Father’s Day 2023: Read ‘Rich Dad Poor Dad’ to learn what you are lacking in finance as a father

How many times have you heard someone talking about their father’s “Rags to Riches” story? Did you notice how your best friend in college had access to the latest gadgets because he had a rich dad? The debate between rich dads versus poor dads becomes more pronounced on Father’s Day as you realize how different ways of thinking contribute to the extent of richness in life.

This Father’s Day, let’s check ‘Rich Dad, Poor Dad’, a 1997 book written by Robert T. Kiyosaki. The author in his book emphasized the significance of being financially literate, achieving financial independence, and building wealth through various means such as investing in assets and real estate, starting and owning businesses, and enhancing one’s financial intelligence.

Financial literacy is essential

Not all fathers may be adept at growing money. It’s one thing to earn money and an entirely different thing to manage and let it grow. One reason that can be attributed to many fathers’ tendency to stick to traditional investment options is the lack of financial literacy. Our schools do not teach enough about finance, which is why this book must be gifted to dads this Father’s Day. Kiyosaki explains financial concepts lucidly while taking the reader to the world of money and investments without it sounding too complicated.

Assets versus liabilities

Assets and liabilities have altogether different meanings when looked at from the purview of finances. Many fathers adopt an emotional stand while spending or investing their money, which often blurs the thin line between assets and liabilities. Kiyosaki introduces the concept of assets and liabilities while describing their importance in achieving long-term financial success. The author clearly underlines “assets” as things that put money in your pocket or have the potential to appreciate in value. These can include income-generating properties (such as rental real estate), stocks, bonds, intellectual property, businesses, and more.

On the contrary, liabilities are defined as things that take money out of your pocket or do not have the potential to appreciate in value. These may include personal expenses, such as consumer debt (credit card debt, car loans), and non-income-producing possessions (such as expensive cars or luxury items).

Learning this distinction is necessary before advancing to plan and create an investment portfolio. You must build a portfolio of income-generating assets to create wealth and achieve financial independence. By focusing on acquiring assets that generate cash flow, you can create a passive income stream that can support your lifestyle and provide financial security over the long term.

Mind your spending habits

A penny saved is a penny earned, which is why one must be mindful of spending habits. In many cases, reckless spending tendencies or buying things on credit has caused many people to be trapped in unwanted debt including personal loans and credit card debt. However, this is possible when you prioritize the tendency to invest in income-generating assets over hoarding unwarranted liabilities. By focusing on acquiring income-generating assets, individuals can gradually reduce their dependence on a traditional paycheck and create financial freedom and independence.

Focus on cash flow

There is more to increasing your income than by just relying on your job. The traditional mindset often revolves around relying on a job and a steady paycheck for income. However, Kiyosaki in his book suggests shifting that mindset towards building and owning assets that generate cash flow independently. This could include investments in rental properties, dividend-paying stocks, businesses, or other ventures that generate passive income.

Creating an alternative income flow enables two things. One, you and your family will never be short of money. Second, you will have more money to invest in alternative investment options, thus, lending you increased opportunities to make money.

Apart, multiple income-generating assets allow scope for diversification that provides greater stability and financial security. The idea must be to create enough income from these assets so that the resulting earnings are sufficient to cover living expenses and desired lifestyle choices. At this stage, individuals have the option to work by choice rather than necessity, as their assets are generating the necessary income.

Not all debt is bad

Don’t be afraid of the word “debt”. Not all debt is bad; there is something called good debt too. Realizing the distinction between good debt and bad debt is crucial. Kiyosaki in his book refers to good debt as debt that is used to acquire income-generating assets. These are assets that have the potential to generate cash flow or appreciate in value over time. Examples of good debt could include a mortgage on a rental property or a business loan to start or expand a profitable venture. The idea behind good debt is that it can create opportunities for generating income and building wealth in the long run.

On the other hand, bad debt refers to debt incurred to finance liabilities that do not generate income or appreciate in value. These are expenses that drain your resources without providing any financial return. Examples of bad debt can include credit card debt, car loans, personal loans used for discretionary spending, or depreciating assets. These liabilities can hinder your financial progress and make it challenging to build wealth over time.

Start investing early in life

Have you heard of the term “Magic of Compounding”? Unlike any other kind of magic that is used to entertain, this magic compounds your money to grow exponentially and reach an enviable sum. Starting early with investing is widely recognized in the world of personal finance.

When you start investing early, you benefit from the power of compounding. Compounding refers to the ability of an investment to generate earnings, which are then reinvested to generate more earnings. Over time, this compounding effect can significantly increase your investment returns.

By starting early, you give your investments more time to grow and compound. Even small amounts invested regularly can accumulate and grow substantially over a long period. This is because the returns you earn on your investments are reinvested and generate additional returns, creating a snowball effect.

The longer your investments have to compound, the more they can potentially grow. Starting early also allows you to take advantage of potential market cycles and ride out short-term fluctuations in the market. Over a longer investment tenure, the impact of market ups and downs tends to diminish, and you have the opportunity to benefit from the overall growth of your investments.

While starting early is beneficial, it's important to note that it's never too late to begin investing. Even if you haven't started early, taking action and beginning your investment journey as soon as possible can still have a positive impact on your financial future.

Taking calculated risks

Learn about different investment opportunities and take risks intelligently. Recognize that all investments come with some level of risk. It's important to evaluate the potential rewards and risks associated with each investment opportunity. Assess your risk tolerance, which refers to your ability and willingness to withstand fluctuations in the value of your investments. Begin by investing smaller amounts and gradually increase your exposure as you gain knowledge and experience. Starting small allows you to learn from your investment decisions and adjust your strategy accordingly. Treat your initial investments as a learning experience rather than putting all your capital at risk from the beginning.

Develop a risk management strategy that aligns with your investment goals and risk tolerance.

Rely on professional advice

Experienced investors or professionals have knowledge and expertise in evaluating investment opportunities, understanding market trends, and managing risks. This also explains why you cannot afford to ignore professional advice and opt for a full Do It Yourself (DIY) approach. Depending on the complexity of the investment opportunities you're considering, consulting with professionals who specialize in those areas can be highly beneficial.

Consider seeking advice from experienced investors or professionals in the field. They can provide insights, guidance, and mentorship to help you make smarter investment decisions. Their knowledge and experience can help you navigate potential pitfalls and identify promising investment opportunities.

This Father’s Day, you may decide to sit down and read this book to enlighten yourself on finance. Use the knowledge and content to unveil and realize your true financial potential. Being a father entails financial responsibilities toward your wards, which is possible only when you are first willing to learn about finance and apply its practical implications to your daily parlance.