“It’s not how much money you make, but how much money you keep, how hard it works for you and how many generations you keep it for.” – Robert Kiyosaki

One of the best books I’ve read on personal finance is the Rich Dad Poor Dad: What the Rich Teach Their Kids About Money – That the Poor and Middle Class Do Not! by Robert Kiyosaki. This book was released in 1997 and has changed the way a lot of people think about money.

Kiyosaki tells a lot of truth in this book, which you may refer to as “The Rich Dad Philosophy”.  He draws a comparison between the self-made rich (“Rich Dad”) versus a highly educated professional tied to his job (“Poor Dad”). Here are the 3 rules of investing from Robert Kiyosaki.

The Rich Dad Philosophy

Rule #1:  Don’t just save for retirement, accumulate assets that give you a good cash-flow.

Every personal finance guru tells you why you should save for retirement, how you should stop having coffee at Starbucks, for example, as every $5 helps. Kiyosaki has a different take on this. It’s good to save for retirement, but the question is how are you really going to save your money?

If you just put the money in a bank, the interest rates will be low and you won’t be any richer for it. Save in the stock markets; a single stock market crash could wipe out all gains.

Kiyosaki talks about developing “cash-flowing assets” of your own, which could give you cash in good times and bad, which are hedged against inflation and impervious to the direction of the stock market.

A few good examples of cash-flowing assets are real estate rentals, high dividend stocks, high interest bonds, eBooks, royalties on patents, etc. These assets are hedged against inflation and will help you earn a good solid income for the rest of your life.

Rule #2: Pay yourself first.

Here’s the problem with the budgets that most people make – they take care of the expenses first, such as the rent and utilities, and then invest whatever is left into cash-flowing assets. Kiyosaki advocates the opposite.

The first thing to do when you receive your monthly salary is to pay yourself first. This means using the money to invest in a way that will further your financial goals, whatever that may be. First invest, and then take care of the expenses for the month.

When you stick to this rule, you will learn to be disciplined about what you spend and how you spend. You will not make any unnecessary expense and will be focused on earning more from your job and making more money through various means.

Rule #3: Invest in systems, not in products.

What sort of companies should you invest in? Companies that come up with cool new products? No! Kiyosaki never invests in a company because he likes their products. He is more focused on their business system.

It is the business system or business model that decides whether a company turns successful or not. Consider Starbucks, for example. Starbucks is a highly successful business worth $80 billion. But what do they really do? They just serve coffee – I love Starbucks, but even I have to admit that there is nothing earth shattering about their coffee.

What has made companies like Starbucks, or McDonald’s so successful is the business system behind them, not their products. Their products can be easily replicated, but you cannot replicate their business system.

So when investing in a company, try to get a sense of their business system first, then consider their products. If the business system is one that looks robust and durable, then you can put your money into the company.

The admin of GoToMy Money is a young and dedicated writer having interest on finance and accounting. He is studious and read books, journals and reports on accounting. His write-ups on accounting are full of resources and valuable information.

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