1 ‘Asset’ Will Bring You Financial Freedom
Learning at an early age that we all have money problems, no matter how rich or how poor we are, was a very important lesson for me. Many people believe that if they had a lot of money, their money problems would be over.
Money alone does not solve your money problems. That is why giving poor people money does not solve their money problems. In many cases, it only prolongs the problem and creates more poor people.
Take for example the idea of welfare. From the time of the Great Depression until 1996, the government guaranteed money to the nation’s poor regardless of personal circumstances. All you had to do was qualify for the poverty requirements to receive a government check—perpetually. If you showed initiative, got a job, and earned more than the poverty requirement, the government cut off your benefits.
The system benefited those who were lazy and punished those who showed initiative. The system created more poor people.
Hard work doesn’t solve money problems. The world is filled with hardworking people who have no money to show for it… hardworking people who earn money, yet grow deeper in debt, needing to work even harder for even more money.
High-priced education does not solve money problems. The world is filled with highly educated poor people.
A job does not solve money problems. For many people, the letters J.O.B. stand for just over broke. Millions of people earn just enough to survive but cannot afford to live. Many people with jobs cannot afford their own home, adequate health care, or education, let alone set aside enough money for retirement.
What Solves Money Problems?
Financial intelligence, or financial IQ, solves money problems. In simple terms, financial intelligence is that part of our total intelligence we use to solve financial problems.
Unfortunately, if our financial IQ is not developed enough to solve our problems, the problems persist. They don’t go away. Many times they get worse, causing even more money problems.
For example, there are millions of people who do not have enough money set aside for retirement. If they fail to solve that problem, the problem will get worse as they grow older and require more money for medical care. Like it or not, money does affect lifestyle and quality of life—as well as afford conveniences and hassle-free choices. The freedom of choice that money offers can mean the difference between hitchhiking or taking the bus or traveling by private jet.
If you want to increase your financial intelligence, you need to be a problem-solver. If you don’t solve your money problems you will never be rich. In fact, the longer the problem persists the poorer you’re likely to become.
What Is Financial IQ?
Rich dad said that financial IQ determines, not so much how much money you make, but how much money you keep, how hard that money works for you, and how many generations you can keep it. Financial intelligence is made up of knowledge from four broad areas of expertise.
Accounting is financial literacy or the ability to read numbers. It’s fundamental to understanding every facet of your finances. Without the ability to read and understand financial statements, assess your income and liability statements, and identify strengths and weaknesses, you’ll have no hope of being in control of your money.
Investing is the science of “money making money.” This involves understanding the different asset classes and learning everything you can about the different types of investing. Once you know how to grow your money through investing, you will be on the path to financial freedom.
Understanding markets is the science of supply and demand. You need to know the technical aspects of the market, which are emotion-driven, in addition to the fundamental or economic aspects of an investment. Does an investment make sense? Or does it not make sense based on current market conditions?
A person who understands the tax advantages and protections provided by a corporation can get rich so much faster than someone who is an employee or a small-business sole proprietor. It’s like the difference between someone walking and someone flying. The difference is profound when it comes to long-term wealth.
Increase Your Financial Intelligence
The more you read financial statements, annual reports, and prospectuses, the more your financial intelligence, or financial vision, will increase. Over time you’ll begin to see things that the average investor never sees.
We all know that repetition is how we learn and retain what we learn. For years, rich dad had me review financial statements. Today, I think automatically in terms of financial statements.
When we learn to ride a bicycle, we train our subconscious mind to ride our bike. Once that is done, we don’t have to think or remember how to ride a bike as we ride.
When we learn to drive a car, we also train our subconscious mind. That is why, once we have trained our subconscious mind to drive, we can drive and talk to someone else, eat a hamburger, think about problems at work, or listen to the radio and sing along. Driving becomes second nature.
The same can happen with reading financial statements.
What takes the longest time when finding a good investment is analyzing the numbers. Learning to read financial statements is a tedious process, especially when you first begin to learn. The good news is that it gets easier and faster as you practice. Not only does it get easier, but you can also review many more investment opportunities almost automatically without thinking—just like riding a bike or driving a car.
I’ve spent years developing my financial intelligence because I want to participate in the fastest and biggest game in the world. I want to use my mind to the fullest. I want to be where the action is. The more I experience, the more exciting it becomes. At first, it may seem like a roller-coaster ride, but it gets easier and easier.
Play it smart,
Editor, Rich Dad Poor Dad Daily