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  The Key to Financial Intelligence  
  Robert Kiyosaki on 2018-12-04 16:11:57.0

This post The Key to Financial Intelligence appeared first on Daily Reckoning.

My rich dad said, "The average person is 95 percent eyes and only five mind when they invest. If you want to become a professional in the B and I quadrants (see below), you need to train your eyes to be only five percent and train your mind to be the other 95 percent."

Every day trillions of dollars are moved around the planet electronically. There is more money being created and available today than ever before. The problem is that money is invisible. Today, the bulk of it is electronic. So, when people look for money with their eyes, they fail to see anything.

Most people struggle to live paycheck to paycheck, and yet $1.4 trillion flies around the world every day looking for someone who wants it. It's looking for someone who knows how to take care of it, nurture it, and grow it.

If you know how to take care of money, money will flock to you and be thrown at you. People will beg you to take it. If you don't know how to take care of money, money will stay away from you.

Learning to See Money

Rich dad was adamant that in order to see money, you had to have financial intelligence. His definition of financial intelligence was as follows: It's not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.

For rich dad, financial intelligence started with simple financial education and grew from there. He felt that education was important because you needed to train your brain to see money; it doesn't come naturally.

Financial Literacy

The key to training your brain to see money is financial literacy, the ability to understand the words and number systems of capitalism. If you don't understand the words or the numbers, you might as well be speaking a foreign language.

For rich dad, each quadrant in the CASHFLOW® Quadrant was a different country with a language of its own. Employees (E), Self-employed (S), Business (B), and Investors (I) all use different ways of looking at the world and even different words to describe those ways of looking at the world. In each quadrant, if you don't understand the words, you won't understand the numbers.

For example, if a medical doctor says, "Your systolic is 120 and your diastolic is 80," is that good or bad? Is that all you need to know for your health? The answer is obviously a no, but it's a start. It's the same as asking, "My stock's P/E is 12, and my apartment's cap rate is 12. Is this all I need to know for my wealth?" Again, the answer is no, but it's a start.

The beginning of financial literacy is knowing words and numbers, and financial literacy is the basis of financial intelligence. I disagree with those who say, "It takes money to make money." In my opinion, the ability to make money with money begins with understanding the language of money. As rich dad always said, "If money is not first in your head, it won't stick to your hands."

Why Financial Education Takes You Beyond the 401(k)

Most people don't have a financial education. So, when it comes to investing and building a solid retirement, they blindly turn their money over to people they believe are financial experts: people such as bankers, financial planners, and stockbrokers.

Most of these so-called experts are not really investors in the true sense of the word?the big I quadrant in the CASHFLOW Quadrant. Most are instead in the E quadrant, working for a paycheck, or self-employed financial advisors in the S quadrant working for fees and commissions. Most "experts" can't afford to stop working simply because they don't have investments working for them.

Money Doesn't Mean Financial Intelligence

To be clear, this is not a poor person or a rich person problem. Both the rich and the poor give their money to these "experts." This is because having a lot of money doesn't make you financially intelligent. There are many high-paid employees who have no idea how to manage their money, and many who lose a lot of money because of it.

That's why Warren Buffett said, "Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway."

If people don't have a sound financial education, they can't tell if a financial advisor is a salesperson or a con artist, a fool or a genius. There is nothing wrong with being a salesperson. We all have something to sell. Yet, to quote Buffett again, "Never ask an insurance salesman if you need insurance." When it comes to money, there are many people desperate enough to tell and sell you anything, just to get your money.

Deductive Reasoning

Interestingly, the vast majority of investors never meet the person taking their money. In most of the Western world, employees simply have their money automatically deducted from their paycheck into retirement plans like a 401(k), the same way the tax departments collect taxes.

Retirement plans like the 401(k) go by different names in different countries. For instance, in Australia, they are called superannuation plans, and in Canada, they are known as RRSPs. But they all share one thing in common, your employer takes money out of your paycheck and hands it over to a broker you've most likely never met to manage one of the most important things for your future?your retirement.

And they're all possibly the worst way to invest.

Why 401(k)s are the Worst Investments

I say the 401(k) is possibly the worst way to invest for retirement for the following reasons:

Taxes work against you with a 401(k):

Long-term capital gains are taxed at a lower rate of around 15%. But the 401(k) gains are taxed at the ordinary earned income tax rate, which is much higher and the highest taxation rate of the three types of income: Ordinary earned, portfolio, and passive. And, if you want to take money out of your 401(k) early, you'll have to pay a 10% penalty too.

You have no insurance if there is a stock-market crash:

To drive a car, I must have insurance in case there is a crash. When I invest in real estate, I have insurance in case of a fire or other loses. Yet the 401(k) investor has no insurance to prevent losses from market crashes.

The 401(k) is for people who are planning to be poor when they retire:

That is why financial planners often say, "When you retire, you'll be taxed at a lower tax rate." They assume you'll make less money when you retire and thus be in a lower tax bracket.

TIME magazine is on my side. TIME has run a number of articles over the years questioning the wisdom of putting so many people's retirement at risk through 401(k)s. They've been predicting that millions won't have enough money to retire after a lifetime of handing money over to strangers.

A typical 401(k) plan takes 80% of the profits. The investor may receive only 20%, if they're lucky. The investor puts up 100% of the risk and the money. The 401(k) company puts up no money but gets the majority of profits.

So, why are 401(k)s so popular? They're easy, for one. But the main reason is that those who run these plans make a lot of money off your money. Those who run these plans don't get paid by how much money they make you. They get paid by how much money you turn over to them in the long run. Thus, the old line, "Invest for the long-term in a well-diversified portfolio of stocks, bonds, and mutual funds."

The reality is that real investors do not park their money. They move their money. It is a strategy known as the velocity of money. A true investor's money is always moving, acquiring new assets, and then moving on to acquire even more assets. Only amateurs park their money.

There are much better ways to invest for your retirement, but they require financial education. I encourage you to start building your financial education and learning about better, more sophisticated ways to prepare for retirement.


Robert    Kiyosaki

Robert Kiyosaki
Editor, Rich Dad Poor Dad Daily

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The post The Key to Financial Intelligence appeared first on Daily Reckoning.

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