Over the past weekend I borrowed another one of Robert Kiyosaki’s books from a friend. I believe it’s his latest one now, but I’m not certain about this. At any rate, this one is called Rich Dad’s Increase Your Financial IQ: Get Smarter with Your Money.

What do I think of the book?

If you’ve read some of his other books in the past, you’ll probably recognize a lot of the information in the book. He talks about the importance of financial intelligence as well as many other topics that he’s gone over before. It isn’t a bad read, but he does mention the fact that Nixon took us off the gold standard back in 1971 too many times. Now, here are the chapters in the book for those of you who may be interested in it:

1. What is Financial Intelligence?
2. The Five Financial IQ’s
3. Financial IQ #1: Making More Money
4. Financial IQ #2: Protecting Your Money
5. Financial IQ #3: Budgeting Your Money
6. Financial IQ #4: Leveraging Your Money
7. Financial IQ #5: Improving Your Financial Information
8. The Integrity of Money
9. Developing Your Financial Genius
10. Developing Your Financial IQ: Some Practical Applications

If you’re just starting out trying to get your finances in order and trying to get ahead, then you’d probably benefit from reading this book. If on the other hand, like I’ve already mentioned, you’ve already read some of his other books, then you’ll most likely find little value added.

I read an interesting article the other day about Jose Canseco having his home foreclosed. He walked away from his $2.5 million dollar home which is 7,300 square feet because it didn’t make sense to continue making payments.

This is just another instance that reminds us that it doesn’t matter how much you make. Whether you earn millions of dollars per year like Jose Canseco, or you just seem to be scraping by, you need to learn how to manage your money and the resources you have.

Quite a while back I talked about the importance of having and being able to increase your free cash flow. As a reminder, your free cash flow is the portion of your income that is left over after you’ve paid all of your necessary living expenses. Many people also refer to it as their discretionary income, but instead of just spending it at your discretion on whatever you feel like, you need to start putting it to work for you.

Since it is your “free cash flow”, you can choose what you’d like to do with it, and there are a lot of different options available. You also need to realize that many of the available options can be considered good but not necessarily the best. Only you can decide for your situation how to best allocate your free cash flow, but it will require some thought on your part. So here are a few of my thoughts on the subject, and in my opinion, there are two main things that should be done with any free cash flow that you have:

1. Save up X number of months worth of living expenses as a security blanket, emergency fund, or whatever else you’d like to call it. I personally have the goal of a one year emergency fund, but again, you decide what’s right for you.

2. Buy investments that in turn produce more cash flow. By doing this, you’ll continually be increasing the amount of available income that you have with which to pay your living expenses and eventually become financially free. Investing for cash flow is in contrast to investing for capital appreciation which excludes most mutual funds and other traditional investments.

The reason for the focus on cash flow is because that’s what we live on. Even with a traditional retirement plan, people hope to accumulate enough over their working life which will produce enough income to live off in retirement. So it’s imperative to mind your free cash flow and find ways to increase it. And as always, I’d love to hear any comments that you have on the subject.

Getting ahead financially in the most basic sense is actually fairly simple. It typically seems complicated to many people because of the many varying opinions about the specifics of something that in general terms is quite easy to understand. For example, choosing the best account for an emergency fund and exactly how much to keep in it is something about which many people have differing opinions. But it’s only one part of the basics of personal finance.

What I’m talking about here are the two main parts of everyone’s finances, our earnings and our expenses. It’s important to focus on both of these instead of neglecting one in the name of the other. As The Digerati Life mentions, we should spend less than we earn, and earn more than we spend. These two phrases may seem redundant, but the subtle difference is important.

Focus on Your Earnings

I believe it’s safe to say that you don’t have a financial life without earning any money (or at least having some sort of income). Too many people though, go through life having resigned themselves to earning whatever income it is that comes fairly readily to them. If you’re serious about attaining some level of financial freedom, there needs to be a focus on growing your earnings. You can’t save what you don’t have, and you can’t invest what you haven’t earned. Be sure to make this a priority in your financial life.

Focus on Your Expenses

As you’ve probably experienced yourself, or at least seen with others, it doesn’t do any good to earn a great deal of money if you end up spending it all. And for those that have already taken a keen interest in their finances, this is usually the area of most focus. I’m not going to go into a long explanation of why one needs to focus on expenses (it just makes sense), but I do want to make one point. You can always spend more than you earn. So make sure to keep tabs on your spending.

If you take a step back and look at your financial life, you can probably see which if these two goals you tend to favor. That’s what it should be though, a tendency. You need to consciously focus on both of these areas, regardless of where you naturally focus.

There are many more than just eight reasons why people fail to get ahead financially. This is not meant to be an exhaustive list, yet these are some of my thoughts about why so many people continue to struggle financially.

1. Failure to Plan

You’ve all probably heard the saying that goes something like this, failure to plan is planning to fail. While this does cause one to stop and think, I don’t actually think anyone reading this site is deliberately planning to fail. The concern though, is not having a workable plan for improving your financial situation and thereby staying content with the status quo. Very few people wake up one day and are suddenly financially free and successful. If you haven’t already, take the time to develop a financial plan and start moving forward.

2. Focusing only on Yourself

If you look at charitable giving as money you could otherwise put to better use, you’re missing the point. By reaching out a helping hand and giving to others of your time and means you’re shifting your focus away from yourself. You will realize that it’s not the new flat panel TV and the hottest car that ultimately makes you happy. It’s much easier to control your spending in order to get ahead when the focus isn’t always on you.

3. Not Making Savings a Priority

How often have we all heard that we should start and maintain some sort of emergency fund. For one reason or another things just happen that we weren’t expecting. Your savings, or emergency fund, is one way to plan for the essentially unplannable. Make your savings regular or even automatic, and you’ll find that getting ahead is within reach.

4. Impatience

It’s no secret that we live in an On Demand society, but financial freedom and stability don’t play by these rules. You can’t be impatient and expect unreasonable results. Learn the virtue of patience and you’ll actually be surprised by the results.

5. Lack of Follow Through

This goes hand in hand with impatience. Once you’ve created a plan and set things in motion it’s imperative that you execute and follow through. Opening a savings or investment account and then failing to contribute after six months is a recipe for the same. Little adjustments here and there will be necessary along the way, but getting ahead is going to take some doing.

6. Underestimating the Little Things

How often have you heard others or even yourself say, “it’s only $x.xx”? I hate to break it to you, but all of those little things add up over time. Just $5 for lunch every day at work adds up to over $100 per month or over $1200 for the year. That just happens to be about the amount of the coming tax rebate. Just think, by saving just about $23 per week you could give yourself the equivalent of this tax rebate every year. The small things add up.

7. Have Now, Pay Later

It’s a depressing feeling when the bulk of your paycheck goes to pay for things that you don’t even remember buying. Because you have to have the latest gadget, you end up mortgaging your future earnings. How do you expect to get ahead and plan for the future when you’re constantly paying for the past?

8. Lack of Financial Knowledge

How can one contribute to a 401(k) if he doesn’t know what it is or how it works? Having a goal of a million dollars or so seems impossible if you don’t understand the principle of compounding. It’s also difficult to grow any semblance of a nest egg without at least a basic understanding of investing. Getting ahead will require some effort on your part, and that includes learning at least the basic tenets of financial management.

In the world of personal finance, investing is only one aspect. It is, however, an aspect that I talk about frequently and am very passionate about. There is a lot for one to learn about investing and it’s something that will be a life long pursuit as far as I’m concerned. There is one thing though that you should understand right from the beginning. What exactly is an investment?

I’m sure I’m not the only one who has heard the term thrown around quite a bit. I’ve also heard it used to describe a very large array of things. So, in order to figure things out, let’s take a look at some definitions.

A Few Definitions

Investopedia defines an investment as:

An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price

Wikipedia doesn’t really have a succinct definition, but it is very similar to the above definition from Investopedia. It also makes a distinction between the economic and the finance sense.

Many of you may also have heard the definition of an investment given by Robert Kiyosaki, the author of the book Rich Dad, Poor Dad. He basically says that an investment puts money in your pocket, and anything that takes money out of your pocket isn’t an investment.

What Do I Think About It?

I see valid points in both of these definitions. I’m not going to say that all investments “put money in your pocket” or at least not right away, but I do strongly agree that anything that takes money away from you without a promise/hope of a return is not an investment.

Many people will argue about whether certain things are investments, the most controversial probably being one’s own personal residence. I see valid points for both sides of the issue, but I tend to disagree that your home is an investment. I have, however, turned my own house later into a rental property officially making it an investment.

Mostly, I take issue with what I consider to be the improper use of the word investment to describe consumer goods. I’ve heard people repeatedly tell me that it’s alright to buy such and such because it’s “an investment.” When I bought my washer and dryer, I had a friend tell me that they were an investment. I don’t really see how this could be the case, but I wasn’t going to go off in a rant about it.

My point with all of this is that I see too many people justifying their consumer purchases by making themselves believe that they’re investments. I hate to rain on anyone’s parade, but furniture is not an investment. Neither is a new big screen TV or a fancy stand mixer. I don’t have a problem with people buying these things, as long as they understand that they’re buying a consumer item and not an investment.

I’m not going to give you a be all end all definition and description of what an investment is, but I do think that you should give it some serious consideration and thought for yourself. You’re going to want to understand for yourself what an investment really is so that you’ll know one when you see it. You don’t want to have to take someone else’s word for it, when determining if you’re going to invest.

Oftentimes in the financial arena you’ll run into people who think they’ve really got things figured out. They have very strong opinions about how finances should be handled and they know the best way to tackle debt, build an emergency fund, and invest for the best gains. They can quote you the current interest rates and tell you the differences between the various retirement plans as well as many of the associated facts. But what makes someone an authority on the subject or at least worth listening to?

A Few Options

You could go talk to a Certified Financial Planner who will help you plan out your finances and structure some sort of investment routine. It’s interesting to note, however, that this financial planner is working a normal 9 to 5 job just like you albeit providing financial services instead of whatever it is you do. Is this the person that you want to rely on for sound financial advice? Possibly, but I’m not to say.

You could also read many of the blogs out there that discuss personal finance and the many related topics. Most of the time you don’t really know who these people are, and many of them openly display an average, or even negative, net worth. Most of these blogs are a way for someone to track their own financial progress and learn what they can along the way, and they’ll usually be the first to tell you that they aren’t there to provide official financial and investment advice.

You could also go to the library and check out any number of books on the subject. Just because someone has published a book, however, doesn’t necessarily make them an authority on the subject. You don’t need to look any further than Suze Orman, David Bach, and Robert Kiyosaki to not only see conflicting advice, but controversy among bloggers about what they have to say. Are these the people you want to look to for financial advice then?

My Thoughts and Concerns

I’m not trying to tear anyone down with this post, but many people have the question of where to go to get good advice about their finances. And I am mostly concerned with the people that think they have everything figured out and who say that their way is the best way to handle your finances. The reason I’m concerned about these type of people is because I have never met anyone who knows everything there is to know about personal finance, business, and investing. In fact, most of the highly successful people that I’ve heard of, met, or know personally are extremely aware of how much they still don’t know. The more they learn, the more they realize they need to learn. They are usually willing, however, to share their personal experiences and what has worked for them in an effort to guide someone in the right direction rather than showing/telling someone exactly how things should be done.

As for this blog, I try to share things that I’ve learned through my own experience as well as through the experience of others. For the time being I’ve chosen not to display a net worth or any other personal specifics mostly out of a concern/desire for privacy. I do hope that you find the information valuable, but it’s by no means the be all and end all since I’m continually learning as well. I also enjoy comments and counter viewpoints because I think there’s much to be learned that way.

Ultimately though, you are responsible for the state of your finances. As you’ve probably heard before, no one cares as much about your money as you do. Try to learn as much as you can yourself about how to handle your money. You might do this by talking with a financial planner or by reading various financial blogs and websites, hopefully this one at least. In the end, you have to decide who is worth listening to and who’s advice you’re going to take, I just caution you against those who think they’ve already got everything figured out.