Plenty of older folks advise the next generation to cherish their youth. Enjoy life while you can, they’ll say. Usually, they mean that young people should do what they want before getting too tied down by grown-up obligations like career and family.
As it turns out, that’s horrible advice. The idea that you ought to “enjoy” your youth before getting serious about your future concedes that your youth will be better than your future. And if that’s your attitude, you’ll probably end up proven right.
An alternative and less popular approach views youth as a resource to invest for future enjoyment. Instead of “doing what you want” now, you invest in the capacity to do far more later. That’s the view I wish someone had taught me, whether my parents, a teacher, or some other mentor.
Alas, I’ve had to learn through much trial and much more error. My wife and I have a mortgage’s worth of student loan debt for degrees we thought we needed in order to make money. To date, we can’t attribute a single earned penny to those degrees. We’ve also fallen for more than one consumer debt trap. These qualities hardly make us unique. The middle class consists of people chasing degrees to get jobs to pay debts and ultimately own next to nothing.
Looking to change our family’s outlook, I’ve recently read two books offering different paths to wealth and prosperity. The first was Total Money Makeover by Dave Ramsey. The second was Rich Dad, Poor Dad by Robert Kiyosaki. Both books were inspirational and informative. However, I was struck by the contrast in each author’s advice.
First, let’s consider a few points on which both men agree. The starting block for both Ramsey and Kiyosaki is mental attitude. If you want to be like everyone around you, keep following their example. If you want to be like the rich, start learning how they think and emulating how they act.
Kiyosaki talks about the difference between working for money and having money work for you. Ramsey talks about unleashing the power of your income. Though each prescribes different methods, both encourage readers to change their perspective on money, live within their means, and “pay yourself first.”
Both Ramsey and Kiyosaki recommend education. But they don’t necessarily mean a college degree. Education, as they see it, involves the accumulation of useful knowledge, not the attainment of useless degrees. If you’re going to go to school, Ramsey advises you to pay for it in cash rather than take on debt. Kiyosaki advises you to learn “a little about a lot” rather than “study more about less.”
Another thing both writers agree on is the importance of giving. Ramsey goes so far as to suggest an unwillingness to give will doom people to failure. Kiyosaki suggests something similar, pointing out that you can’t gain warmth from a stove without first giving it wood.
Of course, the differences between Ramsey and Kiyosaki prove more interesting. The starkest difference manifests in their attitudes toward debt. Ramsey despises debt. His entire ministry rests upon getting people out of debt. Ramsey advises paying off all debt aside from a home mortgage before investing a dime toward retirement.
By contrast, Kiyosaki embraces debt as a tool when used to purchase assets that provide cash flow. He calls this “good debt.” If the math works out on the financing of a rental property such that you can increase your monthly cash flow, it’s a worthy debt by Kiyosaki’s standard. Ramsey would warn against such an investment, instead advising cash purchases.
The contrast in attitude toward debt carries over to attitudes toward investment. Ramsey advises readers to invest their money in growth stock mutual funds with a long-term track record of returning around 12%. Investment begins only after all debts aside from a home mortgage have been paid, and the goal is to reach a point where the investor can comfortably live on 8% of the accumulated wealth. Past that point, Ramsey claims you can maintain your wealth in perpetuity, because 8% remains safely below the 12% average growth rate.
Kiyosaki’s advice proves much more aggressive. He focuses less on debt service and more on acquiring assets. By assets, he means things that provide positive cash flow like a rental property or a business. Acquiring such assets is a higher priority for Kiyosaki than clearing debt from the books. That’s because his goal is getting to a point where positive cash flow exceeds monthly expenses, what he calls “escaping the rat race.” Past that point, working at a job becomes optional, and the capacity to resolve debt will develop alongside future assets.
Notably, both men advise maintaining current lifestyles, investing more instead of spending more. Ramsey talks about “the millionaire next door” who drives used cars and lives in a common split-level. Growing wealth doesn’t mean expanding lifestyle, at least not until such time as an investor can afford to expand their lifestyle and continue to grow wealth.
Reading both authors, I come away with the impression that neither is wrong. Their respective advice comes from different perspectives and applies toward different goals. Ramsey’s prescription proves less intimidating and more attainable. Anyone at virtually any income level can apply Ramsey’s ideas to get out of debt and invest toward a dignified retirement. Kiyosaki’s advice requires more ambition. Investing in rental properties and businesses isn’t for everyone, and Ramsey’s mutual fund method enables investors to benefit from the expertise of fund managers.
It comes down to your personality, attributes, ambition, and comfort level. If you want to be rich, Kiyosaki’s advice offers a quicker but riskier path to getting there. If you just want to be secure, Ramsey’s advice will get you there slow and steady. Either way, the path to financial independence winds through perseverance, defiance of convention, and some degree of risk.