INTRODUCTION
“Rich Dad Poor Dad” by Robert Kiyosaki is a seminal book on personal finance and wealth-building that challenges the traditional views on money and investing. We’ve all heard the saying – “Study hard and get good grades and you’ll find a high-paying job with great benefits.” This has become a norm to look at someone and decide if they are successful or not in life. Robert Kiyosaki was someone who didn’t want to play it safe. Instead, he chose to be smart by preparing, getting educated, and used financial literacy to get rich.
WHO SHOULD READ THIS BOOK
“Rich Dad Poor Dad” is a book for aspiring entrepreneurs, individuals striving to escape the 9-5 grind, young adults, parents, educators who want to achieve financial independence, real estate investors, and anyone seeking to improve their financial literacy and build wealth.
SUMMARY AND KEY TAKEAWAYS
Robert Kiyosaki mentions about two important people in his life – a Rich Dad and a Poor Dad.“Rich Dad” is his friend Mike’s father who didn’t go to college but accumulated wealth by learning “how money works” and how to make it work for him. He refers to his own dad as “Poor Dad” – someone who went to college, worked for the government – and paid taxes but was still poor.
Their thought process allowed Robert to have different perspectives about money. Poor Dad would always say, “I’ll never be rich, I’m not interested in money, Rich should pay more taxes, etc.” On the contrary, Rich Dad would often say, “Money is Power, referred to himself as rich even after a financial setback, I don’t work for money – money works for me!”
This made Robert adopt thoughts of his Rich dad instead of his poor dad. Robert wanted to get rich by studying money, sales, assets, liabilities, etc. He refers to this as “Financial Education” – with it, you can gain power over money and accumulate wealth.
Robert and Mike (his friend) wanted to get rich – so they went to Mike’s father (A.K.A. the Rich Dad) to learn. He asked them to work in his store for 10 cents per hour initially – in exchange for teaching them how to get rich. After a few weeks went by, Robert was furious – he was not getting any money (or) was learning anything about getting rich. So, they decide to confront his Rich Dad about how he’s exploiting them. He told Robert that he was teaching them how “life pushes all of us around. Some give up. Others fight. It means they need and want to learn something in life. Most quit and only a few fight.”
Then, Robert asks, “What will solve the problem of living paycheck to paycheck?”. Rich Dad replies, “What’s between your ears solves the problem – thinking with your head.” If you use it well – you’ll grow into a rich man.
“If you realize that you are the problem – you can change yourselves, learn something new and grow wiser. It’s easier to change yourself than everyone else.”
LESSON – 1: THE POOR AND MIDDLE-CLASS WORK FOR MONEY. THE RICH HAVE MONEY WORK FOR THEM
“People desire money for the joy they think it can buy. But the joy that money brings is often short-lived, and they soon need more money for more joy, more pleasure, more comfort, and more security. So, they keep working, thinking money will soothe their souls that is troubled by fear and desire. But money cannot do that.”
“The main cause of poverty or financial struggle is fear and ignorance, not the economy or the government or the rich. It is self-inflicted fear and ignorance that keeps people trapped.”
LESSON – 2: WHY TEACH FINANCIAL LITERACY?
Rich Dad suggests that everyone must know the difference between an asset and a liability and buy assets.
“Rich people acquire assets. The poor and middle-class acquire liabilities, but they think they are assets (like their home, etc.).”
“Asset” is something that puts money in your pockets, whereas “liability” takes money out of your pocket. Numbers distinguish between assets and liabilities.
The rich are rich as they are more literate in areas like accounting, distinguishing between an asset and a liability. For someone to become rich and accumulate wealth, financial literacy (words and numbers) is really important.
ASSETS are stocks, bonds, notes, real estate, etc. LIABILITIES are loans, credit cards, etc.
The financial statement/cash flow pattern of the rich is why they get richer. The asset column generates more than enough income to cover expenses, with the balance getting reinvested into the assets column. The poor and middle class buy liabilities like houses, cars, etc. which don’t generate income. Which in turn spirals down to debt to pay every month, keeping them poor.
“Wealth is a person’s ability to survive so many number of days forward or if I stopped working today, how long could I survive? This could define your goals of what financial independence is.”
“Wealth measures how much money your money is making and therefore, your financial survivability.
WEALTH is the measure of cash flow from the asset column compared with the expense column.
NET WORTH – the difference between your assets and liabilities.
LESSON – 3: MIND YOUR OWN BUSINESS
To become financially independent and rich, one needs to mind their own business i.e., increasing your assets column.
Assets would include:
- Businesses that do not require your presence.
- Stocks
- Bonds
- Mutual Funds
- Income-generating real estate
- Notes (IOUs)
- Royalties – music, books, podcasts, etc.
Instead of buying luxuries like a car, home, etc., on credit – it would be better to acquire assets first that pay for the luxuries themselves. This is what Robert refers to as smart.
LESSON – 4: THE HISTORY OF TAXES AND POWER OF CORPORATIONS
The poor and middle class are the heavily taxed people. The rich have workarounds and leverage tax advantages to get richer like corporations. Corporations are just a legal document that creates a legal body that protects the rich. There are certain expenses that can be paid with pre-tax dollars within the corporation instead of post-tax money.
“The 1031 section of the Internal Revenue Code allows a seller to delay paying taxes on real estate that is sold for capital gains through an exchange of a more expensive piece of real estate. You won’t be taxed on gains until you liquidate. Rich take advantage of it.”
One of the important realizations or eye-openers in this book was from this quote – “The poor and middle-class pay the price of taxes by working from January to mid-May in a year.”
The Rich with corporations People who work for corporations
- Earn 1. Earn
- Spend 2. Pay Taxes
- Pay Taxes 3. Spend
Financial IQ comes from 4 areas of expertise:
- Accounting: Ability to read financial statements & find strengths and weaknesses of a business.
- Investing: This is science of money-making money.
- Understanding markets: Supply vs demand. Does an investment make sense or not in the prevailing market conditions?
- Law: Knowledge of tax loopholes and corporations to protect from lawsuits and take tax-advantages like 1031, Roth IRA, HSA etc.
Robert recommends owning your own corporation’s wrapper around your assets.
LESSON 5 – THE RICH INVENT MONEY
Robert quotes that “it was the excessive fear and self-doubt of people due to which they fail to take action. Often in the real world, it’s not the smart people that get ahead but the bold. ACTION always beats INACTION.
Financial Intelligence is basically how creative you are in solving financial problems. Your mind can be trained like your body. A trained mind can create wealth which lasts for generations. On the contrary, an untrained mind can create extreme poverty.
There is risk involved in almost everything, so learning and training your mind to manage risk is a highly valuable asset instead of avoiding risk. Personally, I feel being equipped with knowledge about various aspects of finances and market would put you in a good spot when analyzing investments.
LESSON 6 – WORK TO LEARN – DON’T WORK FOR MONEY
Robert refers to 3 management skills needed for success:
- The management of cashflow.
- The management of systems (including yourself and time with your family)
- The management of people.
“The better you are at communicating, negotiating and handling your fear of rejection, the easier life is.”
There are obstacles in everyone’s life which stop them from building wealth.
- Fear
- Cynicism
- Laziness
- Bad habits
- Arrogance
CONCLUSION
“Rich Dad Poor Dad” by Robert Kiyosaki is a thought-provoking book which advocates for a mindset shift when it comes to money. It challenges traditional beliefs and encourages readers to take control of their financial future through education, asset building, and strategic investing through timeless principles and practical advice.
QUOTES
- “Criticism blinds people while analysis opens eyes. Analysis allowed winners to see that critics were blind, and to see the opportunities that everyone else missed. And finding what people miss is key to any success.”
- ARROGANCE = EGO + IGNORANCE
Many people use arrogance to try to hide their own ignorance. When you know you are ignorant in a subject, start educating yourself by finding an expert in the field or find a book on the subject. - “People who hurry and catch a wave late usually are the ones who wipe out. Smart investors don’t time markets. If they miss a wave, they search for the next one and get themselves in position.”
- “Wise investors buy an investment when it’s not appropriate. They know their profits are made when they buy, not when they sell. They wait patiently.”
- “People who have low self-esteem and low tolerance for financial pressure can never be rich.”
- “Wise investors must look at more than ROI, it’s the assets you get for free once you get your money back. This is Financial Intelligence.”
- “To be the master of money, you need to be smarter than it. Then money will do as it is told. It will obey you. Instead of being a slave to it, you will become the Master of It. “
- “Small thinkers don’t get the big breaks. If you want to get richer, think bigger first.“
- “The idea that it takes money to make money is the thinking of financially unsophisticated people. It does not mean that they’re not intelligent. They have simply not learned the science of making money.“
- “Education and wisdom about money are important. Start early.”
- “Learn to have money work hard for you and your life will be easier and happier. Today, don’t play it safe, play it smart.”
- “With each dollar bill that enters your hand, you and only you have the power to determine your destiny. Spend it foolishly, you choose to be poor. Spend on liabilities, you join the middle-class.”
- “Invest in your mind and learn how to acquire assets and you will be choosing wealth as your goal and your future. “
- “The choice is yours and yours only. Everyday with every dollar, you decide to be rich, poor or middle class.”
