Increase Your Financial IQ Book Review Part 4
Every Sunday here at Ask Mr. Credit Card we review a personal finance book. This week we are reviewing Increase Your Financial IQ by Robert Kiyosaki. If you missed the first few sections of the review you can read them here:
- Increase Your Financial IQ Book Review 1
- Increase Your Financial IQ Book Review 2
- Increase Your Financial IQ Book Review 3
Increase Your Financial IQ: Budgeting
A Budget is a Plan:
One of the definitions of the word “budget” is: a plan for the coordination of resources and expenditures.
Rich Dad said a budget is a plan. He went on to say “Most people use their budget as a plan to become poor or middle class rather than a plan to become rich. Most people operate their lives on a budget deficit rather than a budget surplus. Instead of working to create a budget surplus, many people work to live below their means, which often means creating a budget deficit.
A budget deficit is an excess of spending over income, while a budget surplus is an excess of income over spending.”
Well, this mode of thinking is definitely what sets Kiyosaki apart from the majority of other personal finance gurus. A quick search of the internet, or a glance at the finance section of any bookstore, will yield up hundreds of books and articles that focus on living below your means.
Kiyosaki on the other hand has always focused more on increasing your means. He believes that if you can’t afford to live the life you want to live you should earn more, not cut back.
I have to admit, that was a liberating idea for me when I first encountered it. While I do think it makes good financial sense to live below your means, (or at the very least within them!) it makes far more sense to make increasing your wealth the primary focus.
Think about this: I can spend ten hours a week clipping coupons, researching the best deals, travel to three of four different stores to maximize my savings, and I will be able to save money. Possibly a lot of money. People do it successfully all the time.
If we follow Kiyosaki’s mode of thought though, he would advise taking that same ten hours a week and putting it to use by finding a way to earn more money instead.
I do agree with Kiyosaki that this mode of thinking (he calls it “thinking poor”) traps people. It traps us into believing that we can’t afford things, that we must do without, and our quality of life suffers.
Instead of spending our time focusing on how we can acquire the things we want, we focus instead on how to min/max the small amount of money that we have and stay within our comfort zone.
Kiyosaki shares his own story within this book. He explains how he paid himself first, before anyone else so that he could create his own budget surplus.
Soon after we were married, Kim and I had the same financial problems many newlyweds have. We had more expenses than income. To solve this problem, we hired Betty the Bookkeeper. Betty was instructed to take 30% of all income off the top, as an expense, put that money in the asset column.
Using simple numbers as an example, if we had $1000 in income, and $1500 in expenses, Betty was to talk 30% of the $1000, and put that money in the asset column. With the remaining $700, she was to pay the $1500 in expenses.
Betty nearly died. She thought we were nuts. She said, “You can’t do that. You have bills to pay.” She almost quit. You see, Betty was a great bookkeeper, but she budgeted like a poor person. She paid everyone else first and herself last. Since there was rarely anything left over, she paid herself nothing. Her creditors, the government, and bankers, were all more important than Betty.
Betty argued and fought. All of her training told her to pay everyone else first. The thought of not paying her bills or taxes made her weak in the knees.
I finally got her to understand she was doing us a favor. She was helping us out. I explained to her that she was helping us solve a very big problem, the problem of not having enough money, and as you know, solving problems makes us smarter. When she understood she was actually creating income through expense, she was willing to go along with our plan to create a budget surplus.
For every dollar of income, Betty would take 30 cents and put it in savings, tithing and investing. She knew that saving, tithing, and investing were necessary expense to create a surplus, our first and most important expense.
With the 70 cents from every dollar left, she was to pay taxes, liabilities such as our mortgage and car payments, and then our bills such as electricity, water, food, clothing, etc.
Needless to say, for a long time we came up short every month, period. Although we had paid ourselves first, we did not have enough money to pay others. There were some months Kim and I came up as much as $4000 short. We could have paid the $4000 from our assets, but that was our money. The asset column belonged to us.
Instead of panic, Betty was instructed to sit down with us and let us know how sort we were each month. After taking a deep breath, Kim and I would then say, “It’s time to get back to Financial IQ #1: Making more money.”
With that, Kim and I would hustle around doing whatever we could to make more money. Kim, with her marketing background, often called businesses and offered to consult with them on their marketing plans. She also took modeling jobs, and sold a line of clothes.
I offered to teach investment or sales and marketing classes. For a few months, I trained sales teams at a local real estate company. I even made money by helping a family move, and by clearing some land for another family.
In other words, we swallowed our pride and did whatever it took to make the extra money. Somehow, we always made it; and somehow Betty stuck with us and assisted us with out problem, solution, and process, even though she worried more about us than we did.
Unfortunately, Betty could help us, but was unwilling to help herself. Last we heard, she’d retired and moved in with her single daughter. They share expenses, using Betty’s payments from Social Security to pay them. They do not have a budget surplus.
Ok, so that was a long section, and for most of us, I think the ideas there can be controversial. Instead of just telling you what I think of them, I would really like to know – What do YOU think of the way Kiyosaki created his budget surplus?
Do you think this is the right way to go about things? How do you approach the issue of building wealth? Please leave me a comment below, and I’ll respond!
This concludes our review of Increase Your Financial IQ by Robert Kiyosaki. If you’re interested in reading this book, don’t forget that you can a used copy off of Amazon.com for less than half price, or check it out from your local library. Financial education doesn’t have to be expensive!
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