Robert Kiyosaki’s Definition of Wealth—And How to Achieve It
Robert Kiyosaki, author of the popular personal finance book “Rich Dad Poor Dad,” believes that your net worth is not an adequate measure of your wealth. Instead, he says it’s better to evaluate your finances by looking at how long you can live without working. In other words, financial freedom.
Cash flow, he says, is key. Here’s how you can use Kiyosaki’s thinking to allocate your money to the right assets and reach your retirement goals.
A different definition of wealth
A $1 million nest egg may be enough for one person’s retirement, and not enough for another.
Kiyosaki’s philosophy includes wealth that comes down to having the freedom to choose how to spend your time. Your lifestyle can help determine how much money you need.
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Focus on cash flow
Kiyosaki encourages people to focus on income. While savings will help, income – which can be earned through investments such as stocks, real estate and bonds – is income without much effort on your part. That is very different from the income you earn at work.
However, income is not only tied to investments. You can build a business selling products and services online that requires little time on your end once it’s set up. The money you earn from these jobs will give you more financial flexibility in the long run.
You will need to gradually reduce your savings when you retire. However, the fear of completely depleting your nest egg can be mitigated if your income exceeds your living expenses.
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Why traditional retirement planning fails
The retirement industry is full of personal finance rules to help people make the most of their money, but often, these rules can fail. For example, more experts say the 4% rule, which assumes retirees can safely withdraw 4% of their retirement portfolio in their first year and then increase that based on inflation, may no longer apply.
Your best retirement savings and withdrawal plan will depend on your specific situation, goals, time horizon and risk tolerance. But increasing your cash flow can probably help. Dividend-paying companies regularly increase their dividends, for example, which can help you maintain your living expenses.
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A useful application for retirees
Hoarding cash and hoping it will be enough for your long-term goals probably won’t work the way you need it to, since inflation drives up prices over time. Your purchasing power will gradually decrease. But you can protect yourself from inflation by investing in inflation-linked assets, which generate income and increase in value over time.
If you’re thinking of buying dividend stocks and bonds, you don’t have to analyze the market for individual stocks. Exchange-traded funds (ETFs) make it easy to gain exposure to a diverse basket of stocks and bonds, as well as other assets such as real estate investment trusts (REITs).
