When I was looking for a book on financial management, I saw many people recommend this book. After reading it in two or three days off work, the book itself was not very thick, but I benefited a lot from a lot of knowledge. Here I summarize some main arguments of the author, for myself, if I can help you, it will be great.
This book is a primer on how to build a financial worldview, not a methodology. You can read other books on methodology, and I will be blogging about methodology in the future, as we grow together. (If you want to get this book, add me to find me at the end of the text.)
The rat race trap: The more you earn, the more you spend, the inability to accumulate wealth, and the further away from financial freedom.
It started with an interesting proposition called the “rat race,” pointing out the financial pitfalls that most people face. The first part introduces the author’s experience of learning financial management under the special education of his friend’s father.
The following introduces some of the author’s trading experiences, most of which are not applicable in China (tax liens, cash checks, acceptance bills, etc.), but can provide ideas and cultivate scientific financial management concepts.
1. What are assets and what are liabilities
The core idea of this book is to increase assets and reduce liabilities. Just as the first question of revolution is who is your friend and who is your enemy, the first question of finance is what is an asset and what is a liability.
Assets are things that put money in your pocket.
Debt is something that takes money out of your pocket.
Assets are things that produce positive cash flow. Loads are things that produce negative cash flow.
What we need to do is keep buying assets and reducing liabilities. When the income generated by the asset is sufficient to cover the expenses, and the surplus income can be used to reinvest the asset item, forming positive feedback, the income will increase correspondingly, and the snowball will roll.
If there were a sudden windfall, most people would probably buy a pile of debt and quickly return to their original wealth.
Debt can also be turned into capital, such as when you buy a bigger house, you can live in one room and rent out the other two, generating positive cash flow and negative cash flow to pay your rent. Or they bought the house earlier,
2. Advice from this book
The book offers some good advice, but since the story is strong and loosely structured, I can summarize it as follows:
- Find a good job and improve your working skills
- Reduce your expenses when you run out of money and build a solid asset base so you can take advantage of opportunities when they arise
- Buy only assets and reduce liabilities
- Only invest in opportunities that you understand and don’t understand
- Learn cross-disciplinary knowledge, accounting, marketing, investment, law, you may not know very much, but a general understanding of some
- Make mistakes early and gain experience
- Overcome fear of losing money, cynicism, laziness, bad habits, arrogance
Among them, the most important is 3, and what we need to pay attention to most at present are 1, 2 and 6.
3. Rat race
The mouse race game introduced in the book is indeed domestic, micro channel small program in the “cash flow circle outside the circle” small game, a friend (Yao Yao) recommended to me after this game, I started to play a few, and then invited Yao Yao to play together. Maybe I haven’t figured out the secret of the game yet (or maybe I don’t have any financial intelligence), but I came last in every game.
In and out of the circle is almost like monopoly rolling dice, but the mechanism is more complex than Monopoly. Through the investment experience of simulated life, I learn financial quotient thinking and value investment concept.
The game is divided into two stages, the inner circle and out of the circle, the inner circle goal is financial freedom, the outer circle goal is to realize the dream. When passive income in a month exceeds total monthly expenses, it fulfills the game’s definition of financial freedom (that is, increasing wealth while lying at home), jumping from the inside to the outside. The outer circle is full of investment opportunities and dream realization grid, basically no operation, only the inner circle is close to the purpose of the game, is closest to the reality of most people, which is the initial stage of wealth accumulation. When the first to buy their dreams in the outside circle, or increase the monthly cash flow to reach 50,000 to win the game.
The green box is asset opportunities, which mainly provides some real estate transactions and other investment opportunities. If you want to achieve financial freedom in the game, you need to first invest in stocks and real estate to accumulate funds, and then purchase high-quality assets to bring cash flow. When the cash flow exceeds the total expenditure, you will be out of the circle.
If you go to the purple grid, you will have a baby, lose a job, etc., and each child will cost you 240 per month. With zero monthly wages and only expenses, I gave birth to three children playing with Yaoyao…
In addition to these two grids, there is also a grid for daily expenses. You can choose cash payment or credit card payment. If you choose credit card payment, the total monthly expenditure will increase, and too much total expenditure will increase the risk of financial bankruptcy.
The game itself is a little out of reality, such as the game’s stock is a value range, generally in the range of 10 to 30 swings, sometimes out of special events stock value down to 1 or up to 40, a clear price range allows players to sell high and buy low, but in fact the scope of the price of the stock is not clearly, It may even be delisted.
The author of the book is by buying and selling real estate and the establishment of enterprise financial freedom, but now in the domestic real estate environment, to purchase a property generally will not bring you cash flow, are more likely to bring the big month spending 😅 (mortgages), again meet high-quality assets also basic didn’t may be the principal, and game cuhk can borrow from the bank, but in reality the feasibility is not big, After all, who has the gumption to think that the next investment is going to turn a profit?
A game is a game after all, and it can only provide a way to practice some simple ideas. In order to truly achieve financial freedom, in addition to studying hard, it ultimately depends on investment and seizing opportunities (personally, seizing opportunities is the most important, which is consistent with the concept of games). You can play a couple of feelers. You don’t have to play all the time.
Finally, bridgewater Founder Ray Dalio’s 30-minute video on how the economic machine works explains the relationship between long-term business cycles, short-term business cycles, and productivity in a simple way.
Yao Yao also has a review of the article, you can look at ~
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