Like most people, I read a lot of books about money but never actually do anything afterwards. That’s about to change. One of the objectives of my blog is to read books about money and put them into action.
I currently rate Rich Dad Poor Dad as my number one personal finance book (there is a reason it is the top selling personal finance book). Given that I rate it so highly, it feels right that this is the first book that I try and put into action.
For those who haven’t read the book, it essentially discusses how just working from 9-5 means you are in the ‘rat race’ and living for retirement. In order to get out of the ‘rat race’ you need to have your money working for you so you get richer even though you are not working. This can be achieved by investing and / or running a business(es). (buy book, via amazon, here)
So, what actions have I taken since reading Rich Dad Poor Dad?
1- Found out how ‘poor’ we are to start with!
The book is very clear that to become ‘rich’ you need assets (savings, investments, businesses) which generate more income than the expenses that are generated from your liabilities (house, car and general living).
Therefore the first thing I did was to set up a simple spreadsheet to understand and track where our money is and split it into assets and liabilities. I won’t go into all the details on my spreadsheet here. In short, I just log where all our money is at the end of each month. The difference in the total at the end of the month shows how much we have saved. We also log how much income we have from salaries, investments and savings. From this we can see how much we are spending each month (expenses = income – savings).
I’ve been using this spreadsheet for a few months and the impact has been very powerful. Once you realise how much you are spending, you soon start finding ways to avoid the needless outgoings (e.g. changing service providers bills or cancelling unused subscriptions).
Also, the spreadsheet gives us focus. We now have an objective in terms of what we want our money to be doing rather than just being a means for us to spend more on ‘stuff’. My wife and I want to have enough money that we can cover our expenses with income which isn’t from our day jobs. Having this spreadsheet shows us our progress towards this goal.
You can read more about how we are tracking our finances here. Also, you can download a Free copy of this spreadsheet, for your own use, if you subscribe to my blog.
2- Started a business …. well, sort of!
The book, Rich Dad Poor Dad, talks about the benefits of owning a business and having people work for you. This way you get income without giving up your time. Clearly it is not as simple as it sounds. An investment of time and money is required to set up a successful business.
Whilst setting up a business is not easy, I’m going to give it a go!
I’m relatively risk averse as I have a family to support, so can’t just quit my job and spend our life savings setting up a business. I’ve therefore taken the decision to start slowly rather than going ‘full-out’. By starting this site, MoneyBooks.blog, i’m learning new essential skills. This includes learning how to create a website, marketing a business online and finding a ‘niche’.
By starting this blog, I’m gaining firsthand experience about running a business but without a material risk to my livelihood. I know some could argue that as I don’t really have much ‘skin in the game’ financially then I might not be as motivated to make it a success and therefore increase my chances of failure. This is a very valid point. Whilst I’m not putting much in financially at outset, however, I am putting myself out there in terms of letting people know I’m doing this and getting them to hold me accountable to the actions I commit to.
Over time, if this site starts gaining momentum then I can use the skills I’m acquiring to start or buy other online businesses. There seems to be plenty of online marketplaces to buy existing online businesses. I’m not at that stage yet but that is the aim for the future.
[Since I wrote this original blog, I’ve done more research into becoming a website entrepreneur, find out more here]
3- Invested our money
The other area of the book is about making your money work hard for you. Most people spend what they earn and will therefore never become rich (unless they get lucky). Rich Dad echoes some of the key points from The Richest Man in Babylon, which says you should save at least 10% of what you receive in income before you pay anyone else, i.e. make saving the first thing you do with your pay check, not the last thing. Then invest this 10% and watch it grow.
To make it grow you can’t leave it in a bank account. This money should be invested unless you have some shorter term commitments for it (e.g. deposit for buying a house).
We have set up an investment account to invest our money in the stock market. We have also set up an account to put money into peer-2-peer lending (read more about peer-2-peer lending here). I note that unlike a lot of investment books, we don’t invest in individual company stocks. We invest in market funds to manage the risk and keep costs low. There are a lot of books about investing, including from the author of Rich Dad Poor Dad, which discuss about how you can invest in different companies. I personally don’t believe this is appropriate advice. If 75% of personal investors can’t beat the market (over a 5 year period), what is to say that someone reading an investment book is going to do any better!?!
4- Didn’t get sucked in by ‘The Rich Dad Company’
When you read Rich Dad Poor Dad, you get over excited and want to do lots of new things. As a result the author has set up his own company called ‘The Rich Dad Company’ which offers guidance on what to do next.
I initially enquired about this service but it quickly became clear that this was a money making initiative. I was being asked lots of questions about my financial position (which I didn’t reveal). Also, they were asking for a commitment to speak with their senior advisors. It was very pushy. No doubt I was going to be asked to make a financial commitment if I had stayed on the call much longer. I quickly stopped pursuing my interest. I felt it would be better to do things on my own terms and get advice from different places.
So there you have it! I’ve taken my first steps to becoming a ‘Rich Dad’. I’ve got my spreadsheet to focus and track how we’re going against plan. I’m using this site to learn the basic skills needed to create / run a business from the ground up. It definitely feels like taking action!
Updates since I wrote this original blog:
Since I wrote this original blog, I have taken more actions in the different areas discussed above. See the following blogs to find out more about these developments:
- Tracking our finances:
- Investing our money:
- Starting a business
I'll continue to let you know my progress - so make sure you subscribe below so you don't miss out. If you haven't read Rich Dad Poor Dad, then you can buy it, via Amazon, here.
Thanks for now!