Why the Richest People in the World Want Low Income and High Expenses by Robert Kiyosaki

How Low Income and High Expenses Drive the Rich

The richest people in the world look at income and expenses differently than the poor and middle-class... and their why makes all the difference.

An influx of new, far-left congress men and women took their oaths of office just a couple weeks ago, and many are already making waves. But none more so than the young and social media-savvy Alexandria Ocasio-Cortez, especially when it comes to the topic of income and expenses.

Ocasio-Cortez, who is a self-described “radical” has grand plans to change the country through what she labels as the “Green New Deal,” which Fox News describes, “The Green New Deal is an economic stimulus concept designed to tackle income inequality and climate change. It’s modeled after President Franklin D. Roosevelt’s New Deal package of public works programs and projects created to help the economy during the Great Depression.”

To help fund this Green New Deal, Ocasio-Cortez of course needs a log of green-backs, so she’s proposing some radical changes to the tax code in order to fund it. As Politico reports, she “is floating an income tax rate as high as 60 to 70 percent on the highest-earning Americans to combat carbon emissions.”

How much would taxing the super wealthy raise?

There is a lot of opinion out there about how much this radical change to the tax code would raise. “The Washington Post,” shares three possible scenarios:

  1. $720 billion over a decade by doubling taxes on people making over $10 million per year
  2. $3 trillion over a decade by instituting a wealth tax of 1.5 percent on the wealthiest 1% of Americans
  3. $3 trillion over a decade by doubling the income tax on the wealthiest 1%

As the Post points out, each of these has a lot of assumptions behind them that most likely inflate the numbers. And the reality is that if any were to be put in effect, no doubt the riches people in the country would find new ways to protect their money from such taxes.

It's not what you make (income) but how much you keep (expenses)

Perhaps the naivest thing behind the idea of funding something like the “Green New Deal” through taxes is that it is a proposal that simply doesn’t understand how the rich think about money. Specifically, those who are rich and have a high financial intelligence do everything they can to make sure they handle income and expenses properly. In short, they don’t “make” a lot of money compared to their overall wealth, and they don’t keep their wealth in their name but rather keep it distributed in trusts and entities like LLCs.

“Money is just an idea.”

For most people, the idea of a high income is a good thing. For the rich, it is bad. For most people, the idea of low expenses is a good thing. For the rich, again, it is bad. In fact, it’s only the financially unintelligent who think that “making a lot of money” in the form of earned income is a good thing. These are usually high paid employees like C-suite holders. They may seem rich, but they think like the poor.

As rich dad said, “Money is just an idea.”

Once you understand the idea that low income and high expenses are good, you will understand one of the most pivotal realities of this idea called money. Not understanding this fundamental concept is why many rich people go broke.

How money really works

As I’ve studied the idea of money throughout my life, I discovered the 90/10 rule: 90 percent of people earn 10 percent of the money in the world. How do they do this? By positioning their income and expenses properly. These, of course, are the same 10% that Ocasio-Cortez thinks she can increase taxes on and fund her political plans.

If you do not understand money or how it works, it will seem like a strange statement that the ultra-rich position themselves to have low income and high expenses.

You may be asking the question, “How can low income and high expenses make you rich?” The answer is found in how the sophisticated investor utilizes the tax and corporate laws to bring those expenses back into the income column of their financial statement.

The financial statement of a rich person

For example, this is a diagram of what a sophisticated investor is working to do:

A simplified balance sheet showing what a sophisticated investor is working to do

When you start to understand what is happening in this diagram, you will begin to see a world of greater and greater financial abundance.

Essentially, what this diagram shows is that the rich use their income to purchase assets (and expense) that then create more income for them in the form of cash flow. The reason for this is that the income these assets create is not earned income but rather passive income, the lowest taxed income. Additionally, these assets can be kept in entities that provide substantial tax benefits. In short, though they may be very rich, they do not have high income like a high-paid employee will.

The personal financial statement of a middle-class person

Compare the above diagram with that of the traditional way of thinking about the idea of money:

A simplified balance sheet showing the traditional way of thinking about money

This is the financial diagram of most of the world’s population. In other words, the money comes in through the income column and goes out the expense column. It never comes back. That is why so many people try to create a budget to live below their means, to save money, be frugal, and cut back on expenses.

This is why most people will say, “My house is an asset,” even though the money goes out the expense column and does not return, at least not immediately. It also explains why people say, “I’m losing money each month, but the government gives me a tax break to lose money.” They say that rather than, “I’m making money on my investment, and the government gives me a tax break to make money.”

The personal financial statement of the rich

Rich dad said, “One of the most important controls you can have is found in this question: What percentage of the money going out your expense column winds up back in your income column in the same month?”

By understanding the side of the coin that rich dad was speaking from, I saw a completely different world that most people who work hard, earn a lot of money, and keep their expenses down never see. I could see a world of ever-increasing wealth rather than one of diminishing returns.

Final statement on income and expenses

Today, ask yourself the same question. What percentage of your wealth goes from your expense column back to your income column in the same month?

If you can understand how this is done, you too will find a world of ever-increasing wealth.

If you can’t see this, find someone you trust and discuss how it might be possible. You can start by talking about a post I wrote recently, “4 Tips on Budgeting to Become Rich”.

Once you crack the code, you will move from a world of “not enough money” to one of “too much money.” And your life will never be the same again.

Ready to take action today? Get started with one of our free personal financial classes here.

Original publish date: December 11, 2012