent on the boss and the company, and raises and cuts are decided by others. When it comes to income, you can't think like a boss. Many people aim to live a rich life but most of their salary is spent paying off their mortgage and working overtime for a lifestyle that turns into waiting for a monthly salary. This is likened to a rat trap, where you run and can't see the exit. You are caught in it and don't realise it. To make money, build your own mind, not just work for someone else.

The fastest way to financial freedom is to turn your existing resources into money, and then use that money to make more. If you learn about financial literacy early on, financial freedom can become a reality. How can you live without a job? How can you start a business if you don't have money? You don't have to work, many entrepreneurs have to work initially and I need a full time job and a steady income. I also need a full-time job and a steady income. I use my spare time to run a side business, learn about money and financial literacy, and absorb information about making money. When the income from your side hustle grows beyond your regular job, choose to quit your job and invest in developing a bigger income from your side hustle. How do you develop financial literacy and money-making skills? How did Kiyosaki and his son make money work for them? Think about who you want to be in 20 years. What do you have to do to become the person you want to be?

If you've read this far, hang in there a little longer.

First of all, it is important to understand how money works. Kiyosaki says that what generates cash that goes into your pocket is called an asset, and what goes out of your pocket is called a liability. Assets generate income and liabilities generate expenses. Buying a house is a debt, and you make monthly payments. Conversely, renting a house is a liability, and the remainder is an asset. The same house can be an asset or a liability, depending on its use. The same goes for a car. Buying a car and paying off the mortgage is a liability, while renting a car or an antique car that has appreciated in value can bring in income and is an asset. The rich dad invests most of his monthly salary in assets, and his favourite is real estate, which appreciates over time and with compound interest, adding to his assets like a snowball. At the heart of this is the idea of building passive income, of making money while you sleep. This is the concept of becoming wealthy. Some people don't have a lot of assets yet, so they need to gradually build up assets that generate passive income. Real assets that generate cash without work.

Three examples.

First, the poor mindset. There is work but no assets, income becomes expenses, taxes, rent, transport and living costs.

Secondly, the middle class. With a car and a house, income pays off the mortgage, credit card loans and expenses, and may have no remaining investments or savings.

Third, the wealthy. The majority of income comes from assets, with less time to earn large incomes such as rent, dividends, interest and royalties. Stable business and passive income brings good returns, more time is invested to earn more, expenses are paid from the company, and finally taxes are paid. Why does understanding the tax code make you rich? In the next section, you will see why the rich understand the tax code. Currently, there are more ways to build passive income than just the ones mentioned above, and technological developments can also lead to passive income, so called internet entrepreneurship.

The third point is to take advantage of corporate taxation. Ordinary people pay their taxes first and use the rest for expenses. Those who are financially literate pay their expenses before paying taxes. Don't be afraid of expenses, as long as they don't amount to enjoyment. For example, if Mr. A earns $10,000 and has to pay $2,000 in taxes, he may have $8,000 left after paying taxes to pay off his mortgage and may not have any investments or savings left over, but if Mr. B also earns $10,000 and knows the tax laws, he can start his own company and pay off his mortgage and expenses first. The difference between Mr. A and Mr. B is that the latter knows how to use the tax advantages of the company.

In reality, 88% of tax revenue comes from the middle class. It is easy to understand that most of them do not have much financial knowledge and pay their taxes in compliance with the law, 2000 tax first, and the rest to pay off the mortgage, not to mention investments. If the owner knows how to use the company's tax advantages to reduce his own income and increase the company's income, the company can legally deduct tax and he will pay much less tax, so he can invest his money to make more money. I believe I have heard that "the law protects the rich", and I admit it. This explains why the rich get richer and the poor get poorer. But that doesn't mean that the middle class and below can't change, financial literacy is something everyone can learn. Why are the rich richer? Studies show that the rich are more likely to study, spending more than twice as many hours a day studying as the average person.

That's it for this story, I'll see you in the next one, let me know if you find it helpful! I hope you won't be stingy with your following so that you don't miss out on every single one of my articles, thanks to the human race, and my best wishes for your early entry into wealth freedom.

By Mathew Schwartz on Unsplash

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About the Creator

GuyDussek

I love to write and I like to output articles that surprise me, so if you like my articles, follow me!

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