Rich don’t pay taxes
Rich Dad Poor Dad
I decided to read a 20 years old book about personal finance, entrepreneurship, and investment `Rich Dad Poor Dad` by Robert Kiyosaki and Sharon L. Lechter. The book has been recently updated. Personal finance is something that has been on my agenda for past years, therefore this book drew my attention. I found the author´s approach very controversial in certain areas and partly miss leading. This encouraged me to reach out and search for more information about the key topics that got most of my attention. They are financial education, real estate, and taxes. Financial education is something that is widely neglected, money used to be or still is a taboo in Finland. Real estate or rather becoming a house owner in western society is one of the main goals for life in an average worker’s mind. While taxation is misunderstood, especially in Finland where I notice that few people know where and why our money goes.
I started my financial education at home, I received some guidance and how to do things, but I most definitely lacked the idea about why to do so. One thing that felt like a sting was author´s memory from poor dad´s home ´we cannot afford it´. I´m sure many of us heard that before. It´s quite limiting, I prefer to encourage myself to analyze how I could afford it. This applies not only to the financial side. Instead of making assumptions, we benefit much more from thinking about how we can achieve something. Often at first glance, there is a financial limitation, but there are ways around it. This is taught in a book by an example when the author being a young boy starts to work seemingly for free, in exchange he gets practical education that motivates him to find the solutions to make money.
The start is understanding the difference between the wealthy and the rich. For me being wealthy besides financial independence means also being able to live according to my values, being able to educate myself. Good health is a part of our wealth, but we need to invest, and it does not come easy. The main takeaway for me is the split between liability and asset. I highly agree with the author that most of the middle-class and poor buy liabilities rather than assets, therefore in a long run they stay poor and are forced to work for money. That being so, earning more money does not solve financial problems in most cases. Wealthy people make money work for them. Most people lack long term vision, we are likely to take today´s pleasure over long term benefits. There can be different reasons, but one is without a doubt lack of financial education and understanding of the system.
The second part that I found interesting is real estate. I think it´s fair to say that our biggest expense is related to housing right after taxes. In the book Robert uses real estate as a perfect investment opportunity example, explaining how anyone could make quick and easy returns.
It´s worth mentioning that I found out author’s connections to real estate companies while he was promoting the book. That raises the question of the truthfulness of his ideas and expertise. Nevertheless, I won´t concentrate on investigating that, instead I would like to take a look at how we often lock ourselves with a burden of house ownership. The idea behind an asset is that it´s something generating profit. While from my observation, purchasing a house for many middle-class people is a dream that in reality becomes a liability and burden. Not at first, but I often hear that people would like to work part-time or change their career. They often cannot afford it, because of the obligations to the house and everything in it, it becomes a liability that we tend to have a problem getting rid of. That requires flexibility and a certain mindset. I see it the way that a house that we live in is more of our liability and it becomes an asset for example when we buy it to rent it out. A perfect situation would be where we have an existing business or another asset which generates the profit to cover the costs related to the purchase of a house. That way we place the house in our asset column.
The third part that I would like to reflect on is taxation. This is something that might have different reactions in every country depending on the history and current situation. It is worth remembering the history of taxes and the fact that they were created for the rich, but with time it moved down the ladder. The only reason why taxes got general acceptance was the romantic idea about the rich paying for the poor. Just like the Robin Hood story goes, stealing from the rich to help the poor. At first, it might seem like a reasonable idea, but as we move in our financial career, we might look at it from different angles. The author argues that the rich don´t pay taxes, because they decide to pay themselves first, after that they pay obligations to everyone else and at the very end pay taxes from what´s left. While the poor and middle class pay first taxes and everyone else, leaving little to themselves. That might seem to be the case in a country like USA where the author is from. I like to think about it differently, in Finland, we have a high standard of public health care, schools and daycares, higher education, and many support possibilities that are allowed because of the high taxes. Finland allows tax evasion to a certain degree, simply by keeping fixed capital tax for the super-rich, which is not far away from the middle-class progressive income tax rate. In my personal opinion, the reason for that is to keep the wealthy and their capital in the country. It is the wealthy and rich who provide jobs for the middle-class and a small country like Finland could not afford big capital to move away to another country.
My takeaway from the book is to `mind your own business´. It´s hard not to quote that because even when we keep our day to day jobs, we should really mind our own business. Reflect on our life situation and on how does money influence it. Do we have the possibility to use our money to build real freedom, where we can make a decision for ourselves?
Where does our money go, and does it benefit us in the future? It´s easy to forget about it in a such well-structured and regulated environment which is provided by Finland. It´s easier not to think about these things, but that doesn´t mean we can avoid responsibility. It is only our responsibility to take care of our life and if we don´t take charge of it, we will have to carry the consequences or even the next generation will.