The Five Financial IQs

Here's a thought from Robert Kiyosaki's new book Rich Dad's Increase Your Financial IQ: Get Smarter with Your Money. Today we'll summarize what the book is all about -- the five financial IQs. He lists them as follows:

• #1: Making more money.
• #2: Protecting your money.
• #3: Budgeting your money.
• #4: Leveraging your money.
• #5: Improving your financial information.

And here's what he means by each of these:

• Making more money -- Pretty straight-forward. The more you make, the higher your IQ in this area.

• Protecting your money -- Keeping financial predators from taking your money. The biggest predator: the government/taxes.

• Budgeting your money -- Having a financial plan. His key here is budgeting for a surplus which we'll cover later. It's an interesting concept that I may use in our own budget.

• Leveraging your money -- Using debt to increase your net worth.

• Improving your financial information -- Learning how to manage your money.

A few thoughts on these:

1. I'm pretty much in agreement with all of these except #4 (#5 is a key reason I maintain this blog.) I'm not a big fan of messing with debt to make money, though I understand what he's saying, of course.

2. For similar lists, see my five financial principles as well as the Richest Man in Babylon's seven cures for a lean purse.

3. I'll be covering these five IQs (what they mean, what I agree with and what I don't, etc.) over the next couple weeks, so stay tuned, there's more to come. 

Comments

[Minimum Wage]

What sort of silly drivel is this?

Many highly intelligent people are lousy at making money.

Has nothing to do with intelligence of IQ.

[Minimum Wage]

The concept of "mortgage management" is being promoted by some investrment advisors.

The idea is to leverage your home equity into higher-yielding investments.

[FMF]

MW --

"Many highly intelligent people are lousy at making money."

Read the book. He doesn't use IQ in the traditional sense.

[JP]

I would love to see more posts on leveraging, I think it's one of the most overlooked things, and can be a huge motivator to save in order to take advantage of it, and many people can't see the light, but this may be a great light at the end the tunnel (the ability to leverage, I mean)

[AdamCO]

if you're a little paranoid of global financial collapse, leveraging is a great way to lose everything you own. imaging you leverage your property to take on 5 more. if everything falls apart (think depression), then you would have five houses you can't afford as opposed to one that is or is near to being paid off.

i prefer stability to leveraging. but no doubt, leveraging (or taking any of several similar risks) is a way to make money.

[bryan]

you will have to work much longer towards wealth accumulation if you do not leverage your money, time, etc.

unless you are completely risk adverse, you would be foolish to pass up some leveraging opportunities. in fact, you likely do it every day anyway... your own house (unless you paid cash) allows you to buy at todays valuation at a fixed rate; you are able to enjoy it TODAY and pay it off over 30 years (also likely to accumulate greatly).

using this same train of thought to finance additional cash flowing rental properties will allow you to end up with 5 paid off houses in 30 years rather than one paid off house in 10 years.

maximize your opportunities

[JK]

While leveraging may be risky, it has worked for me in the following way: I leveraged my equity in my primary residence and our former residence into buying a home for about $100K that appraised for $130K (that needs $15K in repairs!) in an area where others are selling for $145K+. Now I am drawing from the free equity in the underpriced house to make a down payment on an underpriced rental home to keep in my portfolio long term.
I then plan to borrow against that to buy another "flip" house, and then do a 1031 exchange on it for a newer, more expensive apartment house/complex.
I do maintain a significant reserve (6 months of total liabilities) in the event of lost renters, etc, that could cause a cash crunch.

Leverage, but be smart about it!