Free Book Summary – Unfair Advantage: The Power of Financial Education – Written by Robert Kiyosaki
Robert Kiyosaki has a dazzling message. America needs financial education. Right now, our educational system is down and nothing is taught to prepare people for financial freedom. All of Robert’s books are good and teach the basics of financial literacy and the need for continuous learning. Rich Dad / Poor Dad is another famous book by this author. We will outline that book in a separate summary.
The cash flow quadrant is a very important concept that people need to consolidate in their memory if they want to control financial freedom. The quadrant consists of the following:
1.) E – Means employee
2.) S – Means small business or self-employed
3.) B – Means large companies (500 employees or more)
4.) I – Means investor
Traditional education prepares us for the E and S quadrant. The mantra has been to go to school and then to college to hopefully get a good job and save on a 401K for retirement. As many of you know, this is not a good model these days. On a side note, I was very fortunate to grow up with an excellent finance teacher. My father taught the principles that Mr. Kiyosaki teaches in his books Rich Dad / Poor Dad, The Cash Flow Quadrant, and this book Unfair Advantage. I can also tell you that most people do not have financial education. Authors like Mr. Kiyosaki and Dave Ramsey are really needed and we do what should be taught in our school system nationwide.
Why is this important to me?
This can be answered by asking a few more questions. Do you know the difference between good and bad debt? Can you define an asset and a liability in simple terms?
Do you know that there are three types of income taxes?
If you are not clear about any of these, you should read this book. In short, I will answer all these questions. Good debt is anything that spits out positive cash flow and increases in value. So if you have debt on a rental home that generates positive monthly cash flow, then that’s good debt. If you have credit card debt that you don’t pay every month, it is bad debt. Simply put, good debt makes you money and bad debt costs you money.
Actives and pasives! Anything that generates positive cash flow is an asset, while anything that costs you money is a liability. Example: a business that generates monthly profits is an asset. Your house is a liability. I know many of you will not agree with this, but your house costs you money every month. This is not a bad thing, but because you need a place to live, but it is a responsibility.
The three types of income include: ordinary, portfolio, and liability. We’ll go into more detail about how these play a role in your financial freedom later in this roundup. This book is important to you if you want to be financially free and escape the rat race of running out of money before the end of the month.
There are several examples and details outlined in Unfair Advantage, but for the sake of time we’ll cover each one in summary.
Knowledge: knowledge put to use is equivalent to power. There are a number of ways to make money, whether it’s in a business, real estate, stock market, content creation, licensing agreements, internet marketing, or various other endeavors. The point here is that nothing happens without educating yourself. Warren Buffet, the second wealthiest man in the world, is known for his constant reading and learning skills. The premise of Unfair Advantage is that with a very high financial education, money flows in rather than out. You can pay zero in taxes and earn millions with very low risk using other people’s money in good or bad economies. This creates an extremely unfair advantage.
Taxes: Taxes are government incentives for people to do what they want them to do. Therefore, because businesses create jobs and wealth, they have fiscal strategies as incentives to keep the economy going. There is a great premise that people must understand. I will expose the difference. When you are an employee, you work, you pay your taxes, and then you get your money to pay your expenses. When you’re a business, you work, pay all your expenses, and then pay taxes on what’s left. This is completely legal and can increase your rates of return legally. Remember one thing: tax evasion is wise, while tax evasion means jail time.
Debt – Good debt creates true wealth by allowing you to use OPM (other people’s money). This is very powerful and requires discipline. This is an area that
Hopefully this book was discussed in more detail. Keep in mind that debt used wisely can create unlimited wealth and leverage. Too much misused debt can create financial ruin. Also, know that more than 85% of the US population has too much BAD debt. This is not what we are talking about. This must also be taken into account to truly achieve financial freedom. Using debt is an advanced strategy and should be used wisely, which requires financial education.
4. Risk: The biggest risk in investing comes from people with no financial education who give their money to financial planners and hope that things will work out. This by far has caused great losses to people. Inflation is running rampant at the moment even though the government says it is not. This is a greater risk for savers than taxes. Saving money as an investment is a bad idea because over time the value is consumed through inflation. 401Ks and mutual funds along with diversification are presented as NOT risky. This is the furthest thing from the truth. 1. Mutual funds are subject to double taxes, as well as fees that eat up your returns. Also, you are not in control of your money. Note: This does not mean that ALL funds are bad. This is where financial education comes in. Various financial planners will tell their clients to diversify. According to Warren Buffet, “diversification is a protection against ignorance.”
5. Compensation: the rich don’t work for money. Think about hard work for a moment. If you work overtime, then you are trading hours for dollars. The problem is that your marginal tax rate increases as you earn more ordinary income. Your overtime is taxed more as you work longer. I am not against hard work. Just make sure you dock it with SMART and RIGHT JOB as well. The rich work to buy assets that generate cash flow. Your goal should be to have your money work harder than you do and earn more money as soon as possible.
What asset will pay your liability? This concept was first covered in Rich Dad / Poor Dad. This simple question changes the entire mood and if people followed it, they would be in better financial shape. This means that if you want a new boat, what asset will you pay for the boat? Once you understand this simple idea, your world will change.
I hope this short video summary has been helpful to you. The key to any new idea is to incorporate it into your daily routine until it becomes a habit. Habits are formed in just 21 days. I highly recommend that you root your knowledge of composition in your head. Answer the following correctly and you will understand the power of compounding. Would you rather have $ 1,000,000 in cash today or a penny doubled daily for 31 days? You can email me at [email protected] with your answer.