Recommended Reading Rich Dad Poor Dad

First of all, sorry about not writing anything last week. I was still working on finishing off our new home office, and it took a little longer than expected. My son has had a cold for the last two weeks, so we have not been getting very much sleep.

First book I would recommend anyone to read is

Robert T. Kiyosaki’s Rich Dad Poor Dad.

First time I read this book, I recognised my father in both the Rich Dad aspect, and the Poor Dad aspect of the book.

While my dad has Rich Dads aspect to how you spend money, he also had Poor Dads aspect on how to earn the money.

The short of it is basically that the way that most of us are brought up (Poor Dad) is to value education, and to strive for a good education, in order to get a good job, as with a good job normally follows a good income. Promotions are good, as they increase the income. The only problem with Poor Dad is that with the increased income, all the expenses also increase, and as long as the expenses increase at the same rate or faster than the incomes, you will stay poor, or get poorer.

The aim on the Rich Dads side is instead the following:
1. Don’t work for money.
2. Get financialy literate.
3. Mind your own business (i.e. run your own company).
4. Taxes and corporations.
5. Rich people invent money.
6. Work to Learn – Don’t work for money.

So, what can you learn from the book?

First and most important thing you learn is about emotions (fear and greed), and using intelligence when it comes to money, rather than emotions.

Second thing you learn is about assets and liabilities, and the difference between them. Crucial if you want to ever get Rich.

Financial literacy, and cash flow. This part is very much about why most of us, eventhough our incomes go up don’t get a better life.

I highly recommend this book as a book to start with on your way to financial freedom.

I will try to advice on more books in the near future.

“Fredrik Sohlberg is a participant in the Amazon Europe S.à.r.l. Associates Programme, an affiliate advertising programme designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.co.uk/Javari.co.uk.”

Balance your books (or Earnings & Spending)

First of all, before you can become financially independent, you need to learn some very simple things about economy (most people find it rather boring anyway).

  • Add up all your income (salary, interest, etc). This is your plus.
  • Add up all your costs (rent, or mortgage, car, food, insurance, credit cards, etc). This is your minus.

So, in order for you to become rich, all you need is that your plus, is more than your minus. For all the money you don’t spend, you can generate additional income (interest, increase in value etc).

What if your minuses are larger than your plusses (a very possible scenario in todays recession)?

  • All your activities with regards to money need to be done in order to reduce the spending, and to increase the income.
  • First of all you would want to reduce your debts (credit cards, personal loans, mortage). Pay of the ones with highest interest rates first.
  • Second of all you would want to reduce the regular spendings (e.g. You pay for cable TV every month, or you subscribe to your favourite magazine, or you are member of the local gym). All these things cost money, and because you will be working on sorting out more income in your spare time, you will not have enough time to enjoy them (not at this moment at least, so get rid of as many as you possibly can; ohh that reminds me to cancel our subscription to Heat Magazine).
  • Third, by reducing the number of times you eat out, or eat take away food each month.
  • Fourth, by buying less ready made food, and checking out alternative places to do your food shopping, you might save a bundle. Some of the low-cost places can be okay, as they normally keep the prices down by selling a limited number of brands, thus improving their barganing power with those suppliers.  You can also grow your own veg if you are that inclined, but in general the savings are not that great compared to the amount of work you need to put in. (I do it for the pleasure of eating what I myself have grown).
  • Fifth, getting a cheaper and more economical car, or getting rid of your car altogether (very difficult for most people, and I am no shining light here as we have 2 cars). We do however drive fairly echonomical cars.
  • Sixth, sell all your old stuff that you don’t need on your favourite auction site (e-bay), or at your local car-boot sale. You will be surprised as to what people are willing to buy.
  • Seven, if you still have problems getting that extra money to balance your books, and to keep you in the black each month.  Get another job, maybe for the weekend, or every other weekend.
  • Eight, seriously re-consider your holiday plans.

The more you manage to reduce your spending, the faster you will be able to accumulate wealth. If living like a church mouse is not your idea of fun, reward yourself once in a while for saving well, but don’t over do it. Find as many free things you can do as rewards to you and your family, and use a free weekends to enojoy them.

Once your money starts growing (unfortunately it will take around 7-8 years at good returns before you start seeing the big effect of compounding), having the money grow even faster will be exciting.

I will be back with more ideas on how to balance your books. Until then.

/Fredrik