About two-thirds of Americans say their household expenses have risen over the last year, but only about a quarter say their income has increased in the same period, per a study from The Associated Press-NORC Center for Public Affairs Research.
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So if Americans are overspending and their income hasn’t increased, what is the main problem at hand? The issue has to do with budgeting. Most Americans are overspending and not budgeting appropriately, especially as their incomes remain stagnant in an unforgiving economy riddled with rising prices.
Robert Kiyosaki, personal finance influencer and face of the Rich Dad, Poor Dad brand — through which he provides advice on how to get rich and live rich — has countless tips to help those who face issues when it comes to budgeting.
Budgeting like the rich, Kiyosaki says, is one way to become wealthy yourself.
No. 1: Pay Yourself First
“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,” Kiyosaki’s blog detailed. “[Make these things] expenses in [your] budget and make them a priority.”
Much of the anxiety around personal finance has to do with the need to survive in the present.For example, those who are living paycheck-to-paycheck may struggle to make ends meet. The main focus for those who are facing financial hardship is just to make it to the next month.
In order to build wealth, or “budget like the rich”, as Kiyosaki outlined, one must put aside money in charities or investment as part of their monthly budget.
Though this may seem an impossible feat, even a small amount of money put away each month can snowball into an amount much greater in the future.
Kiyosaki recommends “The 3 Piggy Bank System.” Under this system, 70% of money received monthly is put towards bills, while 10% each is allotted for savings, investing and charity. In doing this, money is split into categories that will allow for wealth to grow, but expenses such as rent are still being paid off.
Paying yourself first is one of the key components of budgeting like the rich. Essentially, you are putting aside money now for your financial future.
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No. 2: Keep Track of Expenses
“As you evaluate your budget for this year, take a look at your expense column,” Kiyosaki said on the Rich Dad website.
Your expenses may be one of the key reasons why you are not able to stick tight to a budget.
By keeping track of what you are spending, it is much easier to determine where your money is going. Is it going to the right places? Or are you spending too much on non-essentials, like new shoes, the latest piece of tech, or tickets to see a popular musician?
Kiyosaki warns against spending too much on non-essential goods and services, and instead focusing on the purchasing of items that will result in professional and financial development. An example of this could be buying a book on real estate investing, or hiring a licensed financial professional who can help you develop your wealth.
“When you look at most people’s expense columns, they’re littered with payments to other people and for liabilities,” Kiyosaki said.
A liability, put simply, is money owed that is preventing you from growing financially. Having more liabilities than assets can put people in sticky financial situations.
Staying away from liabilities, such as owing others money or costly subscriptions, can help you allot more of your earnings towards stocks or real estate in order to make money passively.
No. 3: Increase Assets
“By increasing assets, which in investments like real estate, increase monthly cash flow, this is how you can purchase luxury items and liabilities,” Kiyosaki said.
While monitoring expenses is a highly important skill needed to budget like the rich, it is also important to learn the right techniques to let your money grow.
According to Kiyosaki, increasing cash flow through passive income is one useful way to increase assets.
Examples of passive income could be real estate investment or stock dividends. This could also come in the forms of royalties from a book. The point of passive income is to put in the initial work and investment and let the money grow organically over time.
“If you want a nice car, invest money until the asset produces the cash flow required to purchase that car,” Kiyosaki said.
Focusing on the future allows you to adopt a mindset of growth. A $100,000 car might not be feasible in the present moment, but putting money into assets, rather than overspending, may help that dream of a luxury vehicle become a reality at a later time.
No. 4: Push Through Difficult Times
The final budgeting tip comes not in the form of a way to save or spend, but rather, it is a way to emotionally overcome anxieties and hardships that inevitably surround money.
Every individual’s relationship with money is different — some were taught to live frugally, while others grew up with significant wealth surrounding them.
Financial situations are ever-changing, and Kiyosaki had no capital when he started building his brand. One of the first items of business for Kiyosaki was to hire a financial advisor, a bookkeeper who was instructed to keep him on track and maintain the “3 Piggy Bank System.” There were times when Kiyosaki owed amounts to creditors and could not stay on track with the system.
“By pushing through those hard times, you develop a mentality that will enable you to make more money no matter what the circ*mstances,” Kiyosaki said.
Regardless, Kiyosaki pushed through.
“The temporary pain was necessary to increase financial education, spend money on acquiring assets, and achieve [a] goal of financial freedom.” Kiyosaki said.
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This article originally appeared on GOBankingRates.com: Robert Kiyosaki Says To Be Rich, You Have To Budget Like the Rich — Follow These 4 Budgeting Tips
