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Six Basic Rules to Investing

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As I was researching the next money topic to share with all you 5and2Guys and Gals, I realized I haven’t shared any basic rules to investing with you.  So, I did some research and found these six basic rules shared by Robert Kiyosaki, the author of Rich Dad Poor Dad.  Here is his list of six basic rules along with the 5and2Guy’s thoughts:

Rule #1:  Know what kind of income you’re investing for

There are different types of money that can be earned.  These can be broken down into Ordinary Income, Portfolio Income, and Passive Income.    Ordinary income is where you work for the money and have to invest your time to make it.  Portfolio income is where you put together a portfolio of stocks and/or bonds that earn you money.  Lastly, there is passive income you earn by investing your money or time to create an asset that pays you money in the future.

Rule #2:  Convert ordinary income into passive income

Most people work for ordinary income.  Most are employees working for other people.  You could also have your own business where you work for yourself.  If you only make money when you work in your business, then you don’t have a business, you have a job and that’s ordinary income.  The key is to turn your ordinary income into passive income.  For example, you can start a business and run the business with employees doing the work and you doing the leading.

Rule #3:  The investor is the asset or liability

Most people won’t invest in the stock market because they believe it to be too risky.  Mr. Kiyosaki is saying that investments aren’t risky, investors are.  Without the proper financial education, the investor can make costly mistakes resulting in big losses.  In this case, the investor is a liability to himself.  But with the proper financial education and literacy, the investor can become an asset.

Rule #4:  Be prepared

The old Boy Scouts motto, “Always be prepared.”  This holds true for the investor too.  You can’t predict exactly what’s going to happen or when it’s going to happen, regardless of your investments.  For this reason, you need to be prepared for anything.  This includes making sure you have money available to buy when the market is down or during times like COVID where you may need some savings to help you through.

Rule #5:  Good deals attract money

Mr. Kiyosaki is saying that he use to worry about having the money if he found a good deal.  Now he realizes that getting money is the easy part.  The hardest part is finding the good deal.  With the right deal, it will attract money.

Rule #6:  Learn to evaluate risk and reward

In order to avoid big losses, you need to learn how to determine a good investment from a bad one.  So, you need to learn how to evaluate risk, reward, and have a feeling on when the risk is worth the potential reward.  This is done with financial education and experience.

The Takeaway

Investing is NOT something that anyone should just jump into.  It requires a lot of financial education in order to make good choices.  There are tons of rules out there, but I believe Mr. Kiyosaki wrapped up some pretty good high-level ones that can be a guiding light for most.  You can learn more online to grow your financial education in addition to lots of books out there to help.  Rich Dad Poor Dad was a book that got me started on my financial education.  I suggest you give it a read.  You can pick it up here via my Amazon affiliate link:

***As always, I must say that I am NOT a financial counselor or advisor.   The information provided here is for experience and entertainment purposes only.  Any investing or financial considerations should be discussed with a qualified financial advisor.

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