The idea of working all your life, saving, and putting money into a retirement account is a very slow plan. It is a good and sensible plan for 90 percent of the people. But it is not a plan for someone who wants to retire young and retire rich.
If you want to retire young and retire rich, you need to have a plan that is far faster than the plans of most people.
One of rich dad’s basic tenets on money is, “Money is an idea.” Adding onto this, rich dad also said, “There are fast ideas and slow ideas, just as there are fast trains and slow trains. When it comes to money, most people are on the slow train, looking out the window watching the fast train pass them by. If you want a faster way to become rich, your plan must include fast ideas.”
The speed at which you can change and expand your context in order to adapt to the changes in the business world today is critical to every one of us who wants to succeed and do well financially. The gap is no longer between the haves and have-nots. Today the gap that is changing the most rapidly is the financial gap between the middle class and the rich.
Here’s the thing, if you have a slow plan, you are being left behind financially—and not by your peers, but by younger people with faster minds and more accelerated ideas.
You can see this is true by the number of young millionaires and billionaires.
When I was growing up in the 1960s, my parents said to me, “Listen to your elders. You need to learn to respect their wisdom. Someday when you’re older, young people will listen to you.” So I listened to my parents and grew up respecting the wisdom of those older than I was.
But that notion has been turned upside down: Nowadays, people my age need to listen to and respect the wisdom of people who are younger than we are.
In a rapidly changing world, nothing is more dangerous—or risky—than an idea whose time has come and gone.
I wrote in an earlier letter about Amazon Go stores—Amazon is a perfect example of innovation. Amazon took the world of brick-and-mortar booksellers and made them practically obsolete.
People my age are in serious financial trouble because they have old, Industrial Age ideas that they never update—wanting job security, counting on a pension for life, relying on Social Security and Medicare—while attempting to survive in the Information Age.
The Information Age has changed everything. In the Information Age, your greatest asset is not your stocks, bonds, mutual funds, businesses, or real estate. Your greatest asset is the information in your head and the age of your information. Too many people are falling behind because the information in their head is ancient history, or they cling to answers that were right yesterday but wrong today.
In the Information Age, anyone can get wealthy because everyone has access to the same information.
It’s simply a matter of who can think most creatively and act most quickly upon the information available to them.
It’s Time to Get Smart
It’s pretty common knowledge that a person with a mental IQ of 130 is supposedly smarter than a person with IQ of 95. This same conclusion can be drawn with financial IQ. You can be a genius when it comes to academic intelligence, but a total moron when it comes to financial intelligence.
There are five basic financial IQs:
Financial IQ #1: Making more money
Most people have the financial intelligence to make money. The person who earns $1 million a year has a higher financial IQ#1 than someone who makes $30,000 per year.
We all know that a person may have a high academic IQ and be a genius in the classroom but be unable to make much money in the real world. I would say my poor dad, a great teacher and a hardworking man, had a high academic IQ but a low ﬁnancial IQ. He did very well in the world of academia but did poorly in the world of business.
Financial IQ #2: Protecting your money
One of the biggest predators of our money is taxes. Governments take our money legally. Those with a low Financial IQ#2 will likely pay more taxes.
If you are an investor and have a high Financial IQ#2, you are like Trump and me who pay zero in taxes, legally.
Financial IQ #3: Budgeting your money
Budgeting your money requires a lot of ﬁnancial intelligence. Many people budget money like a poor person rather than like a rich person. Many people earn a lot of money but fail to keep much money, simply because they budget poorly.
Being able to live well and still invest no matter how much you make requires a high level of ﬁnancial intelligence. Having a surplus is something you have to actively budget for.
Financial IQ #4: Leveraging your money
After a person budgets a surplus, the next ﬁnancial challenge is to leverage their surplus of money. Most people save their ﬁnancial surplus in a bank. This was a smart idea before 1971—before the U.S. dollar became a currency. After 1974, workers needed to save for their own retirement. Millions of workers did not know what to invest in, so they invested their ﬁnancial surplus in a well-diversiﬁed portfolio of mutual funds, hoping this would leverage their money.
Financial IQ #5: Improving your financial information
There is a bit of wisdom that goes, “You need to learn to walk before you can run.” This is true with ﬁnancial intelligence. Before people can learn how to earn exceptionally high returns on their money (Financial IQ #4: leveraging your money), they need to learn to walk; that is, to learn the basics and the fundamentals of ﬁnancial intelligence.
It’s easy to increase your ﬁnancial intelligence if you have a strong foundation of ﬁnancial information. But if your ﬁnancial IQ is weak, then new ﬁnancial information can be confusing and have seemingly little value.
One of the beneﬁts of being dedicated to your ﬁnancial education is that over time you will be better able to grasp more sophisticated ﬁnancial information just as mathematicians are able to do complex equations after years of practicing math problems. But, again, you need to learn to walk before you can run.
Editor, Rich Dad Poor Dad Daily