Revisit Rich Dad Poor Dad Lesson 4

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Image by mohamed Hassan from Pixabay

Remember previous lesson 2 that as employee, you work for the employer, you work for the bank, you work for the government. You work for the government because you pay taxes. There are 2 things that are certain – Death and Taxes. The real reality is that the rich are not taxed. It’s the middle class who pays for the poor, especially the educated upper-income middle class.

The rich feels that tax is an opportunity because they do not play by the same set of rules. The rich knew about setting up corporations, which can be used to limit their risk. The corporate structure sits outside your personal income statement and balance sheet.

It is the knowledge of the power of the legal structure of the corporation that really gives the rich a vast advantage over the poor and the middle class. The rich outsmarted the intellectuals because they understood the power of money, a subject not taught in school.

Source: Image by Steve Buissinne from Pixabay

True capitalist used their financial knowledge to simply find a way to escape from tax. They headed back to the protection of a corporation. A corporation protects the rich. A corporation is merely a file folder with some legal documents in it, sitting in some attorney’s office. It is a legal document that creates a legal body. The wealth of the rich was once again protected, certain expenses could be paid with pre-tax dollars within the corporation.

The war between the haves and have nots has been going on for years. It is the “take from rich” crowd versus the rich. The problem is , the people who lose are the ones who get up every day and diligently go to work and pay taxes. If they only understood the way the rich play the game, they could play it too.

An employee with a safe, secure job, without financial aptitude, has no escape.

The first lesson of having money work for me, as opposed to working for money, is really all about power. If you work for money, you give the power up to your employer. If your money works for you, you keep and control the power.

Financial IQ is made up of knowledge from four broad areas of expertise.

No. 1 is accounting. This is financial literacy. A vital skill if you want to build an empire. The more money you are responsible for, the more accuracy is required or the house comes tumbling down. Financial literacy is the ability to read and understand financial statements. This ability allows you to identify the strengths and weaknesses of any businesses.

No. 2 is investing. This is the science of money making money. This involves strategies and formulas.

No. 3 is understanding markets. The science of supply and demand. There is a need to know the technical aspects of the market. The market factor is the “fundamental” or the economic sense of an investment. Does an investment make sense or does it not make sense based on the current market conditions.

No. 4 is the law. For example, utilizing a corporation wrapped around the technical skills of accounting, investing and markets can aid explosive growth. An individual with the knowledge of tax advantages and protection provided by a corporation can get rich so much faster than someone who is an employee or a small business sole proprietor.

  1. Tax advantages: A corporation can do so many things that an individual cannot. Like pay for expenses before it pays taxes. Employees earn and get taxed and they try to live on what is left. A corporation earns, spends everything it can, and is taxed on anything that is left.
  2. Protection from lawsuits: The rich hide behind much of their wealth using vehicles such as corporations and trusts to protect their assets from creditors. When someone sues a wealthy individual, they are often met with layers of legal protection, and often find that the wealthy person actually owns nothing. They control everything but own nothing.

Financial IQ is the synergy of many skills and talent. I would say it is the combination of four technical stills listed above that makes up basic financial intelligence.

Read here for Rich Dad Poor Dad lesson 1
Read here for Rich Dad Poor Dad lesson 2
Read here for Rich Dad Poor Dad lesson 3
Read here for Rich Dad Poor Dad lesson 5

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