Introduction:
Financial intelligence is a crucial aspect of personal finance that is often neglected in traditional education. Robert Kiyosaki, the author of Rich Dad, Poor Dad, emphasizes that financial literacy and education start with understanding the basic concepts of income, expenses, assets, liabilities, cash flow, and how to turn liabilities into assets.
What is a Financial Statement:
Financial literacy starts with a financial statement. Unfortunately, 95% of all college graduates do not know what a financial statement is. Kiyosaki highlights the importance of six basic words in financial literacy: income, expenses, assets, liabilities, cash flow.
Cash Flow is Key
A FICO score is important for assessing one's trustworthiness in borrowing money, but it is not a measure of wealth. The key to being rich is to control cash flow. Cash flow can be illustrated by income, expenses, assets, liabilities, and cash flow.
Poor Person's Cash Flow Pattern
The poor person's cash flow pattern is characterized by high expenses, including taxes. Most people, regardless of their education level, struggle to control their expenses.
Middle-Class Person's Cash Flow Pattern
The middle-class person's cash flow pattern is characterized by a mortgage on their house, taxes, and upkeep expenses. Kiyosaki explains that a house, considered as a personal residence, is not an asset because it takes money out of your pocket.
The Definition of Assets and Liabilities
Assets put money into your pocket, whereas liabilities take money from your pocket. Kiyosaki explains that the definition of assets and liabilities is based on cash flow. Assets are things that put money in your pocket, while liabilities are things that take money out of your pocket.
A House is Not Always an Asset
Kiyosaki emphasizes that he is not saying not to buy a house. However, the house should not be considered as a good room. If a house is an investment property, rented out and
putting money into your pocket, it can be considered as an asset.
A Car: Asset or Liability?
A car can be either an asset or a liability, depending on its usage. If it is a taxi car, it is an asset. If it is used for personal transportation, it is a liability due to expenses such as insurance, gas, and upkeep.
Financial Intelligence:
financial intelligence is the ability to control cash flow. This is something that is not taught in schools. Schools emphasize getting a job, paying taxes, and buying a house and a car, but they do not teach how to control cash flow. A car can be either an asset or a liability depending on its use and the associated expenses.
Conclusion:
In conclusion, the key to turning liabilities into assets is to understand the concept of cash flow. Kiyosaki explains that assets put money into your pocket, while liabilities take money from your pocket. By controlling cash flow, one can increase their wealth.