4 Tips on Budgeting to Become Rich

4 Budgeting Tips to Become Rich in 2019 by Robert Kiyosaki

When it comes to getting rich, most people think that saving money is key. But I’ve always said that savers are losers.

No, of course I don’t mean they are personally losers. Rather, I mean that if you’re playing to win when it comes to financial freedom, saving is a losing strategy. Why is that? Because cash is simply a currency. In order to bring value, it must move into some-thing. If it stops moving, it dies. Just like an electrical current.

  1. Tip #1: Turn your budget surplus into an asset
  2. Tip #2: Your financial future is determined by your expense column
  3. Tip #3: Acquire assets to pay for liabilities
  4. Tip #4: Spend—don't save—to get rich

To counteract this, many people think that putting money in a savings account is a form of investing, due to the interest they collect. Unfortunately, the interest you receive is generally offset or even eradicated by inflation. For instance, the current inflation rate in 2019 has bounced around from 1.5% to 2.0%, but the average savings interest rates in the US are currently well below the inflation rate. So, saving money means you’re not growing your money at all. In fact, the money loses value as inflation outpaces your gains.

Cash is a sum zero game

If you’re a student of history, it should come as no surprise that saving cash is a losing strategy. The history books are filled with stories of currencies crashing to nothing. But you don’t have to go that far back in time, to find examples either.

For instance, the Zimbabwean dollar was decimated by hyperinflation in the early 2000s. In 1983, you could exchange one Zimbabwean dollarfor one US dollar. In 2008, it took 669 billion Zimbabwean dollars to exchange for that same US dollar. No, that is not a typo. People who saved Zimbabwean dollars were big losers.

Or take this humorous example. In Venezuela, hyperinflation has ravaged the bolivar so much that enterprising artists are using the bills to make purses . As the BBC reports, the bags use over a thousand Venezuelan bills, and “These creations sell for between $7 and $15—enough money… to feed a family for at least two weeks in Venezuela.”

How rich people budget

So, if savers are losers, how can you win financially? It starts with a simple look at how you budget.

My Poor dad said, “Live below your means.”

My Rich dad said, “Expand your means.”

If you were to take a look at the difference between my poor dad’s budget and my rich dad’s budget, you’d understand the vast difference between how poor people budget and how rich people budget.

My poor dad’s budget focused on cutting expenses to meet his income. It was important for him to pay everyone else and then enjoy what was left—if anything.

My rich dad’s budget focused on increasing income. It was important for him to pay himself first and then take care of his expenses. He said, “Most people use their budget as a plan to become poor or middle class rather than become rich. My budget is a plan to become rich.”

Here are four budgeting tips for 2019 based on what my rich dad taught me.

2019 budgeting tip #1: A budget surplus is an expense

One of rich dad’s most important lessons was, “You have to make a surplus an expense.”

What he meant is that most people view a surplus as an asset. They place their extra cash in the bank or they spend it on liabilities. Rather than view extra money as an asset, rich dad viewed it as an expense in the form of charity, investing and saving.

Do you have more assets than liabilities? Discover the truth about the differences… and why your banker isn’t telling you the whole truth.

Most people want to give to charity, invest in assets, and save money, but the problem is that they view it as something to do after they’ve paid their expenses. By making these things expenses in his budget, my rich dad ensured that he would make them a priority. He called it paying himself first.

pay yourself first pie chart diagram

So, each month, before he paid any other expense, he took care of his most important expenses: giving to charity, investing in assets, and putting a portion of his money aside for savings in case he needed liquidity in an emergency.

This is key to understanding how to save money and get rich. Rich people budget savings not as an investment or means to get rich, but as a hedge to protect them should the need arise and they can’t liquidate their assets quick enough. Kim and I save about six months of living expenses at any given time.

2019 budgeting tip #2: Your financial future is determined by your expense column

Once you’re finished with school and enter the real world, you soon discover that bankers don’t care about your grades. Rather, they are only interested in your financial report card.

What is a financial report card? The answer can be found with your personal financial statement.

Not sure what your financial report card looks like? Find out here.

diagram of an income statement

Your income statement shows you how your monthly income compares to your expenses. The income section of an income statement is where you place every source of income you make: earned (paychecks, tips, wages), portfolio (dividends from stocks), and passive (cash flow from real estate). Your expense column, however, is where you list everything you pay for each month like your mortgage, car, and insurance payments.

My rich dad taught me that if you want to predict a person’s financial future, you need look no further than the expense column.

Here’s an example of two different expense columns:

Person A: Person B:
Donation to charity Six-pack of beer
Savings New shoes
Books on investing New TV
Seminar on real estate Football tickets
Gym dues (Another) six-pack of beer
Personal coach Bag of potato chips

While that’s a humorous example, it’s not far from the truth. When you look at most people’s expense columns, they’re littered with payments to other people and for liabilities. In each case, expenses don’t go towards anything that will make money and only things that permanently take money out of your pocket.

As you evaluate your 2019 budget, take a look at your expense column. What does it say about you? If it looks more like the right column than the left column above, then you will have a hard time ever getting rich.

2019 budgeting tip #3: Acquire assets to pay for liabilities

As we discussed above, most budgeting tools help you gain a better understanding of your finances by instructing you to list your monthly income and expenses using a budgeting template or spreadsheet. While this is a great start, my rich dad taught me that the income statement only shows you half of your financial picture. To understand your entire financial picture, you need also understand your assets compared to your liabilities.

diagram of a personal financial statement

What’s an asset and a liability?

Simply put, an asset is anything that puts money in your pocket, regardless of whether you work for it or not. Dividends from a stock, rental income from a real estate investment, or residuals earned from book sales are all different forms of assets.

A liability, on the other hand, is anything that takes money out of your pocket. While many people consider their home to be an asset, it’s a liability. Not only do you have the mortgage to eventually pay off, but the property taxes, utilities, and maintenance will always take money out of your pocket.

The key is to acquire assets that pay for your liabilities.

For example, my poor dad was frugal and thought that was a virtue. If he wanted a luxury item, he’d simply deny himself that item. He said, “We can’t afford it.”

My rich dad loved luxury and if he wanted a nice toy, he’d find a way to buy it. He wasn’t reckless with his money. Rather he was smart in how he made it work for him and used his financial education. He asked, “How can we afford it?”

By increasing his assets, which increased his monthly cash flow, my rich dad used this money to purchase his luxury items and liabilities. If he wanted a nice car, he’d invest money until the asset produced the cash flow required to purchase that car. Then he had a nice car and a great asset. This is why paying himself first in his budget was the most important thing he could do to get rich. It ensured he’d have the money each month set aside to grow his assets.

Kim and I have used this philosophy over and over in our life to buy things we enjoy and build our wealth in the process.

2019 budgeting tip #4: Spend—don't save—to get rich

Being able to execute on the first three tips on budgeting means building a mindset that says when the going gets tough the tough get going. Most people stop spending on charity, investing, and saving when times get tough. That is not how rich people budget. The rich figure out ways to make more money by spending more money on assets, even when times are tough.

By pushing through those hard times, you develop a mentality that will enable you to make more money no matter what the circumstances. That will make you richer than you ever imagined.

When Kim and I began our businesses over three decades ago, we had our eyes set on one thing: financial freedom. It took less than a decade for us to accomplish our goal. Once we had passive income flowing into our pockets each month cover our expenses, we were free.

It wasn’t easy, however. When we started out, we were almost a million dollars in debt and felt immense pressure from family and friends to get jobs. But we knew that the only way to achieve financial freedom was through acquiring assets. That required us to pay ourselves first with our three-piggybank system mentioned above. To help us stay accountable, we hired our bookkeeper Betty.

Even though Betty didn’t agree with our plan, she followed our plan was vital to us staying on track. What we asked her to do was place money in three separate accounts: emergency savings, investing, and charity. Our creditors, and there were many, were to be paid with what remained. There were many months when Betty informed us that we weren’t going to have enough money to fund our three piggy banks and the creditors. We used that as motivation to find extra money.

The temporary pain we felt was necessary for us to increase our financial education, spend money on acquiring assets, and achieve our goal of financial freedom.

Rich Dad Budgeting Tips for 2019 Summary

  1. Turn your budget surplus into an asset
  2. Your financial future is determined by your expense column
  3. Acquire assets to pay for liabilities
  4. Spend—don't save—to get rich

Now it’s your turn. Implement these budgeting tips from my rich dad to get your budget under control.

Original publish date: June 26, 2012