It Takes Money to Make Money...Or Does It?
by brian@JijiniMarkets - Mon 22 Jan 2007
It's been said: "It takes money to make money." Until recently, I had been a firm believer and preacher of this philosophy. However, after reading Robert Kiyosaki's 'Rich Dad Poor Dad', my faith is a little shaken.
Most of us have gone through being broke at some time or other. Some have even experienced being rock-bottom broke when electricity/water/phone services are discontinued and you have sleepless nights tossing and turning worrying about the next source of funds. The worst part about being broke is being unable to get out of it. Thinking that a good job with a good pay will fix the problem is natural, but - according to Kiyosaki's philosophies - this is not sound reasoning. Cash inflow from a well-paying job is advantageous, but it doesn't necessarily solve the problem.
Kiyosaki attacks the conventional approach to attempting to attain financial success. He strongly disagrees with the assumption that more money from a job is 'necessary' to solve financial problems or to create more money. In fact, he describes those who believe in that idea as being "financially unsophisticated" (harsh, I know). For Kiyosaki, solving financial problems comes down to two things: financial literacy and being smart. He states that "Money comes and goes, but if you have the education about how money works, you gain power over it and can begin building wealth." He simplifies financial intelligence into just one rule: "Know the difference between an asset and a liability, and buy assets." On the being smart, he advises being creative in managing your assets and liabilities and gives the example of setting up a personal corporation because it allows you to pay for expenses before you pay for taxes.
It has taken some time to adjust to his way of thinking but after analyzing his own personal examples I am a little more inclined to agree with him. However, I can't help but wonder if it is really possible to become a great investor without a cent in the bank or, even worse, while still in debt? Is this just a philosophy that someone happened to come up with after being successful? In other words, would he still believe in the same philosophy if he was rock-bottom broke?
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