Recently I read Robert Kiyosaki’s book, ” Increase Your Financial IQ: Get Smarter with Your Money” which explained his take on core areas of financial intelligence. The concepts were broken down into simple terms and explained well with many stories to illustrate his point of view.

Robert breaks down financial intelligence into 5 main categories:

• Make more money
• Protectyour money
• Budget your money
• Leverage your money
• Improve your financial information

This is a straightforward idea that the general population already seems to know and understand well. If you make minimum wage, then it’s fairly simple to understand that if you increased your earning capacity to make more money, you’d be better off financially. How you would go about increasing your money making ability comes down to becoming more valuable by learning in-demand skills that employers and clients are willing to pay top dollar. This is basically the advice most parents give to their kids, and why they want you to become a doctor, lawyer or engineer. These parents understand that these professions are highly in-demand and thus will always pay well.

Summary: Learn in-demand skills that people are willing to pay top dollar

Here’s where the book gets interesting. Making more money is one thing but what’s the point if you’re paying half of it in taxes. Robert argues that understanding that employees are taxed at the highest brackets because they are solely benefiting from and thus have to contribute the most to paying taxes. However, if you understand that the government rewards, through tax incentives, entrepreneurship (providing housing, jobs, healthcare and services) you can benefit from many tax advantages the government provides entrepreneurs and risk takers.

For example, in Canada, if you purchase a rental property and provide housing for people, the government allows you to deduct interest on your mortgage, condo fees, maintenance expenses, depreciation of the property, and property taxes from your taxable income.

There are many tax advantages available to you, it would be wise to speak to professional tax accountants and advisors on the calculated risks you could take to minimize your tax liabilities.

Summary: Familiarize yourself with what sources are depleting your income and come up with a plan to minimize your exposure. Speak with tax professionals and learn the basics on tax laws in your country.

Let’s take the following example:

	Person A	Person B
Income (per month)	$3,000	$6,000
Living Expenses	$2,000	$3,000
Entertainment Expenses	$200	$2,500
Savings (per month)	$800	$500

From this example you can probably infer that Person B lives a bit more of a lavish lifestyle. A nicer house and car amongst other luxuries. Additionally, we can see that the monthly entertainment expenses are also much higher for Person B.

Now, neither Robert nor myself advocate living like a complete monk lifestyle, forgoing your favorite coffee and other small pleasures. However, the idea is to realistically assess what expenses you can cut back on and how you can maximize your savings.

Following are three broad categeories that will help you budget:

• Housing Costs: Rent, Mortgage, condo fees, property taxes, home/renter insurance, Electricity etc.
• Living Costs: Food, Education, Phone, Internet etc.
• Entertainment Costs: Everything else (non-essential) etc.

*The Entertainment Costs and Living Costs are the areas of spending that usually have the greatest amount of potential savings when you analyze your spending and determine the essentials from the non-essentials.

Summary: Assess your budget and maximize your savings.

Financial leverage refers to the use of debt to acquire additional assets. The use of financial leverage to control a greater amount of assets (by borrowing money) means the returns on your cash investment is multiplied. Using your money to make more money is also known as multiplying your money.

An example of this is when you use $50,000 to take out a $200,000 / 25 yr (amortization period) mortgage to purchase a house valued at $250,000. Now let’s say you rent your house out for 25 years and we’ll assume the rent covers all your expenses and you break even.

This means that in 25 years, even though on the surface the house didn’t produce any cash, you now have a house that you own ($250,000) but in reality because of home appreciation, the house is probably worth more!

By investing $50,000 initially, in the future you now have a house valued much higher that is paid off. At the bare minimum, without appreciation, you have $250,000. That’s a 5X return on your initial investement.

With leverage comes risk, most beginners tend to jump into leveraging their money before achieving a solid financial base. Once your basics are down pat, definitely look into ways of multiplying your money and making it work for you.

The world is constantly changing. Being well informed and understanding your environment is important in being a savvy investor. Arming yourself with the latest information, trends and social behaviors will greatly improve the quality of the decisions you make.

Summary: Continuously work towards learning and improving the quality of your financial information that will then help you with all other steps.