The Five Financial IQ’s
So, let’s uncover the five key aspects of financial IQ!
Excited to learn? But first, let’s differentiate between financial intelligence and financial IQ.
According to Robert, financial intelligence is the part of our mental intelligence we use to solve financial problems. Financial IQ is the measurement of that intelligence; it is how we quantify our financial intelligence.
To make this concept clearer, Robert provides an example:
If someone earns $1,00,000 and pays 20 percent in taxes, they have a higher financial IQ than someone who earns the same amount but pays 50 percent in taxes.
Now, let’s explore the five components of financial IQ:
- Making more money
- Protecting your money
- Budgeting your money
- Leveraging your money
- Improving your financial information
These five financial IQ are the benchmarks for assessing financial intelligence!
Financial IQ 1: Earning more money
Robert believes that most of us possess the intelligence to make money. However, the difference lies in how we handle taxes. If two individuals each earn $1 million annually, but one pays less in taxes, that person has a higher financial IQ because they’re closer to achieving financial stability by using their financial IQ effectively.
Financial IQ 2: Protecting your money
It’s well-known that some people excel academically but struggle financially, similar to Robert’s “poor dad.” He explains, “One of the biggest financial predators of our money is taxes., as the government legally takes our money.”
If someone has a low Financial IQ 2, they end up paying more in taxes. Conversely, those who pay less in taxes demonstrate a higher financial IQ.
Financial IQ 3: Budgeting your money
Robert highlights that “Managing your money requires a significant amount of financial intelligence. Many people manage their money like someone with a “poor mindset rather than a wealthy one.”
For instance, a person who earns and spends $70,000 annually has a lower Financial IQ #3 than someone who earns $30,000, lives comfortably on $25,000, and invests the remaining $5,000. Building a surplus is something that requires careful financial planning.
Financial IQ 4: Leveraging your money
This aspect is measured by your return on investment. While many believe that higher returns require taking on more risk, this is not necessarily true. Later in this book, he’ll reveal how he achieved outstanding returns while keeping his costs low.
In his view, relying on a diversified mutual fund portfolio and bank savings is far riskier than his approach. It all comes down to financial intelligence.
So, what is Financial IQ 5?
Improving your financial information—what does it really mean?
